The country’s largest private sector lender, ICICI Bank is likely to post a drop in the second quarter profit due to elevated provisions and weak treasury income, yet loan growth could support net interest income. Asset quality is expected to be stable with lower slippages and watch list at the end of the September quarter.

The stock gained 1.8% year-to-date and rallied nearly 11% during the quarter on hopes of early resolution of Insolvency and Bankruptcy Code (IBC) cases.

Experts expect profit drop to be in the range of 35-88 % YoY. The bank reported a loss of Rs 119.6 crore in the June quarter. Analysts see the highest drop of 88% YoY in profit. “They expect muted earnings led by higher provisions for bad loans and weak treasury (base had stake sale of Lombard Insurance)”.

While another analyst expects an earning de-growth on account of higher provisions, base impact (stake sale of Lombard) and elevated provisions. It said profit could drop 58% YoY while one of the analysts expects 35.5% drop.

Research firms expect the operating profit of the bank to decline 15-32% YoY and other income to be lower on muted treasury gains, which are also expected to impact overall profitability.

Let’s have a look at key issues to focus:

1. Net interest income

Net interest income, the difference between interest earned and interest expended, is expected to grow 6-12% during the quarter YoY led by loan growth put pressure on the international book may limit growth.

“NII growth should hold up (12 % YoY) as loan growth improves slightly. Domestic loan growth should be strong continued to be led by retail,” Prabhudas Lilladher said, while Nomura expects NII growth to remain weak YoY at 6% due to pressure on the international book.

2. Loan growth

Overall analysts expect double-digit growth in advances, largely driven by the bank’s retail book.

It has expected loan growth to come in at around 10% YoY. “Corporate loan growth would be moderate and international book would continue declining. Retail loans should continue exhibiting healthy growth”.

Analysts believe that growth should continue to be driven by retail assets. It expects CASA franchise to stay robust.

According to research, there is slightly higher than industry loan growth (12-14 %  YoY) with slight pressure on margin.

3. Asset quality

Asset quality is expected to decline sequentially on fall in slippages, according to research.

“We expect a reduction in gross non-performing loans on the back of resolution of a few more IBC cases as well as write-offs. Watchlist may decline QoQ. Slippages are expected to be sharply lower at around 2.5% of loans”.

One of the experts said gross slippages are expected to moderate from FY18 levels but remain high (3.9% slippage ratio). “Net stress loans stand at 6.8 % of loans and are expected to decline further as incremental stress addition moderates.”

Some also expect slippages to continue to normalise to Rs 4,500 crore and expects some ramp up in provision cover translating to credit cost of 275bps.

One of the analysts sees 19.4% YoY and 39.2 % QoQ decline in provisions while Prabhudas Lilladher expects provisions to fall 6% YoY and 29% QoQ.

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