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Key Takeaways
Core essence
To accelerate growth, with focus on 5Cs (Credit growth, CASA ratio, Cost efficiency,
Credit quality and Customer centricity).
To enhance RoA from current level of 1.4% on the back of improved liability structure
and leverage capital better by resuming growth; standalone RoE to increase to 14-
15% in FY13.
Targets 14-15% consolidated RoE in FY12.
Industry insights
Inflationary pressures still persist in the economy, with manufacturing inflation also
moving up. ICICI Bank expects inflation to decline from October on the back of a
favorable base. Interest rates are near the peak and the bank expects some stability
now.
New sanctions have come down due to various macroeconomic factors. However,
the current level of sanctions will drive growth at least for the next 12-18 months.
Asset quality remains largely stable and no significant stress is seen so far. Retail
asset quality remains strong and large corporate loans are doing well, though there
might have been some segment-specific issues in SME loans. Corporates have a
much larger scale of operations as compared to the 1990s and are better positioned
to take higher interest rates. Project-specific modalities will have to be looked at to
judge infrastructure asset quality and it may not be correct to take a generalized
view.
Focus on efficiency, superior customer service and quality growth will remain the
keys to success. Large private sector banks will continue to have an advantage.
If the savings rate is deregulated, the management expects other charges also to
be deregulated, which will keep profitability intact.
Company vision and strategy
Focused 5Cs strategy and quality growth: ICICI Bank will continue to focus on
its 5Cs strategy and quality growth. The management mentioned that at current
RoA of 1.4%, there is some room for improvement from margins, opex and lower
provisions.
Credit growth: Balance sheet growth is likely to be ~18%, with equal contribution
from domestic and overseas business. Within the domestic business, corporate
loans (project finance, working capital financing) and secured retail loans (auto and
home loans) remain areas of focus. High domestic interest rates are leading to
higher arbitrage on the international front, which is fuelling international loan growth.
Cost efficiency: Operating expenses are likely to grow 20% due to (a) increase in
headcount from 43,000 to 60,000 employees, (b) wage increase of 11% in FY11, (c)
increase in branch network to 2,500+ (up 25%+). Overall, ICICI Bank expects to maintain
cost to average assets at 1.7% and cost to income ratio at 40-42% on long-term basis.
CASA: Focus remains on retail liability driven growth strategy. CASA deposits are likely
to grow in line with overall growth. The bank expects to maintain CASA ratio at 40% for
the long term.
Credit quality: Credit quality is gradually improving, with net accretion to NPAs coming
down and the management does not expect any issues in the near future. About 60% of
its power exposure is to entities with own coal mines and the rest 40% is to entities that
have coal linkages in place. Restructured loans declined to INR19.7b from INR37.4b YoY.
The management continues to guide credit cost of 80bp for FY12 and expects to maintain
this over the long term.
Customer centricity: Focusing on enhancing customer service capability and leveraging
on branch network to acquire new customers.
Focused on de-risking the portfolio
ICICI Bank, UK has scaled down investments in bonds/notes of financial institutions
from USD2.1b as of 1QFY10 to USD640m as of 1QFY12. It does not have any exposure
to peripheral European countries.
Credit derivative exposure (including off balance sheet) has been scaled down to
INR21.3b from INR54.1b. In case of derivative exposure, the underlying comprises of
Indian corporates.
Domestic subsidiaries impacted by regulatory changes: Regulatory headwinds coupled
with tough market conditions impacted Insurance, Asset Management and Securities
businesses. ICICI Bank remains committed to building the franchise in various businesses to
capitalize its long-term growth potential. Consolidation of operations remains a mantra for
overseas subsidiaries in view of changing regulations.
Other highlights
Overseas margins are likely to improve from 90bp as of 1QFY12 to 125bp by the end of
the year, led by re-pricing on the liability side. The management expects domestic
margins to remain at current levels. However, there remains an upward bias in FY13,
led by fall in securitization losses. For FY12, it expects NIM of 2.6%.
Fee income growth is likely to remain in line with asset growth, with focus on transaction
banking, forex/derivatives and remittance fees. However, growth in corporate fees would
depend on movement in new project announcements and financial closures.
Key triggers/ milestones/challenges
Managing quality growth is a key challenge in the current uncertain macroeconomic
scenario.
There would be no immediate unlocking of value from Insurance business, considering
change in regulatory environment. Further, as the Insurance business is profitable, it
does not need fresh capital.
Ms Chanda Kochhar is the
Managing Director and CEO of ICICI
Bank. She began her career with
ICICI as a Management Trainee in
1984 and has risen through the
ranks, handling multidimensional
assignments and heading all the
major functions in the bank.
She is widely recognized for her role
in shaping India's retail banking
sector and for her leadership of the
ICICI Group. She took on the
challenge of building the nascent
retail business, with strong focus on
technology, innovation, process
reengineering and expansion of
distribution and scale.
Ms Kochhar led ICICI Bank's
corporate and international banking
businesses during a period of
heightened activity and global
expansion by Indian companies. She
was the Joint Managing Director &
Chief Financial Officer during a critical
period of rapid change in the global
financial landscape.
Ms Kochhar is a member of the Prime
Minister's Council on Trade &
Industry, US-India CEO Forum and
UK-India CEO Forum. She was
conferred with the Padma Bhushan
in 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Core essence
To accelerate growth, with focus on 5Cs (Credit growth, CASA ratio, Cost efficiency,
Credit quality and Customer centricity).
