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Analyst Blog

ICICI Bank Limited’s (IBN - Analyst Report) fiscal fourth quarter 2011 (ended March 31) profit came in at INR14.52 billion (US$326 million), up 44.4% from INR10.06 billion (US$226 million) in the year-ago quarter.

Improved results were primarily driven by higher interest income and a substantial decline in loan loss provisions. Fee income also improved during the quarter.

However, higher operating expenses and lower other non-interest income were the downside. Asset quality continued to show signs of improvement and capital ratios remained strong during the quarter.

For fiscal 2011, profit was INR51.51 billion (US$1.13 billion), up 28.0% from $40.25 billion (US$0.88 billion) in the previous year.

Performance in Detail

ICICI Bank’s net interest income increased 23.3% year over year to INR25.10 billion (US$563 million). Fee income increased 17.8% year over year to INR17.91 billion (US$402 million).

Operating expenses were INR17.89 billion (US$393 million), up 22.7% year over year. The increase was primarily a result of enhanced branch network.

ICICI Bank has the largest branch network among private sector banks in India. At March 31, 2011, the bank had 2,529 branches.

Provisions were down 61.2% year over year at INR3.84 billion (US$86 million).

At March 31, 2011, ICICI Bank’s total advances were INR2,163.66 billion (US$48.5 billion), up 19.4% from INR1,812.06 billion (US$40.6 billion) at March 31, 2010.

As of March 31, 2011, ICICI Bank’s savings account deposits grew 25.7% year over year to INR668.69 billion (US$15.0 billion). The current and savings account (CASA) ratio rose to 45.1% at March 31, 2011 from 41.7% as of March 31, 2010.

Asset Quality

ICICI Bank witnessed an improvement in asset quality during the reported quarter. Net nonperforming assets fell 37.0% year over year to INR24.59 billion (US$551 million) as of March 31, 2011. The bank's net nonperforming asset ratio was 0.94%, down 93 basis points from the year-ago quarter.

Capital Ratios

As of March 31, 2011, ICICI Bank's capital adequacy as per the Reserve Bank of India's Basel II norm was 19.54% and Tier-1 capital adequacy was 13.17%, well above the requirements of 9.0% and 6.0%, respectively.

Competitor Performance

ICICI Bank’s close competitor, HDFC Bank Ltd. (HDB - Analyst Report) reported fiscal fourth quarter net profit of INR11.15 billion (US$245 million), up 33.2% over the prior-year quarter. Results improved primarily on strong growth in net revenue and a minimal decline in provisions and contingencies, partially offset by higher operating expenses.

Our Take

We are concerned about ICICI Bank’s highly competitive operating environment and below-average credit quality. Nevertheless, we anticipate continued synergies from the company’s increased dependence on domestic loans, almost stable funding base, improving asset mix and enhanced pricing power.

ICICI Bank currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. However, considering the fundamentals, we maintain our long-term “Neutral” recommendation on the stock.

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