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ICICI Bank Limited (IBN - Analyst Report) reported fiscal first-quarter 2014 (ended Jun 30) net profit of INR22.74 billion ($383 million). This was up 25% from the year-ago profit of INR18.15 billion ($306 million).

Results benefited from top-line growth, partially offset by higher loan loss provisions and a rise in operating expenses. Further, though capital ratios remained strong, and loan and deposit balances increased, asset quality deteriorated.  

Performance in Detail

Net interest income grew 20% to INR38.20 billion ($643 million) from INR31.93 billion ($538 million) in the prior-year quarter. Further, net interest margin increased 26 basis points (bps) year over year to 3.27%.

Moreover, non-interest income rose 32% year over year to INR24.84 billion ($418 million).

Operating expenses for the quarter totaled INR24.90 billion ($419 million), up 17% year over year. The increase was primarily due to the bank’s branch-network expansion. ICICI Bank has the largest branch network among private sector banks in India. As of Jun 30, 2013, the bank had 3,350 branches and 10,902 ATMs.

Provisions rose 27% year over year to INR5.93 billion ($100 million).

Asset Quality

ICICI Bank’s credit quality deteriorated. As of Jun 30, 2013, net nonperforming assets were INR24.72 billion ($416 million), rising 11% from INR22.34 billion ($376 million) in the prior-year quarter. The bank's net nonperforming asset ratio was 0.69%, increasing 8 bps from the year-ago quarter.

Balance Sheet

As of Jun 30, 2013, ICICI Bank’s total advances were INR3,013.70 billion ($50.7 billion), rising 12% from INR2,684.30 billion ($45.2 billion) as of Jun 30, 2012. The bank’s savings account deposits amounted to INR888.53 billion ($15.0 billion), while current account deposits totaled INR369.81 billion ($6.2 billion). Moreover, as of Jun 30, 2013, the current and savings account (CASA) ratio was 43.2%.

Capital Ratios

As per the Reserve Bank of India's guidelines on Basel III norm, ICICI Bank's capital adequacy was 17.04% and Tier-1 capital adequacy was 11.72% as of Jun 30, 2013. These were well above the minimum requirements.

Peer Performance

HDFC Bank Ltd.’s (HDB - Analyst Report) fiscal first-quarter 2014 (ended Jun 30) net profit of INR18.44 billion ($0.33 billion) was up 30.1% from the prior-year quarter. An increase in both net interest income and fee revenues were the positives for the quarter. However, these were partially offset by higher operating expenses. Moreover, the company reported significant increases in deposits and loans, while credit quality was a mixed bag.

Our Take

We anticipate continued synergies from ICICI Bank’s high dependence on domestic loans, almost stable funding base, improving asset mix and enhanced pricing power. However, we are concerned about the highly competitive operating environment, persistent rise in operating expenses and deterioration in credit quality.

ICICI Bank currently carries a Zacks Rank #3 (Hold). Better performing foreign banks include BBVA Banco Franc (BFR - Snapshot Report) and Sumitomo Mitsui Financial Group Inc. (SMFG - Snapshot Report). Both these stock carry Zacks Rank #1 (Strong Buy).

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