Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI Bank
International book is the delta: In recent quarters, the main source of surprise has
been the growth in the international book. ICICI's international book (in the parent
bank), is still a wholesale-funded, wholesale-lending model. We believe that this is
an ROE-destructive business over the long term, as the 100-125bp spreads do not
cover credit costs over the cycle. The management does plan to increase the share of
retail funding in this business, but that will not occur in the near term.
Vulnerability of the legacy corporate book: ICICI had built up several chunky
exposures on the wholesale side in infrastructure and some other sectors. Our
baseline assumption is that there should not be any large delinquencies given easy
liquidity and a strong economy, but the risk of a large "accident" from their Rs1.2 tn
(60% of the book) non-retail book is still not zero. We are forecasting significant
credit cost improvement (120bps in FY11from 220bps in FY10) based on the retail
cleanup, but these forecasts could be challenged by the non-retail segment.
Life insurance: The disruptive regulation is now in place, and there is the
expectation of no further regulatory tightening in this space – we think there is very
little risk on that score. However, the exact impact on market size and margins is still
WIP, and there is a probability that there could be negative surprises on that score.
We believe that our margin forecasts are realistic, but it’s an area that needs to be
monitored.
No comments:
Post a Comment