- ICICI Bank is scheduled to announce its fourth-quarter results on May 9.
- It's share price inreased by over 2% today morning during early trade.
- The private sector bank’s retail-focused lending puts it at higher risk of bad loans due to the effects of the coronavirus lockdown than its counterparts.
- Last quarter, ICICI Bank managed to post a profit of 158% and its provisions were down by 58%.
ICICI Bank is one of top ten stocks to buy, according to Maquarie, which set a target price of ₹438 (nearly 30% higher from Thursday’s closing) in the next one year. Ahead of its earnings announced, the bank's share price rose by over 2% in today during early morning trade.
However, the bank’s share price has lost over one-third of its value this year. During the lockdown, its movement is still largely volatile as investors remain uncertain of what the future may hold.
A fresh cycle of bad loans?
ICICI Bank was in good shape last quarter with its profits up by 158% and provisions cut down by half.
However, The onset of the coronavirus pandemic and its effect on the economy is rapidly changing that narrative. Experts fear that the nationwide lockdown and rising unemployment will shrink people’s ability to pay off loans giving birth to a fresh cycle of bad loans.
According to Moody’s, ICICI Bank’s retail-focused lending puts it as higher risk as incomes of many borrowers is now at risk due to the lockdown even though it has strong capital to back it up. “There will have to be a signification deterioration in asset quality to erode these buffers,” it said.
Ratings cut around the block
The bane of the banking sector has always been the share of non-performing assets in its kitty. The cycle finally seemed to be turning around for good with analysts expecting the banking industry to soar in the coming financial year.
The global rating agency Standard & Poor cut its outlook from “stable” to “negative” expecting a drop in asset quality.
“The negative outlook on ICICI Bank reflects our view that the bank is exposed to economic headwinds faced by India’s banking system,” said the report. But maintains that the private lender will maintain its strong market position.
Fitch Ratings, on the other hand, affirms that the outlook for ICICI Bank remains stable even though its viability rating (VR) has taken a hit. “The downgrade of ICICI’s VR highlights heightened risks to its asset quality and earnings from the disruption in business and consumer acidity that we expect to continue well beyond the lockdown in India,” it said.
Earlier this week, ICICI and other large lenders came together to resurrect the idea of creating a ‘bad bank’ to help mitigate the effects of the economic slowdown intensified by the outbreak of COVID-19, which threatens to saddled with more sticky loans. According to PayTM founder Vijay Shekhar Sharma, this could be the “biggest nightmare of 2020” for the financial sector.
As a private sector entity, ICICI Bank’s prospects are better than its public sector counterparts. Nonetheless, many have already downgraded their expectations.
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