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ICICI Bank reported a crore loss of Rs 120 in the first quarter of fiscal year 19 on significantly higher provisions and lower cash income. However, core performance remained healthy with operating profit before provisions up 17% YoY.
With a new successor to help, the result seems to be similar to that of a public sector bank where a change direction leads to an act of cleansing. With a large portion of the problem badets already recognized up to FY18, slippages or gross additions to non-performing badets (NPAs) were limited in the first quarter. Management has increased provisions on bad debts. While the profit and loss account has bled, the balance sheet has been strengthened. This appears to be in line with the previously announced target of management to improve the provisioning coverage ratio (ROE) to 70% by June 2020.
The bank experienced difficulties in recent years with the accumulation of bad debt. out of his corporate exhibition. Although the toughness of badet quality may persist in the short term, and fiscal year 19 may remain a year of consolidation due to higher credit costs, we expect the published figures to be positive. significantly improve with respect to the year 20. With the trading of shares around 1 times FY20th pound, current valuations seem to be pricing in concerns. Investors should use this consolidation as an opportunity to invest long term
Quarterly a glance
Net interest income (the difference between interest and expenses) increased by 9% in year-over-year. by a slight contraction of the margin. The decrease in the net interest margin (NIM) to 3.19% is due to the compression of margins in the international portfolio. In the future, management hopes to maintain a margin since any increase in costs will be reflected in an increase in marginal cost-based lending rates (MCLRs).
The bank's cash income was negatively affected by the losses of Rs 219 crore in the investment book while a gain of Rs 1,110 crore on the sale of the stake in ICICI Prudential Life Insurance provided a cushion. Fee income growth was healthy at 16% driven by retail sales charges (75% of total).
The growth of operating expenses was contained at 9%. As a result, basic operating income before provision (excluding exceptional cash income) increased by 17% year-on-year. Provisions increased by 129% when the bank made additional provisions on the aging of the NPAs. The doubling of provisions significantly improved the provision coverage ratio to 66.1% from 55.2% a year ago, resulting in a net loss for the quarter.
Retail trade continues to stimulate loan growth; Strong growth of the ACSA is a competitive advantage
Overall growth was 11% year-on-year, with 15% growth in the domestic loan portfolio partially offset by a 9% decline in loans International. The focus on retail lending has allowed ICICI Bank to grow its domestic lending portfolio ahead of the system, despite the cyclical weakness of the large business segment. Retail badets grew 20% year-over-year, while business loan growth was moderate at 4.9%.
In recent years, the bank has regularly diversified and reduced its portfolio of badets. Retail trade now accounts for 58% of the bank's total loan portfolio compared with 37% at the end of March 2015. The proportion of international loans has continued to fall, standing at 12.5% against 25.3%. % at the end of March 2015.
The pbadive performance continues to be impressive. Global deposits increased 13% year-over-year, driven by continued growth in short-term deposits in current account and savings (CASA), which increased 16%. The cost of credit remained high during the year 19
. Gross shifts to NPAs which climbed in the fourth quarter of the previous fiscal year to Rs 15,737 crore, were reduced in the first quarter to Rs 4,036 crore. which was very encouraging. Most of the slippage has accumulated in the developer's book segment and in the agriculture book segment. Due to controlled slippage and higher provisioning, gross and net NPAs decreased in the first quarter to 8.81% and 4.19%, respectively, at the end of June.
The bank's exposure to Lists 1 and 2 (NCLTL) rose to Rs 4,059 crore and Rs 9,292 crore, respectively. By the end of June, the value of PCR on both lists was 88% and 61% respectively.
Management provided a set of loans to businesses and small and medium-sized enterprises (SMEs) rated BB and less than 24,629 crores. 4.8% of the loan portfolio), which can lead to potential stress. This is considerably higher than the pool of stress badets of Rs 13,365 crore reported in the previous quarter. Beyond the stress pool reported in the fourth quarter of fiscal year18, the bank expects additional exposure of SMEs to about 12,138 rupees. , the large number of stress-related loans makes us cautious in the short term. An attempt to directionally increase the PCR ratio on the targeted 70% by June 2020 will maintain high credit costs during fiscal year 19. As such, we are expecting a mild year for FY19.
Attractive valuations at current levels In the fourth quarter of fiscal 2011, management articulated its strategy that it aims to achieve in June. 2020. 15%, while maintaining the provision at more than 70% in June 2020.
With its vision of 2020, investors should expect a much lower NPA formation and a credit cost standardized in FY20, mid-teen. Loan growth, stable interest margin and the beginning of the trip to reach 15% RoE. With a strong capital adequacy (Tier 1 capital ratio of 15.84%), we do not see many constraints in achieving its objectives. The impact of the implementation of Ind-AS from April 2019 on credit costs and profitability is unclear.
With a potential improvement in return rations, the current valuation of his main book at 1 FY20e P / BV seems convincing. While badet quality issues have not completely disappeared, the risk / return ratio is extremely favorable. In fact, ICICI Bank trades at a price that is 30-40% lower than that of its closest lending institution, which also faces badet quality issues and uncertainties about imminent changes in management. "width =" 795 "height =" 514 "/>]
While the lower shifts help to partially quell investors' concerns about badet quality, the first quarter results of the first quarter of fiscal year ICICI Bank does not decisively lift the cloud of uncertainty Markets may have to wait a few more quarters for a clear sky The disappointing results as well as the ongoing investigation into the alleged misconduct of the The bank's chief executive officer and chief executive officer will constitute a short-term surplus for the stock.No long-term investors should use the languishing stock price as an opportunity to accumulate the stock. 19659002] Follow @ nehadave01
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