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Sound credit growth driven by consumer banking; improvement in credit quality

Result and Price Analysis

Earnings in 3QFY22 re-acknowledge our conviction that ICICI Bank is preparing for sustainable and prudent growth led by tech-driven initiatives and normalization in credit cost. The bank has reported its 3QFY22 results with the key pointers being: 1) Strong NII growth of 24% YoY, with headline NIMs (Domestic: 4.1% & Overall: 4%) stable sequentially despite higher liquidity available (LCR: 130%). 2) PPoP growth of 2.4% sequentially driven by higher core fee income, 3) Reported slippages (₹40bn) lower sequentially, gradually reaching pre-covid levels. 4) NNPA ratio stable at 0.99%, 5) PCR (excluding technical write-offs) stood at 80.1%. The Bank made no additional covid provision. However the bank didn’t include covid & floating provision (~₹150bn) in PCR calculation; 7) Contingent provision (excluding PCR) stood at 1.97% of the loan book, 8) BB & below exposure stood flat at 1.7% of net advances, 9) the bank’s net advances grew by 16.4% YoY and 6.4% sequentially; and 8) deposits crossed ₹10tn mark and grew by 5.5% QoQ with 80bps improvement in average CASA at 44.9%. Moreover, the credit cost of 99bps for the quarter. Factoring stable balance sheet growth and credit cost of 1.25% in FY22E, we estimate the bank’s ROA and ROE of 1.9% and 15.4% respectively. We have positive outlook on the bank with BUY rating.

Gazing the Core:

Asset quality improved further, restructuring book flat: Slippages were down at ₹40bn v/s ₹56bn in the previous quarter. Retail slippages and Corporate & SME slippages contributed 96%, and 4% respectively. Despite significant contribution, retail slippages down 17% sequentially. The standard restructured (1.2% of portfolio) book stood flat sequentially at ₹97bn. Retail book contributed 67% of restructured pool (Over 95% are secured), where rest is from corporate and SME book. The bank carries provision worth ₹24bn (25% covered) against the restructured pool. The absolute GNPA decreased by 11% sequentially led by lower slippages and higher write-offs. As on 3QFY22, the bank’s GNPA/NNPA/PCR stood at 4.13%/0.85%/80% against 4.82%/0.99%/80% in the previous quarter. The bank witnessed significant reduction in GNPA ratio as well as the NNPA. With moderation in stress, the total provisioning expenses down sequentially and stood at ₹20bn v/s ₹27bn in the previous quarter.

The bank didn’t make additional covid provision this quarter; the total covid provisioning stood ₹64.3bn. The total additional provision contain covid provision (₹64.3bn), General Provision (₹52bn) and Provision on Non-fund based NPA (₹19bn). The PCR including all provisions (Cumulative + Covid + General + Contingencies) stood at 123% of GNPL. The contingent provision (excluding PCR) stood 1.97% of the loan. The management expects the standard asset contingent provision to be adequate for facing any stress emerging from the restructuring and also expects credit cost normalization to 1.2% - 1.3%. The bank’s BB & below rated pool came down (₹118bn v/s ₹127bn) contributes 1.5% of total customer assets.

Superlative operating quarter: The bank’s quarterly NII stood at ₹122bn; grew by 24% YoY and 5% sequentially driven by flat domestic NIMs at 4.06%. Overall NIMs flat at 4%. *Non – interest income* grew by 4% sequentially because of higher fee income; 13% sequentially. The PPoP stood at ₹101bn; grew by 2.4% sequentially. With sequentially lower provisioning expenses (₹20bn v/s ₹27bn) the bank reported PAT of ₹62bn; grew 25% YoY and 12% sequentially. The banks ROA/ROE stood at 1.9%/15.4%. The quarterly ROE crossed 15% after a decade.

Sound credit growth led by retail book: With the increase in economic activity; disbursement across retail products increased substantially and better than pre-covid levels. The bank’s advances stood at ~₹8.1tn; 16.4% YoY and 6.4% QoQ. Domestic advances grew 18% YoY. Domestic advances (95% contribution) grew by 6.5% QoQ. Foreign advances grew by 5% QoQ. Retail advances (68% contribution) grew by 5.4% QOQ. SME advances (4.5% contribution) grew by 10% QoQ. Corporate advances (23% contribution) grew by 6% QoQ. In retail book; Personal loan & Credit card segment (14% of retail book) grew at 10.1% sequentially. 85% of the unsecured retail book customers are salaried. Home loan (50% of retail book) grew by 5.1% QoQ where Vehicle loan (12% of retail book) grew by 3.5% QoQ. Bank’s deposit crossed ₹10tn mark and grew by 16.4%YoY, 5.5% sequentially. The Avg. CASA inched up 80bps to 44.9%.

Outlook & Valuations

We expect its loan book to grow at CAGR of 19% over FY21-23E, led by technology initiatives. The credit cost normalization is underway. We estimate return ratio ROA/ROE of 1.9% and 15.8% in FY22E. We value the standalone entity at 3.3xFY23E BVPS (₹278) and investment in subsidiaries and JVs (₹127 per share); we arrive at a revised target price of ₹1,045. We recommend a BUY with a potential upside of 30%.

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