ICICI Bank Limited’s (IBN) 2011 fiscal second quarter (ended September 30) profit came in at INR12.36 billion (US$275 million), up 18.8% from INR10.40 billion (US$231 million) in the year-ago quarter. Results for the reported quarter include the financials of Bank of Rajasthan from August 13, 2010 to September 30, 2010.
Results in the reported quarter were primarily driven by higher fee income and a substantial decrease in loss provisions. Interest income also improved during the quarter. However, increased operating expenses and lower lease and other income were the downside. Asset quality showed signs of improvement and capital ratios remained strong.
Performance in Detail
ICICI Bank’s net interest income increased 8.3% year over year to INR22.04 billion (US$490.6 million). Fee income increased 14.6% year over year to INR15.90 billion (US$354 million).
Operating expenses increased 11.3% year over year to INR15.35 billion (US$342 million). The increase was primarily a result of enhanced branch network and employee count.
ICICI Bank has the largest branch network among private sector banks in India. At September 30, 2010, the bank had 2,501 branches.
Loss provisions were down 40.2% year over year to INR6.41 billion (US$143 million).
At September 30, 2010, ICICI bank’s total deposits were INR2230.94 billion (US$49.6 billion), up from INR2009.13 billion (US$44.7 billion) at June 30, 2010. Total advances were INR1942.01 billion (US$43.2 billion), up 5.3% from INR1843.78 billion (US$41.0 billion) at June 30, 2010.
As of September 30, 2010, ICICI Bank’s current and savings account (CASA) deposits grew 34.5% year over year to INR981.05 billion (US$21.8 billion). The CASA ratio rose to 44.0% as of September 30, 2010 from 36.9% as of September 30, 2009.
Asset Quality
ICICI Bank witnessed an improvement in asset quality during the reported quarter. Net nonperforming assets were down 30.0% year over year to INR31.92 billion (US$710 million) as of September 30, 2010. The bank’s net nonperforming asset ratio was 1.37%, down 82 basis points from the year-ago quarter.
Capital Ratios
As of September 30, 2010, ICICI Bank’s capital adequacy as per the Reserve Bank of India’s Basel II norm was 20.2% and Tier-1 capital adequacy was 13.8%, well above the requirements of 9.0% and 6.0%, respectively.
Our Take
We are concerned about ICICI Bank’s highly competitive operating environment and below average credit quality. Nevertheless, we anticipate continued synergies from the company’s global syndication network, cost containment measures, improvement in asset mix and enhanced pricing power.
ICICI Bank currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.
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