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ICICI Bank Ltd. (IBN - Analyst Report) reported fourth-quarter fiscal 2014 (ended Mar 31) net profit of INR26.52 billion ($443 million), up 15% from the year-ago figure of INR23.04 billion ($385 million). However, continued deterioration in asset quality raised concerns about the company’s long-term stability, consequently resulting in more than 2.2% fall in the bank’s ADRs on Friday.

Further, for fiscal 2014, net income increased 18% year over year to INR98.10 ($1.6 billion).  

Results improved on the back of rise in net interest income and fee income, partially offset by higher-than-expected loan loss provisions and a rise in operating expenses. Though capital ratios remained strong and loan and deposit balances increased, asset quality continued to deteriorate.

Performance in Detail

Net interest income grew 15% to INR43.57 billion ($727 million) from INR38.03 billion ($635 million) in the prior-year quarter.

Non-interest income rose 35% year over year to INR29.76 billion ($497 million). The reported quarter included INR2.22 billion ($37 million) of exchange rate gains on repatriation of retained earnings from overseas branches.

Operating expenses for the quarter totaled INR28.79 billion ($480 million), up 20% 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 Mar 31, 2014, the company had 3,753 branches and 11,315 ATMs.

Asset Quality

ICICI Bank’s credit quality deteriorated. As of Mar 31, 2014, net nonperforming assets were INR33.01 billion ($551 million), up 48% from the prior-year quarter. Further, provisions increased 55% year over year to INR7.14 billion ($119 million).

Balance Sheet and Capital Ratios

As of Mar 31, 2014, ICICI Bank’s total advances were INR3,387.03 billion ($56.5 billion), rising 17% from INR2,902.49 billion ($48.4 billion) as of Mar 31, 2013. The rise was primarily driven by strong growth in the retail segment, with 23% year-over-year increase in total retail loan portfolio.

ICICI Bank’s savings account deposits amounted to INR991.33 billion ($16.5 billion) while current account deposits totaled INR432.45 billion ($7.2 billion). Moreover, the current and savings account (CASA) ratio was 42.9% as of Mar 31, 2014.

In compliance with the Reserve Bank of India's guidelines on Basel III norm, ICICI Bank's capital adequacy was 17.70% and Tier-1 capital adequacy was 12.78% as of Mar 31, 2014. These were well above the minimum requirements.

Our Take

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

At present, ICICI Bank sports a Zacks Rank #1 (Strong Buy).

Performance of Other Foreign Banks

HDFC Bank Ltd. (HDB - Analyst Report) reported fourth-quarter fiscal 2014 (ended Mar 31) net profit of INR23.27 billion ($0.38 billion), up 23.1% from the prior-year quarter. An increase in both net interest income and fee revenues were partly offset by higher operating expenses. Also, deposit and loan balances as well as credit quality continued to show improvement.

Among other foreign banks, Barclays PLC (BCS - Analyst Report) and HSBC Holdings plc (HSBC - Analyst Report) are scheduled to report first-quarter 2014 results on May 6 and May 7, respectively.

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