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ICICI's Q4 net falls below expectations

business Updated: Apr 28, 2011 16:31 IST

ICICI Bank reported its strongest quarterly profit growth in at least seven years and signalled further improvement in asset quality.
The No. 2 Indian lender maintained its loan growth target of 20% for this fiscal year that started on April 1 on strong corporate and retail credit demand in a fast-growing economy, Chief Executive Chanda Kochhar said.

ICICI, which reported a 44-% jump in fourth quarter profit, and its rivals State Bank of India and HDFC Bank are seeing an improvement in asset quality as positive business sentiment help lower loan defaults.

But a series of interest rate increases by the central bank in Asia's third-largest economy to tame stubbornly high inflation has triggered concerns about the loan growth outlook at leading Indian banks.

"The rate hikes will put some pressure on the banks in the near term," said Stefan Hagman, a Stockholm-based portfolio manager with Handelsbanken Intia, which owns shares of State Bank, ICICI and HDFC Bank in its portfolio.

"I still expect the banking sector's credit growth to touch 20 % this year despite increase in interest rates because the working capital requirement of Indian companies remains very strong," he said.

ICICI shares, valued at nearly $29 billion, closed up 0.5 %, while the Mumbai market and the banking sector index both fell 0.8 %.

The central bank is seen raising rates by a quarter point on May 3 and analysts now expect it to raise rates by a total of 75 basis points for the rest of 2011, or 25 bps more than they expected in mid-March, a Reuters poll showed.
Headline inflation in India was at nearly 9 % in March, far above forecasts, on higher fuel and manufacturing prices, adding pressure on the central bank to take bolder action despite eight rate rises since mid-March 2010.
"If you look at the consumption pattern and the investment pattern in the country one could target even higher credit growth," Kochhar said.

"But I am saying even given the fact that interest rates are on a rise, the industry would grow anywhere around 20 % and we will grow at the industry growth rates," she said.

Bank loans in India rose 22 % on the year as of April 8, the central bank's latest weekly statistical supplement data showed, slowing from an annual 24.4 % rise as of Dec. 31 last year.

The New York-listed ICICI said its net profit in January-March, its fiscal fourth quarter, rose to 14.52 billion rupees ($328 million) from 10.06 billion reported a year earlier.

The profit was hit by treasury loss of 1.96 billion rupees and increase in operating costs, and Kochhar said the expenses were expected to remain high as it gives 12 % wage hikes this year compared to 8 % last year.

Net interest income rose 23 % to 25.10 billion rupees.

A Reuters poll of analysts had forecast net profit of 14.89 billion rupees on net interest income of 23.75 billion rupees.
ICICI said its advances grew 19 % to 2.16 trillion rupees as of end-March. The bank's net non-performing asset ratio dropped to 0.94 % from 1.87 % a year ago, signalling an improvement in asset quality.

Net interest margin, a key gauge of profitability, was at 2.7 % in the fourth quarter, and Kochhar said that the bank would focus on maintaining the margin at the same level this year.

Provisions for bad loans fell 61 % to 3.84 billion rupees and the bank expects further drop this year as pace of bad loans pile up slows. Fee income in the quarter rose 18 % to 17.91 billion rupees.

India's third-largest lender, HDFC Bank, last week exceeded estimates with a 33 % rise in quarterly profit and said it expected credit demand to rise more than 20 % in this fiscal year that started on April 1.

Top lender State Bank of India is expected to report a 30 % rise in net profit on May 17. ($1=44.3 rupees)