ICICI Bank reports a robust growth in Q2FY22 however margins still remain under pressure

ICICI bank reported robust growth in the recently announced Q2 results, the overall business grew by 19% YoY as the net profit grew to Rs. 55.1bn, NIM grew by 4.0% (up by 11bp QoQ), loan growth stood at 17% YoY and 4% QoQ, NII grew by 25% YoY, fee income increased by 21% YoY which led to an increase of 23% YoY in core operating profit. Slippages clocked at Rs. 55.8bn (3.5% of loans), and the annualized retail slippage ratio stood at 4.3%. 

The growth and better-than-expected margins were driven by improvement in yields, reduction in cost of funds, and good business in SME and retail loans. This growth is estimated to stay consistently favorable. Other factors driving the growth were superior asset quality performance, improved earnings, wholesale segment improved contribution, newfound growth drivers in the retail segment (personal loans, credit cards), ability to reign in cost ratios gradually and significant reduction in incremental credit costs. The RoE stood at 14.1% and exit RoA stood at 1.8% in Q2FY22. 

Bank’s NIM stands muted and may continue the trend due to difficulty in sustaining the levels due to low interest reversals and high CASA ratio driven improvement in funding costs. The NIM may also get affected if the Bank plans to slash interest rates even lower in order to maintain market share and beat competition. 

The bank’s retail portfolio business strategy based on proprietary data and analytics by utilizing the existing customer database for sourcing retail products through cross-sell and up-sell has served well in growing the business segment. The bank has witnessed a significant growth in SME and business banking, in payment transactions from features like ‘Pay to Contact’ and ‘Scan to Pay’, and number of credit enquiries on its digital offerings and platforms like InstaBIZ. Monitoring these, the bank strategizes to grow its margins by programme-based lending rather than diluting margins. 

The bank registered less than 1% overdue in performing its corporate portfolio. One of the segments that is still under stress is the Commercial Vehicle Loans segment. The net slippage and overdues (without the Commercial vehicle segment) were back at March2021 levels. 

There seems to be no concentration risk in Restructuring under 2.0 and the quantum seems to be under Rs. 10bn while some accounts are still under resolution.
Thus, the risks that the bank may endure would be the deteriorating asset quality, slower economic recovery, higher credit costs, higher slippages and the NIM margins which still remain under tension.