To enhance RoA from current level of 1.4% on the back of improved liability structure
and leverage capital better by resuming growth; standalone RoE to increase to 14-
15% in FY13.
Targets 14-15% consolidated RoE in FY12.
Industry insights
Inflationary pressures still persist in the economy, with manufacturing inflation also
moving up. ICICI Bank expects inflation to decline from October on the back of a
favorable base. Interest rates are near the peak and the bank expects some stability
now.
New sanctions have come down due to various macroeconomic factors. However,
the current level of sanctions will drive growth at least for the next 12-18 months.
Asset quality remains largely stable and no significant stress is seen so far. Retail
asset quality remains strong and large corporate loans are doing well, though there
might have been some segment-specific issues in SME loans. Corporates have a
much larger scale of operations as compared to the 1990s and are better positioned
to take higher interest rates. Project-specific modalities will have to be looked at to
judge infrastructure asset quality and it may not be correct to take a generalized
view.
Focus on efficiency, superior customer service and quality growth will remain the
keys to success. Large private sector banks will continue to have an advantage.
If the savings rate is deregulated, the management expects other charges also to
be deregulated, which will keep profitability intact.
Company vision and strategy
Focused 5Cs strategy and quality growth: ICICI Bank will continue to focus on
its 5Cs strategy and quality growth. The management mentioned that at current
RoA of 1.4%, there is some room for improvement from margins, opex and lower
provisions.
Credit growth: Balance sheet growth is likely to be ~18%, with equal contribution
from domestic and overseas business. Within the domestic business, corporate
loans (project finance, working capital financing) and secured retail loans (auto and
home loans) remain areas of focus. High domestic interest rates are leading to
higher arbitrage on the international front, which is fuelling international loan growth.
Cost efficiency: Operating expenses are likely to grow 20% due to (a) increase in
headcount from 43,000 to 60,000 employees, (b) wage increase of 11% in FY11, (c)
increase in branch network to 2,500+ (up 25%+). Overall, ICICI Bank expects to maintain
cost to average assets at 1.7% and cost to income ratio at 40-42% on long-term basis.
CASA: Focus remains on retail liability driven growth strategy. CASA deposits are likely
to grow in line with overall growth. The bank expects to maintain CASA ratio at 40% for
the long term.
Credit quality: Credit quality is gradually improving, with net accretion to NPAs coming
down and the management does not expect any issues in the near future. About 60% of
its power exposure is to entities with own coal mines and the rest 40% is to entities that
have coal linkages in place. Restructured loans declined to INR19.7b from INR37.4b YoY.
The management continues to guide credit cost of 80bp for FY12 and expects to maintain
this over the long term.
Customer centricity: Focusing on enhancing customer service capability and leveraging
on branch network to acquire new customers.
Focused on de-risking the portfolio
ICICI Bank, UK has scaled down investments in bonds/notes of financial institutions
from USD2.1b as of 1QFY10 to USD640m as of 1QFY12. It does not have any exposure
to peripheral European countries.
Credit derivative exposure (including off balance sheet) has been scaled down to
INR21.3b from INR54.1b. In case of derivative exposure, the underlying comprises of
Indian corporates.
Domestic subsidiaries impacted by regulatory changes: Regulatory headwinds coupled
with tough market conditions impacted Insurance, Asset Management and Securities
businesses. ICICI Bank remains committed to building the franchise in various businesses to
capitalize its long-term growth potential. Consolidation of operations remains a mantra for
overseas subsidiaries in view of changing regulations.
Other highlights
Overseas margins are likely to improve from 90bp as of 1QFY12 to 125bp by the end of
the year, led by re-pricing on the liability side. The management expects domestic
margins to remain at current levels. However, there remains an upward bias in FY13,
led by fall in securitization losses. For FY12, it expects NIM of 2.6%.
Fee income growth is likely to remain in line with asset growth, with focus on transaction
banking, forex/derivatives and remittance fees. However, growth in corporate fees would
depend on movement in new project announcements and financial closures.
Key triggers/ milestones/challenges
Managing quality growth is a key challenge in the current uncertain macroeconomic
scenario.
There would be no immediate unlocking of value from Insurance business, considering
change in regulatory environment. Further, as the Insurance business is profitable, it
does not need fresh capital.
Ms Chanda Kochhar is the
Managing Director and CEO of ICICI
Bank. She began her career with
ICICI as a Management Trainee in
1984 and has risen through the
ranks, handling multidimensional
assignments and heading all the
major functions in the bank.
She is widely recognized for her role
in shaping India's retail banking
sector and for her leadership of the
ICICI Group. She took on the
challenge of building the nascent
retail business, with strong focus on
technology, innovation, process
reengineering and expansion of
distribution and scale.
Ms Kochhar led ICICI Bank's
corporate and international banking
businesses during a period of
heightened activity and global
expansion by Indian companies. She
was the Joint Managing Director &
Chief Financial Officer during a critical
period of rapid change in the global
financial landscape.
Ms Kochhar is a member of the Prime
Minister's Council on Trade &
Industry, US-India CEO Forum and
UK-India CEO Forum. She was
conferred with the Padma Bhushan
in 2011.
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