ICICI Bank - Stress Elevated; Outlook Cautious; Result Update Q3FY15 ::Edelweiss

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ICICI Bank’s (ICICI) Q3FY15 PAT at INR29bn (up 14% YoY) came in line with our estimates. However, the quarter was characterised by higher-than envisaged incremental stress - slippage plus restructuring for 9mFY15 stood at INR91.5bn versus INR108bn over FY14. Management’s cautious stance going into Q4FY15 and NPLs from restructured book (contributed ~34%) keeps us guarded and it will be critical for the bank to maintain its incremental stress guidance. Core operating profit (ex treasury, lease and other income) posted below trend growth (up 11% YoY– a derivative of slower corporate growth) unlike other private peers, which saw traction in Q3FY15) alongside muted core fee. The bank’s well-capitalised position (Tier I: 12%), stable funding franchise and stressed assets at ~4.5% lends comfort. Further leg up may come from re-rating of bank’s capital market linked businesses, viz., life insurance and asset management.

Stress asset formation higher than earlier envisaged

Slippages stood higher at INR22.8bn, wiith ~34% slippages coming from restructured book. This, along with elevated restructuring at INR17.7bn (further pipeline of INR23bn), fed into higher-than-anticipated overall stress. The bank reiterated that FY14 was a peak year for stress creation and it will be lower in FY15. However, caveat here is slippages from restructured book. Going into Q4FY15, bank expects NPL addition may likely be higher than this quarter given challenges with few large borrowers.

Core profitability suppressed by lower revenue traction

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https://www.edelweiss.in/research/ICICI-Bank--Stress-Elevated;-Outlook-Cautious;-Result-Update-Q3FY15/28192.html