Asset quality continues to be a worry for ICICI Bank

[sherlyk]

ICICI Bank's asset quality continues to be a drag on its stock performance. On Friday, the country's largest private lender reported a 15 per cent growth in net profit for the quarter ended March, in line with Street estimates. However, an increase in fresh restructuring has dampened hopes of any revival in the current quarter, causing the stock to drop 3 per cent.

During the March quarter, fresh additions to the bank's restructuring book was about Rs 2,156 crore compared with Rs 2,050 crore in the earlier quarter. Although this was lower than the management's earlier guidance, the market was hoping for better results.

In the three months to end-March, the bank made a forex gain of Rs 220 crore through repatriation of retained earnings from abroad. Although this was a one-off gain, which boosted profits, the repatriated equity will allow the bank to grow its domestic business at a decent pace. At the end of March 2014, ICICI Bank had a capital adequacy ratio of 17.7 per cent, one of the best among peers.

During the quarter, ICICI Bank's loan book grew 17 per cent year-on-year, better than the industry average of 15 per cent. The management intends to grow the bank's loan book by 2 per cent above its peers and, given the lender's comfortable capital adequacy ratio, it may be able to achieve it. While ICICI Bank's share has rallied 28 per cent in the past three months, it still trades at a discount compared with its peers.

The stock is currently trading at a price-to-book value (P/BV) of 1.9. In comparison, its peers HDFC Bank and Kotak Mahindra Bank are trading at P/BVs of 3.8 and 2.4, respectively. ICICI Bank's stock has always traded at a discount to its peers due to higher non-performing loans and higher corporate exposure.

At the end of the March quarter, ICICI Bank had gross NPA of 3.03 per cent while HDFC Bank had a corresponding figure of 0.98 per cent of total assets. On the other hand, Kotak Mahindra Bank had gross NPA of 2.01 per cent at the end of December 2013. The economic revival is expected to bring down the concerns on ICICI Bank's asset quality and reduce the valuation gap with its peers.

[aeytovareschskash]

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