ICICI Bank Limited’s ( IBN - Analyst Report ) fiscal first-quarter 2013 (ended June 30, 2012) net profit came in at INR18.15 billion ($326 million), reflecting a 36% jump from the year-ago profit of INR13.32 billion ($240 million).

The improvement was primarily attributable to increased net interest income and fee income as well as a decline in loan loss provisions. Moreover, asset quality continued to show signs of enhancement and the capital ratios remained strong. However, the escalating operating expenses remain a major cause of concern.

Performance in Detail

ICICI Bank’s net interest income was INR31.93 billion ($574 million), up 32% from INR24.11 billion ($434 million) in the prior-year quarter.

Similarly, non-interest income improved 14% from INR16.43 billion ($295 million) in the year-ago period to INR18.80 billion ($338 million).

Operating expenses for the quarter totaled INR21.24 billion ($382 million), up 16.7% year over year. The increase was primarily a result of the bank’s branch network expansion.

ICICI Bank has the largest branch network among private sector banks in India. As of June 30, 2012, the bank had 2,755 branches and 9,366 ATMs.

Provisions for the reported quarter declined 2.6% year over year to INR4.66 billion ($84 million).

Asset Quality

ICICI Bank witnessed continuous improvements in asset quality. As of June 30, 2012, net nonperforming assets were INR19.41 billion ($349 million), shrinking 17% from INR23.51 billion ($423 million) in the prior-year quarter. In addition, the bank's net nonperforming asset ratio stood at 0.61%, declining 30 basis points from the year-ago period.

Balance Sheet

As of June 30, 2012, ICICI Bank’s total advances were INR2684.3 billion ($48.3 billion), rising 22% from INR2206.9 billion ($39.7 billion) as of June 30, 2011.

In the quarter under review, ICICI Bank’s savings account deposits totaled INR779.23 billion ($14.0 billion), while current account deposits were INR307.54 billion ($5.5 billion). Moreover, as of June 30, 2012, the current and savings account (CASA) ratio was 40.6%.

Capital Ratios

As per the Reserve Bank of India's guidelines on Basel II norm, ICICI Bank's capital adequacy was 18.54% and Tier-1 capital adequacy was 12.78% as of June 30, 2012. These were well above the minimum requirements of 9.0% and 6.0%, respectively.

Peer Performance

HDFC Bank Ltd. ( HDB - Analyst Report ) reported its fiscal first-quarter 2013 (ended June 30) net profit of INR14.17 billion ($0.26 billion), up 30.6% from the prior-year quarter. Results primarily benefited due to strong increases in net interest income and fee revenue.

However, these were partially offset by higher operating expenses and a marginal rise in provisions and contingencies. Moreover, the company reported notable growth in deposits and loans.

Our Take

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

ICICI Bank currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.