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ICICI Bank Limited (IBN - Analyst Report) reported fiscal second-quarter 2014 (ended Sep 30) net profit of INR23.52 billion ($376 million). This was up 20.2% from the year-ago profit of INR19.56 billion ($312 million).

Results were primarily driven by a top-line increase, partially offset by higher loan loss provisions and a rise in operating expenses. Though capital ratios remained strong as well as loan and deposit balances increased, asset quality deteriorated.  

Performance in Detail

Net interest income grew 20.0% to INR40.44 billion ($646 million) from INR33.71 billion ($538 million) in the prior-year quarter. Further, net interest margin increased 31 basis points (bps) year over year to 3.31%.

Non-interest income rose 32% year over year to INR24.84 billion ($397 million).

Operating expenses for the quarter totaled INR23.22 billion ($371 million), up 4.6% year over year. The increase was primarily due to the bank’s expansion of branch network. ICICI Bank has the largest branch network among private sector banks in India. As of Sep 30, 2013, the bank had 3,507 branches and 11,098 ATMs.

Provisions rose 23.0% year over year to INR6.25 billion ($100 million).

Asset Quality

ICICI Bank’s credit quality deteriorated. As of Sep 30, 2013, net nonperforming assets were INR27.07 billion ($432 million), up 9.5% from INR24.72 billion ($395 million) in the prior-year quarter. The bank's net nonperforming asset ratio came in at 0.73%, increasing 4 bps from the year-ago quarter.

Balance Sheet

As of Sep 30, 2013, ICICI Bank’s total advances were INR3,177.86 billion ($50.8 billion), rising 15.5% from INR2,750.76 billion ($43.9 billion) as of Sep 30, 2012. The bank’s savings account deposits amounted to INR935.35 billion ($14.9 billion), while current account deposits totaled INR403.73 billion ($6.4 billion). Moreover, the current and savings account (CASA) ratio was 40.3% as of Sep 30, 2013.

Capital Ratios

As per the Reserve Bank of India's guidelines on Basel III norm, ICICI Bank's capital adequacy was 16.50% and Tier-1 capital adequacy was 11.33% as of Sep 30, 2013. These were well above the minimum requirements.

Performance of Other Foreign Banks

HDFC Bank Ltd.’s (HDB - Analyst Report) fiscal second-quarter 2014 (ended Sep 30) net profit of INR19.82 billion ($0.32 billion) improved 27.1% year over year. 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.

HSBC Holdings plc’s earnings of 54 cents per share in the first half of 2013 beat the prior-period figure of 45 cents. Strong results were driven by top-line improvement, growth in total operating income and reduced operating expenses.

Credit Suisse Group’s (CS - Snapshot Report) third-quarter 2013 adjusted net income attributable to shareholders of CHF 698 million ($749 million) lagged the year-ago quarter’s income of CHF 1051 million ($1092.4 million). Results were primarily affected by lower revenues, mostly in the investment banking segment. However, the decline was partially offset by lower expenses.

Our Take

We expect ICICI bank to continue expanding its foothold across India and beyond. In addition, enhanced services will result in a wider client base, thereby driving growth going forward. However, we remain concerned about the surging expenses and the intensively competitive Indian market.

ICICI Bank currently carries a Zacks Rank #4 (Sell).

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