ICICI Bank Q2 Results: Further Decline In NIM Could Impact Operating Profit, Say Analysts
The private lender's Q2 net profit rose 36% year-on-year to Rs 10,261 crore on higher core income and lower provisions.
ICICI Bank Ltd. is well-positioned for long-term growth, but a further drop in net interest margin would hurt operating profit, according to analysts.
The bank's net interest margin, as of Sept. 30, fell 25 basis points quarter-on-quarter to 4.53%.
"Deposit repricing led to compression in NIM. The impact of I-CRR on NIM was marginal at less than 2 basis points," Bernstein Research said. Even though the management alluded to some NIM compression going ahead, it expects the margin to remain at around 4.5% on a full-year basis.
Morgan Stanley expects ICICI Bank's margin to normalise above pre-Covid levels, helped by "an improved loan mix and disciplined pricing."
The private lender's net profit rose 36% year-on-year to Rs 10,261 crore on higher core income and lower provisions in the quarter ended September, according to an exchange filing. The bank's net interest income for the quarter rose to Rs 18,308 crore, up 24% year-on-year.
"The bank reported another steady quarter, driven by healthy NII and controlled provisions underpinned by robust asset quality," Motilal Oswal Securities said in a report. Asset quality for the lender improved as the gross non-performing asset ratio improved by 28 basis points quarter-on-quarter to 2.48%. The net NPA ratio also improved by 5 bps sequentially to 0.43%.
The bank maintained a return on assets of 2.4%, partially on account of ultra-low credit costs. Higher-yielding segments led the year-on-year growth in deposits and loans by nearly 20%.
Morgan Stanley
Higher balance sheet growth and lower costs should help deliver a strong return on assets.
Cost growth to be manageable given a high base even as branch expansion accelerates.
Margins are moderate owing to a reduction in RIDF-related investments, continued improvement in the loan mix towards the retail/SME segment, repo rates remaining above FY22 levels, and strong asset-liability management.
Bernstein Research
Despite sequential compression, the bank still has a healthy NIM and a continued high return on assets, even if it is achieved through lower credit costs.
The expected NIM decline is being offset by lower credit costs to maintain a healthy return on assets.
Higher corporate recoveries and upgrades and recoveries from written-off accounts saw credit costs decline to ultra-low levels.
Maintain a 'market-perform' rating with a target price of Rs 1,050.
Motilal Oswal Securities
The steady mix of a high-yielding unsecured portfolio and continued traction in SME and secured retail is enabling broad-based growth, which helps to retain business diversification.
Asset quality remains steady, while credit costs continue to undershoot.
The additional Covid-related provisioning buffer at 1.2% of loans provides further comfort.
Expect ICICI Bank's return on assets to be 2.3% in FY25.
Expect PAT to grow at a moderate rate of 15–16% over FY25 and FY26, respectively.
Maintain 'buy' rating with a revised target price of Rs 1,120.
