ICICI Bank posts smallest quarterly profit in two years on bad loan surge

 ICICI Bank reported its smallest quarterly profit in two years on Monday as stricter RBI rules forced the country’s third-biggest lender by assets to account for more bad loans.

Net profit for its fiscal fourth quarter to March 31 almost halved to 10.2 billion rupees ($ 152 million), the bank said, missing analysts’ average forecast of 10.77 billion rupees.

While the bulk of the country’s 9.5 trillion rupees of bad loans, as of the end of 2017, were with the country’s dominant state-run banks, private sector lenders ICICI Bank and smaller rival Axis Bank also accounted for large chunks.

The Reserve Bank of India (RBI) in February did away with half a dozen loan restructuring schemes in a surprise move to hasten a clean-up of near-record levels of soured loans and tightened some other rules, which has led to banks disclosing more bad loans in the March quarter.

ICICI’s long-serving Chief Executive Chanda Kochhar has also been battling allegations of nepotism in a loan the bank gave to the Videocon conglomerate.

The board of ICICI Bank, which is also listed in New York, has backed Kochhar and denied any wrongdoing.

Responding to repeated questions from journalists on the Videocon case, Kochhar said on a conference call after the earnings announcement that she had nothing more to add to the board’s existing public stance.

On bad loans, she said the focus was turning to recovery and resolution and the bank would aim to lower its net non-performing loan ratio to 1.5 percent in two years from 4.77 percent at the end of March.

“We believe that since a lot of the stress has already been recognised, going forward, in fact, our focus will be on recovery and resolution,” Kochhar said.

She outlined other medium-term goals for the bank such as growing retail loans to more than 60 percent of total loans, bringing down overseas loans to less than 10 percent, and boosting the provision coverage ratio of the bank to 70 percent by March 2020.

The new RBI rules led to 99.68 billion rupees of bad loans being added to its pile in the March quarter, ICICI Bank said. Including other bad loans, the gross non-performing loan ratio shot up to 8.84 percent from 7.82 percent at the end of December.

Domestic loans were up 15 percent year-on-year at the end of March, and Kochhar said the aim would be to increase the overall domestic loan book by 15 percent a year, with retail loans growing at above 20 percent until March 2020.

Ahead of the results, ICICI Bank shares closed 2.5 percent higher, outperforming the main Mumbai market index which gained 0.9 percent.

Axis Bank posted its first ever quarterly loss last month as its bad loans surged. Major state-run lenders are due to report March quarter earnings later this month.