Shares of ICICI Bank Ltd fell 0.8% on Monday, at a time when the benchmark Nifty 50 index was wreaking havoc on the broader market with a 2.7% fall. The private lender’s impressive December quarter (Q3FY22) results announced on Saturday protected the stock’s decline.
ICICI did well in the third quarter in many respects. Healthy net interest income (NII) growth, strong fee income and controlled provisions mean that standalone net profit grew by 25.4 percent year-on-year (YoY) 6,194 crore, higher than analysts’ estimates. NII, the difference between earned and spent, increased by 23.4% annually.
see full image
Further, ICICI’s credit growth of 16.4% year-on-year was led by retail, business banking and small and medium enterprises (SMEs), which is noteworthy. However, 96% of the total slippage was contributed by the retail and commercial banking sectors, and is a concern. Analysts at Kotak Institutional Equities said in a report, “Credit growth is still quite sluggish and the recovery is still not uniform. Therefore, we expect some headwinds on revenue (NIM or slower fee income growth) or higher-than-expected operating expense growth. will see.”
ICICI’s NIM (net interest margin) in the third quarter was up about 4%—low 4 basis points (bps) sequentially. One basis point is 0.01%. In comparison, HDFC Bank’s NIM stood at 4.1% in the third quarter.
“It is encouraging that with the combination of improvement in NIM and reduction in credit cost, ICICI Bank has been able to increase its ROA (return on assets) by 1.9% as compared to HDFC Bank’s industry-best level of 2%. “Jefferies India analysts said in a report on January 23.
In addition, the value of financial transactions on digital platforms, InstaBiz for SMEs and business banking grew 68% year-on-year in the third quarter.
Certainly, investors have taken note of ICICI’s consistent earnings distribution over the past few quarters. The stock is up 47% in the past year. Kotak analysts say, “We have observed that the valuation of the bank has expanded rapidly after the initial COVID lockdown. We see further scope for expansion, while we are aware that the bank is trading near its peak valuation. However, it is likely to be gradual and driven by consistent execution rather than any positive surprises on operating metrics here.”
In the short term, credit growth and asset quality remain key monitorables due to sporadic disruptions from the third wave of the pandemic.
Never miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,