MUMBAI ICICI Bank Ltd (ICBK.NS) sees the amount of corporate defaults rising in coming quarters as borrowers succumb to the pressures of a sluggish economy which has already pushed profit growth to a four-year low.
India's biggest private sector lender by assets, like rivals HDFC Bank Ltd (HDBK.NS) and Axis Bank Ltd (AXBK.NS), has had to contend with a wave of defaults over the past year by companies struggling with h igh interest rates.
As a result, banks have been reducing their reliance on corporate lending and opening branches in new regions to stimulate demand for consumer home and car loans.
That shift helped ICICI on Wednesday report October-December net profit of 25.3 billion rupees compared with the 24.6 billion rupee mean estimate of 23 analysts polled by Thomson Reuters I/B/E/S. The growth rate, at 12.5 percent, was the slowest since December 2009.
Net interest income, or the difference between interest earned and paid, rose about 22 percent to 42.6 billion rupees.
Net non-performing loans as a percentage of total assets rose to 0.94 percent from 0.76 percent, primarily because of corporate defaults. The industry average is 2 percent.
"Given the challenging operating environment, we continue to see additions to non-performing assets and restructured assets," Chief Executive Chanda Kochhar told reporters on a post-earnings call, referring to "the next couple of quarters."
Profit also took a knock from tax expenses rising 45 percent to 12.1 billion rupees, and because the bank almost doubled the amount of funds it sets aside for bad debt, Kochhar said.
Shares of ICICI, with a market value of $18.6 billion, ended down 1.7 percent on Wednesday compared with a 0.1 percent decline in the Sensex.
GRAPHIC: ICICI Bank's loans: link.reuters.com/dyr46v
PAST ITS BEST
ICICI's earnings have exceeded analyst estimates in each quarter over at least the past two years. Of 50 analysts tracking the bank, 44 recommend or strongly recommend buying its shares, according to Thomson Reuters Starmine.
The remaining six advise investors to stick with their current ownership, as some expect revenue growth to slow in coming quarters and credit costs to rise.
"We believe the bank is past its best in earnings, at least in the medium term," Kotak Securities banking analyst M. B. Mahesh said this month in a research note.
Net interest margin, a gauge of profitability, is likely to narrow because of the switch in focus to retail lending, said Mahesh, who currently recommends buying the stock.
ICICI, which has 3,588 branches across the country, lent 22 percent more funds to retail consumers in the third quarter than a year earlier, mainly for home and car loans. Lending to companies grew 7 percent.
The bank's net interest margin grew to 3.32 percent from 3.07 percent, higher than an industry average of around 3 percent and a level Kochhar expects the bank to maintain.
(Reporting by Swati Pandey; Editing by Christopher Cushing)