Private sector lender ICICI Bank’s latest disclosures offers interesting insights into the management’s change in tack, focusing on granularity and de-risking for sustainable and profitable growth.
According to ICICI’s 20-F filing with the Securities and Exchange Commission, the bank’s de-risking focus has sustained with shift to better-rated corporate and lower concentration. For instance, overall stress in the corporate segment fell to 17 per cent as on June 2019 from 27 per cent in March 2016, while retail bad loans have been contained at 1.4 per cent.
“Our FY19 20-F analysis vindicates our belief that ICICI Bank is on the right track. It has prudently sharpened focus on pruning concentration risk (exposure to top-20 borrowers down to 12 per cent from 14.3 per cent in FY16). Targeting credit mix on incremental lending (investment grade now over 95 per cent versus 80.8 per cent in FY16) and strengthening credit monitoring. These measures equip the bank to successfully navigate the next cycle,” Edelweiss Securities noted.
Moderation in overdue loans — 31 to 60 and 61 to 90 dpd — for corporate book stood under 1 per cent and lower potential problem loans remained at less than 3.5 per cent rendering comfort. Even within retail, early delinquencies were capped at sub-1 per cent, though we will be watchful given challenging macros, while corporate earnings were soft, retail remained strong — up over 20 per cent — lending comfort, according to Edelweiss.
Meanwhile, potential problem loans dipped significantly — 3.4 per cent from 14.2 per cent of corporate loans in FY16 — with overall stress in the corporate segment including recognised pool coming off to 17 per cent. Incremental stress flowed from food and beverages segment, chemicals and services, and finance sectors. Wholesale banking reported loss at the profit before tax level — higher provisions on coverage rise — though retail banking showed strong traction. Overdue retail book was contained at sub 1 per cent, but the bank has conservatively increased coverage at over 50 per cent jump in retail provisions.