Why ICICI Bank is going slow on personal loans | Company Business News

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Mumbai: In a quarter of otherwise stable financials, ICICI Bank Ltd was unable to completely avoid the impact of asset quality woes plaguing India’s banking sector. The lender posted a rise in retail and rural loan slippages, or loans turned sour, even as it slowed down on growth in personal loans.

Of ICICI Bank’s gross loan slippages of 6,085 crore in the December quarter, 5,304 crore were retail and rural loan slippages, including 714 crore from the kisan (farmer) credit card portfolio. The remaining 781 crore of slippages were from the corporate and business banking book.

The bank said it typically witnesses higher bad loan or non-performing asset (NPA) additions from the kisan credit card portfolio in the first and third quarter of a fiscal year. During the latest third quarter, ICICI Bank saw loan recoveries of 3,392 crore, of which retail recoveries were 2,786 crore. It also wrote off loans worth 2,011 crore.

Executive director Sandeep Batra, during an earnings call on Saturday, said that in the nine-month period ended December, ICICI Bank had recovered a total of 3,900 crore. While retail recoveries will continue, those from the corporate book are expected to slow as most of the recoveries would have happened, he said.

The bank’s gross NPA ratio was 1.96% in December, better than 1.97% in the preceding quarter and 2.30% a year ago. The net NPA ratio at 0.42% was unchanged on-quarter and slightly better than 0.44% in the previous year. Net provisions for the third quarter were at 1,227 crore, up 16.8% on year and 0.5% on quarter.

ICICI Bank remains focussed on the quality of the book that it underwrites and continues to “closely monitor and identify early buildup of stress”, Batra said, adding however that the overall quality of the book is stable.

“Our retail portfolio is built on the fundamental premise of return of capital and cash flow assessments and without any focus on a particular segment and product,” Batra said, adding that ICICI Bank’s growth in personal loans slowed to 8.8% on year in Q3 from mid-30 levels in the year-ago period. “This has been a conscious decision. From our point of view, it is more about risk assessment.”

ICICI Bank has been tightening underwriting and risk assessment parameters and calibrated growth in the unsecured loan space following the Reserve Bank of India’s warnings last year, Batra said.

Also read | Why RBI’s new rules on bad loans have enthused buyers of stressed asset

ICICI Bank’s loan growth

ICICI Bank’s domestic loans business in the December quarter grew 15.1% on year and 3.2% on quarter to 12.8 trillion. The retail loan portfolio was up 10.5% on year and 1.4% sequentially to 7.0 trillion, comprising 52.4% of the lender’s total loan portfolio.

The bank’s personal loan portfolio grew 8.8% on year but fell 1.3% on-quarter to 1.2 trillion, comprising 17.2% of total retail loans. The credit card portfolio grew 17.9% on year and 2.8% sequentially to 56,847 crore, comprising 8.1% of retail loans.

The business banking portfolio was up 31.9% on year, the rural portfolio up 12.2%, and the domestic corporate book was up 13.2%. Total advances increased 13.9% on year and 2.9% sequentially to 13.1 trillion as of 31 December.

While there is a “fair level of competition” across corporate lending, ICICI Bank’s focus is on staying disciplined on pricing, Batra said, adding that the lender is also seeing good opportunities in the business banking space as the segment gets more formalised.

Also read | Banks added over 2 trillion more in deposits than loans in 2024

‘Margins will obviously be impacted’

ICICI Bank’s deposits were up 14.1% on year and 1.5% on quarter at 15.2 trillion as at the end of December. Low-cost current and saving account deposits were up 16.6% at 6.2 trillion, accounting for 40.5% of total deposits.

Net interest income for the December quarter was up 9.1% on year and a muted 1.6% on quarter at 20,371 crore. Net interest margin was 4.25%, lower than both 4.27% a quarter ago and 4.43% a year ago.

Margins are expected to be broadly stable going ahead till the rate cycle starts, Batra said, adding that once the rate cuts start, margins will obviously be impacted “due to the lead-lag effect” as floating loans will get repriced much faster than fixed deposits.

“We will continue to remain disciplined in pricing across loan segments while we focus on having a healthy funding profile,” he said.

A 12.1% on year and 3.1% sequential increase in other income to 6,697 crore supported ICICI Bank’s bottomline. This was aided by a rise in treasury gains to 371 crore for the quarter from 123 crore last year. Fees from retail, rural and business banking customers accounted for about 78% of total fees.

ICICI Bank’s profit after tax grew 14.8% on year and but at a weak 0.4% on quarter to 11,792 crore in the December quarter.

Also read | HDFC Bank turns in a steady Q3 while walking a loan growth tightrope

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