Zacks_Analysts' Blog : ICICI Bank's Profit Escalates in Q3 - Analyst Blog

ICICI Bank Limited’s (IBN) fiscal third-quarter 2012 (ended December 31, 2011) profit came in at INR17.28 billion (US$325 million), reflecting a 20% rise from INR14.37 billion (US$271 million) in the year-ago quarter.

Results in the quarter improved primarily due to higher net interest income, fee income and a fall in loan loss provisions. Further, asset quality continued to show signs of betterment and capital ratios remained strong. However, higher operating expenses were the downside.

Performance Details

ICICI Bank’s net interest income surged 17% year over year to INR27.12 billion (US$511 million) from INR23.12 billion (US$435 million) reported in the prior-year quarter. Similarly, the company’s fee income also improved 5% year over year to INR17.01 billion (US$320 million) from INR16.25 billion (US$306 million).

Operating expenses for the quarter totaled INR18.70 billion (US$352 million), up 11.5% year over year. The increase was primarily a result of the enhanced branch network.

ICICI Bank has the largest branch network among private sector banks in India. As of December 31, 2011, the bank had 2,552 branches and 6,913 ATMs.

Provisions for the reported quarter declined 37% year over year to INR3.41 billion (US$64 million).

As of December 31, 2011, ICICI Bank’s total advances were INR2,461.57 billion (US$46.3 billion), rising 17% from INR2,066.92 billion (US$38.9 billion) at December 31, 2010.

As of December 31, 2011, ICICI Bank’s savings account deposits totaled INR734.98 billion (US$13.8 billion), while current account deposits were INR400.39 billion (US$7.5 billion). Moreover, as of December 31, 2011, the current and savings account (CASA) ratio decreased to 43.6% from 44.2% as of December 31, 2010.

Asset Quality

ICICI Bank witnessed a continuous improvement in asset quality during the reported quarter. As of December 31, 2011, net nonperforming assets were INR20.82 billion (US$392 million) shrinking 28% from INR28.73 billion (US$541 million) in the prior-year quarter. Also, the bank's net nonperforming asset ratio stood at 0.70%, declining 46 basis points from the year-ago period.

Capital Ratios

As per the Reserve Bank of India's Basel II norm, ICICI Bank's capital adequacy was 18.88% and Tier-1 capital adequacy was 13.13% as of December 31, 2011, well above the requirements of 9.0% and 6.0%, respectively.

Peer Performance

HDFC Bank Ltd.(HDB) reported fiscal third-quarter 2012 (ended December 31, 2011) net profit of INR14.30 billion (US$0.26 billion), up 31.4% over the prior-year quarter. The results improved mainly due to a strong growth in net revenue and a decline in provisions and contingencies. However, these were partially offset by higher operating expenses.

Our Take

We anticipate continued synergies from ICICI Bank’s increased dependence on domestic loans, almost stable funding base, improving asset mix and enhanced pricing power. Nevertheless, we are concerned about the company’s highly competitive operating environment and below-average credit quality.

ICICI Bank currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.