ICICI BANK-Quarterly Result Update

Sector Outlook – Neutral

In the second quarter of FY24, ICICI Bank’s Net Interest Income, reached Rs 18,308 crores. This showed a slight increase of 0.4% compared to the previous quarter and a significant growth of 23.8% compared to the same period last year. The bank’s Pre-provision operating profit (PPOP), was Rs 14,314 crores in Q2FY24. It had a small increase of 1.2% compared to the previous quarter and a substantial growth of 42.6% compared to the same period last year. The money set aside for bad loans, known as provisions, decreased sharply to Rs 583 crores in Q2FY24 from Rs 1,292 crores in Q1FY24 and Rs. 1,645 crores in Q2FY23. The bank’s quarterly net profit in Q2FY24 was Rs 10,261 crores, which increased by 6.4% compared to the previous quarter and 35.8% compared to the same period last year. This exceeded market expectation of Rs 9,500 crores. The Net Interest Margin (NIM) was 4.53% in Q2FY24, which decreased by 25 basis points compared to the previous quarter but increased by 22 basis points compared to the same period last year. Gross NPA was 2.48% in Q2FY24, which decreased by 28 basis points compared to the previous quarter and 71 basis points compared to the same period last year. Net NPA was 0.43% in Q2FY24, which decreased by 5 basis points compared to the previous quarter and 18 basis points compared to the same period last year. The cost of running the bank compared to its income, known as the Cost to Income ratio, was 40.2% in Q1FY24.

Key Concall Highlights

• ICICI Bank is focusing on increasing its profits by putting customers first. They want to make their services better, use technology more, and offer digital options.
• The bank expects more people in rural areas to have trouble repaying their loans, especially in the Kisan Credit Card program. This usually happens in the first and third quarters of the year.
• When it comes to unsecured loans, the bank is being careful. They mostly give larger loans, so they’re less worried about people not paying them back. They make sure their loans meet their own rules to avoid problems.
• The bank doesn’t think the interest rates on their loans will change much soon, but the cost of getting the money to lend out is going up. This might mean they make less money in the future.
• The bank thinks their profit margin for this year will be similar to last year, somewhere between 4.4% and 4.8%.
• ICICI Bank wants to offer more credit cards, but they’ll only give them to people who meet their rules.
• They lent out more money in personal loans, car loans, and credit card loans.
• Even though other banks are opening more branches, ICICI Bank is being careful. They only open branches when it makes sense, so they don’t spend too much on running them.

Valuation and Outlook

ICICI Bank, had a strong performance in Q2FY24, surpassing market expectations. Although they made slightly less money from interest, they made up for it with fees, which exceeded profit predictions. Despite a loss in their treasury department of Rs 85 crores, similar to the same period last year, their healthy interest income made up for it, resulting in strong overall income. Thanks to their cautious approach to setting aside money for potential losses, the bank had to set aside less money for bad loans because there were fewer loans going bad. 

The bank has a good system in place to manage risk, which has helped them maintain a healthy loan portfolio. It’s worth mentioning that the bank has been actively promoting digital banking, and by the end of September 2023, they had gotten more than one crore non-ICICI Bank account holders using their iMobile Pay app. They’ve been using the money they had extra on their books to lend out, but recently they’ve been trying to attract more deposits. 

The bank’s focus on lending in rural areas and selling other financial products through their extensive network of branches, ATMs, and cash recycling machines should continue to bring in solid profits. In Q2FY24, their Return on Assets (RoA) was 2.41%, which is in line with the bank’s guidance of 2.3-2.5%. This suggests that the bank will continue to grow at a double-digit rate, and we are optimistic about its future.

Key Takeaway:

• The bank will be focussing on the risk-calibrated profitable growth.
• We are confident that the bank will grow double-digit and are optimistic about the bank.
• NIMs for FY24 will be on a similar level to FY23, i.e. in the range of 4.4-4.8%.