MOSL: ICICI BANK (Buy)-Asset quality holding well-return ratios to improve gradually

ICICI BANK: Asset quality holding well; return ratios to improve gradually

(ICICIBC IN, Mkt Cap USD35.1b, CMP INR353, TP INR405, 15% Upside, Buy)

• ICICIBC reported 3QFY18 PAT of INR16.5b (26% miss), affected by elevated provisions and weak other income (93% YoY decline in treasury income to INR660m). However, asset quality held stable, despite absorption of full divergence amount – which the bank chose not to disclose as it was < 15% of FY17 GNPL.
• NII growth stood at 6.4% YoY (2.5% miss), as margins shrunk by 13bp QoQ due to a sharp 66bp QoQ contraction in overseas margins to 0.29%. This, coupled with tepid fees, resulted in a 5% YoY decline in total revenue.
• Business growth picked up, with the advances portfolio growing ~5% QoQ (+10.5% YoY), led by continued traction in retail loans (+22% YoY; ~54% of total loans), while the SME portfolio also reported healthy growth. Deposit growth also stood healthy at 11% YoY/4% QoQ, led by healthy traction in CASA deposits. CASA mix, thus, improved by 86bp QoQ to 50.4% (50bp increase on average basis at 45.7%).
• Cost-core income ratio improved by 244bp QoQ, led by a decline in retiral provisions on account of the recent increase in bond yields. This, coupled with tax write-back (lower tax-rate this fiscal on account of capital gains), enabled the bank to make higher provisions of INR35.7b.