- The stock of ICICI Bank jumped by 4% in early trade, due to strong quarterly earnings.
- The bank not only posted strong growth in profits but also managed to reduce the amount of bad loans.
- Global broking firm CLSA called the numbers as a sign of turnaround in the bank that has been hamstrung in recent years by rising bad loans and allegations of a financial scandal.
The stock of ICICI Bank jumped by 4% in early trade, worth over ₹10,600 crore ($1.5 billion), on the first trading day, after it announced better-than-expected earnings.
The bank not only posted strong growth in profits but also managed to reduce the amount of bad loans. Global broking firm CLSA called the numbers as a sign of turnaround in the bank that has been hamstrung in recent years by rising bad loans and allegations of a financial scandal.
ICICI Bank posted a consolidated net profit of ₹2,513 crore for the quarter ending June 2019, which is a massive increase on the stressed quarter it experienced last year where it posted a mere ₹4.9 crore in profit. It is also fair improvement on the ₹1,170 crore profit posted three months ago.
Signs of recovery
But that is not the only thing which could be driving the stock which was trading at ₹432.8 at 11 am, on Monday (July 29).
The country’s largest private bank is showing strong signs of recovery. This quarter its net interest income went up by 27% to 7,737 crore from last year. More importantly, the bank has made lower provisions which are made to cover for bad loans, at ₹3,496 crore as compared to ₹5,971 crore last year.
“ICICI is exiting the corporate non-performing loans cycle, reflected in the 31% year on year fall in slippage and some upgrades below-rated loans to the steel industry). Moreover, its rise in better-rated clients and low exposure to new stressed corporates will insulate from risks,” said a report by CLSA.
Improved loan book
All of its top 20 loans are rated A- or better, according to the brokerage which gave the stock a ‘Buy’ rating, as it see 2019-20 as the year of turnaround. The brokerage predicts that its shareholders will be able to make as much as 15-16% returns from the stock, as the company chugs on its path to recovery.
“As structural changes become more entrenched at the bank , ICICI Bank’s reported financials will improve and stabilise. Continuous stability and improvement in core parameters underpin our thesis of its trajectory towards normalized earnings,” said a report by HDFC Bank.
ICICI has been emerging from last year’s revelation of bad loans weighing on its books year. Adding fuel to fire is a scandal involving its long-time CEO Chanda Kochhar , who allegedly gave loans to Videocon Group $4. An Enforcement Directorate probe is still underway in the case. Kochhar was later ousted and asked to pay back all her hefty bonuses as well.