ICICI Bank met expectations with a 17 per cent rise in quarterly net profit, and forecast 15 per cent credit growth in the year to March 2011 as loan demand from corporate and mortgage borrowers remain strong.
Indian banks such as ICICI, India's No 2 lender, and top lender State Bank of India, are seeing an improvement in asset quality as consumer loan defaults slow in an economy forecast to grow about 8.5 per cent in this fiscal year.
"On the balance sheet side, the growth has started. We are seeing growth on our loans and advances," Chief Executive Chanda Kochhar told reporters.
"The loan growth is going to come from both retail and corporate."
Bank credit in India grew an annual 21.7 per cent in early July, according to central bank data, in tune with a rise in business and consumer confidence, from a low of 9.7 per cent last October and compared with 16.7 per cent at end-March.
The central bank sees non-food credit growth at 20 per cent in 2010/11, still a far cry from growth rates of above 30 per cent in the pre-crisis period.
Kochhar said that ICICI expected 20 per cent domestic credit growth in this fiscal year, in line with the central bank's forecast, and including the international book the overall loan growth would be about 15 per cent.
"The growth in the international book will be slower than the growth in the domestic book. That is how the economy is shaping up," she said.
A hike in lending rates by ICICI Bank was "quite possible" after the recent monetary tightening by India's central bank, Kochhar said, but declined to comment on how soon the private sector lender would revise the rates.
The bank has raised rates on deposits by 25-75 basis points, depending upon the tenure, effective from Saturday, she said.
The Reserve Bank of India raised rates more than expected on Tuesday to fight inflation that is on track to hit double digits for a sixth straight month, setting the stage for more policy tightening.
A sharp rise in interest rates could derail demand for loans, especially from mortgage borrowers, analysts say.
ICICI said its net profit in April-June rose to 10.26 billion rupees ($221 million) from 8.78 billion rupees a year ago. Net interest income, the difference between interest earned and interest paid, rose by 0.3 per cent to 19.91 billion rupees.
A Reuters poll of analysts had forecast net profit of 10.30 billion rupees on net interest income of 20.24 billion rupees.
The loan book rose nearly 2 per cent from the March quarter to 1.84 trillion rupees at the end of June.
Its net interest margin, a key measure of profitability, was at 2.5 per cent at end-June from 2.4 per cent a year ago, and Kochhar said the bank expected to hold on to margins at this level for the rest of the year.
The net bad loans ratio dropped to 1.62 per cent at end-June from 2.19 per cent a year ago.
The bank's fee income rose 7 per cent to 14.13 billion rupees in the June quarter.
HDFC Bank, India's second-largest private sector lender, earlier this month reported its strongest profit growth in more than a year.
Shares in ICICI Bank, valued at nearly $22 billion, have risen 3 per cent this year, roughly in line with a 2 per cent gain in the main Mumbai market but underperforming a 15 per cent jump in the sector index.