Beleaguered ICICI Bank retracing old strategy of growing unsecured credit

The gloss is coming off the balance-sheet of India’s second biggest private lender, ICICI Bank. With multiple investigations underway against its managing director and CEO, Chanda Kochhar, and another set of probe on its profit figures, the bank’s management is left with little choice but to hike provisions on all weak accounts.

To pump up its margins, bank is retracing its old strategy of growing unsecured credit.

The bank, now led by Sandeep Bakhshi, an ICICI veteran, who has taken charge as the chief operating officer (COO), has hiked provisions, forcing the bank to report its quarterly first loss.

On Friday, the bank reported a surprising net loss for the first quarter, its first quarterly loss. The bank reported a net loss of Rs 119.55 crore in the April-June quarter compared with a profit of Rs 2,049 crore in the same quarter last year, according to its filing with the stock exchanges. The net loss would have been higher if the bank did not have a gain of Rs 1,110 crore from its stake sale in ICICI Prudential Life Insurance.

Expectations of a steep haircut during the insolvency process of debt-ridden companies under the Insolvency and Bankruptcy Code 2016 may have forced ICICI Bank to increase its provisions to 66% from 53%, driving the bank to its first quarterly loss.

The bad loans were a drag on the profitability of the bank in the quarter ended March 31, 2018 as well, but it could prevent a loss with a one-time gain of Rs 3,320 crore after it sold off its shareholding in ICICI Securities, which went for an IPO. This helped the bank report a net profit of Rs 1,020 crore in the preceding quarter.

Unsecured loans such as personal loans and credit cards have shown a strong growth for the first quarter ended June 30, 2018. The unsecured loans of the bank grew by 40.8% over the previous year to Rs 32,646 crore. The personal loans of the bank grew at 47.7% to Rs 22,341 crore and credit cards grew at 27.9% to Rs 10,304 crore. Though the unsecured loans comprised only 11% of the total book, it is the fastest growing portfolio of the bank. Home loans grew 16.4% to Rs 1,54,455 crore, constituting 52% of the overall advances. Vehicle loans grew 15.4% to Rs 47,656 crore. Retail loans increased to 57.7% of the total advances while corporate loans were 25.4% at the end of the quarter.

During this period, there was a jump in provisioning and contingencies at Rs 5,971.29 crore, higher than the Rs 2,608.74 crore from the year-ago period. The bank also took mark-to-market hit of Rs 218 crore on its investments in government securities rather than amortising it over four quarters, a leeway allowed by Reserve Bank of India (RBI) to minimise losses banks may have to report due to hardening of yields.

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At the end of the quarter, the bank had outstanding loans and non-fund bases facilities of Rs 9,292 crore and Rs 774 crore, respectively. The provisions against these outstanding loans also increased from 47.8% to 60.7%.

The gross advances of the bank at the end of the quarter were Rs 5,16,289 crore, growing 11.3% over the previous year. Of this, the retail advances were at Rs 2,97,044 crore, growing at 20% over the previous year.

During the quarter, non-performing loans of the bank also spiked to 8.81% of the gross advances as on June 30, 2018, compared to 7.99%. The gross NPAs of the bank is now at Rs 53,465 crore from Rs 43,148 crore in the year ago period. The bank also wrote off and sold loans of Rs 2,598 crore during the quarter.

Source: DNA