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ICICI Bank Limited’s (IBN - Analyst Report) fiscal third-quarter 2013 (ended Dec 31) net profit came in at INR22.50 billion ($409 million). This reflects a jump of 30% from the year-ago profit of INR17.28 billion ($314 million).

The robust results came on the back of augmented top line, partially offset by a rise in loan loss provisions and higher operating expenses. Moreover, asset quality continued to show signs of improvement, while capital ratios remained impressive.

Performance in Detail

Net interest income surged 29% from INR34.99 billion ($636 million) in the prior-year quarter to INR27.12 billion ($493 million). Similarly, net interest margin surged 37 basis points (bps) year over year to 3.07%.

Also, non-interest income elevated 17% from INR22.15 billion ($403 million) in the year-ago period to INR18.92 billion ($344 million).

Operating expenses for the quarter totaled INR22.61 billion ($411 million), up 18% 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 Dec 31, 2012, the bank had 2,895 branches and 10,040 ATMs.

Provisions for the reported quarter increased 8% year over year to INR3.69 billion ($67 million).

Asset Quality

ICICI Bank’s credit quality was a mixed bag during the quarter. As of Dec 31, 2012, net nonperforming assets were INR21.85 billion ($397 million), rising 5% from INR20.82 billion ($379 million) in the prior-year quarter. The bank's net nonperforming asset ratio stood at 0.64%, declining 6 bps from the year-ago period.

Balance Sheet

As of Dec 31, 2012, ICICI Bank’s total advances stood at INR2,867.66 billion ($52.1 billion), rising 17% from INR2,461.57 billion ($44.8 billion) as of Dec 31, 2011. In the quarter under review, ICICI Bank’s savings account deposits amounted INR814.63 billion ($14.8 billion), while current account deposits totaled INR356.74 billion ($6.5 billion). Moreover, as of Dec 31, 2012, the current and savings account (CASA) ratio was 40.9%.

Capital Ratios

As per the Reserve Bank of India's guidelines on Basel II norm, ICICI Bank's capital adequacy was 19.53% and Tier-1 capital adequacy was 13.25% as of Dec 31, 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 third-quarter 2013 (ended Dec 31) net profit of INR18.59 billion ($0.34 billion), up 30.0% from the prior-year quarter. Results benefited from improvement in top line, partially offset by rise in expenses. Moreover, the company reported notable hikes in deposits and loans.

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. 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 Rank #4 (Sell). However, other foreign banks such as Canadian Imperial Bank of Commerce (CM - Snapshot Report) and UBS AG (UBS - Analyst Report) retain a Zacks Rank #2 (Buy) and are highly recommended for investment.

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