Specialist in Indian Banking and Economic Research

Hemindra Hazari

Is a Securities & Exchange Board of India (SEBI) registered research analyst with over 25 years experience in the Indian capital markets with a specialization in banking and economy research and has managerial experience of establishing profitable equities business, leading and mentoring analysts.  He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James  and Karvy Stock  Broking and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

ICICI Bank: Strong Operating Performance Continues

ICICI Bank Q4FY21- India’s Two Largest Private Sector Banks Driving Growth in 2 Different Directions

Cause for Alarm – ICICI Bank’s Burgeoning Retail Lending Vulnerable to the Economy

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a> reported strong profits for 2QFY2022, with standalone net profits increasing by 30% YoY to Rs 55 bn., enthusing the market. The bank has been focusing on retail loans to drive its assets and profits, after heavily haemorrhaging on corporate loans prior to FY2020. The retail asset emphasis was expected to provide stability to the bank’s earnings. However, the broader economic slowdown, combined with the Covid-19 pandemic, has unmasked the supposed stability in the retail strategy. In some ways this is a mystery, as 55.3% of retail loans are mortgages, which are regarded as being very secure. It is surprising that the bank does not provide any details regarding the erratic retail performance, and does not attempt to educate investors on why a retail portfolio largely consisting of mortgages should perform in such an unpredictable manner In 2QFY2022 ICICI Bank reported a YoY decline in retail Profit Before Tax (PBT) of 13.5% to Rs 26.1 bn (in 1QFY2022 Rs 3.9 bn), with retail loans of Rs 4,404 bn. Pertinently, the retail PBT in 1QFY2021 was Rs 27.6 bn with retail loans of Rs 3,449 bn. Even though retail loans since 1QFY2021 increased by 28%, the retail PBT in 2QFY2022 is still below the level of 1QFY2021. The bank’s overall domestic net interest margin in 2QFY2022 is higher than 1QFY2021 and 2QFY2021, which indicates that the performance was not impacted by a squeeze in margins but more likely by credit costs.Shareholders in ICICI Bank should be concerned regarding the volatility in the bank’s retail PBT. It could be on account of an industry-wide impact on retail loans brought about by Covid19 which impacts quarterly performance, or it could be peculiar only to ICICI Bank’s retail loans. Whatever the reason, it reveals that a strategy of increasing retail loans, the bulk of which are mortgages, is not insulated against a broad economic downturn, and results in high volatility in performance. Whether this volatility is transitory or for the long term only time can tell.

ICICI Bank Ltd (ICICIBC IN) reported strong profits for 2QFY2022, with standalone net profits increasing by 30% YoY to Rs 55 bn., enthusing the market. The bank has been focusing on retail loans to drive its assets and profits, after heavily haemorrhaging on corporate loans prior to FY2020. The retail asset emphasis was expected to provide stability to the bank’s earnings. However, the broader economic slowdown, combined with the Covid-19 pandemic, has unmasked the supposed stability in the retail strategy. In some ways this is a mystery, as 55.3% of retail loans are mortgages, which are regarded as being very secure. It is surprising that the bank does not provide any details regarding the erratic retail performance, and does not attempt to educate investors on why a retail portfolio largely consisting of mortgages should perform in such an unpredictable manner In 2QFY2022 ICICI Bank reported a YoY decline in retail Profit Before Tax (PBT) of 13.5% to Rs 26.1 bn (in 1QFY2022 Rs 3.9 bn), with retail loans of Rs 4,404 bn. Pertinently, the retail PBT in 1QFY2021 was Rs 27.6 bn with retail loans of Rs 3,449 bn. Even though retail loans since 1QFY2021 increased by 28%, the retail PBT in 2QFY2022 is still below the level of 1QFY2021. The bank’s overall domestic net interest margin in 2QFY2022 is higher than 1QFY2021 and 2QFY2021, which indicates that the performance was not impacted by a squeeze in margins but more likely by credit costs.Shareholders in ICICI Bank should be concerned regarding the volatility in the bank’s retail PBT. It could be on account of an industry-wide impact on retail loans brought about by Covid19 which impacts quarterly performance, or it could be peculiar only to ICICI Bank’s retail loans. Whatever the reason, it reveals that a strategy of increasing retail loans, the bulk of which are mortgages, is not insulated against a broad economic downturn, and results in high volatility in performance. Whether this volatility is transitory or for the long term only time can tell.

ICICI Bank’s Retail Loan Strategy: A Source of Stability or Volatility?