ICICI Bank posts slowest quarterly growth in four years

ICICI Bank Ltd posted its slowest quarterly profit growth in four years as the ability of corporate borrowers to repay loans declined and the amount of funds set aside for bad debt almost doubled.

India's biggest private sector lender, like rivals Yes Bank, HDFC Bank and IndusInd Bank, has had to contend with a wave of defaults by companies struggling to make ends meet as India's economy grows at its slowest pace in a decade.

As a result, banks have increased the proportion of funds they extend to consumers from whom demand for home and car loans in particular has picked up as banks open branches in new territories.

That shift helped ICICI on Wednesday report net profit of 25.3 billion rupees in October-December from 22.5 billion a year earlier. That compared with the 24.6 billion rupee mean estimate of 23 analysts polled by Thomson Reuters I/B/E/S.

Net interest income, or the difference between interest earned and paid, rose about 22 percent to 42.6 billion rupees.

Tax expense rose 45 percent to 12.1 billion rupees, hurting profit growth.

Shares of ICICI, with a market value of $18.6 billion, briefly fell after the results but pared losses to trade up 0.8 percent. The Sensex was up 0.3 percent.

ICICI's 13 percent profit growth compared with Yes Bank's 21 percent, HDFC Bank's 25 percent and IndusInd Bank's 30 percent.

PAST ITS BEST

Of 50 analysts following ICICI, 44 recommend or strongly recommend buying the bank's shares, according to Thomson Reuters Starmine.

The remaining six advise investors to stick with their current ownership, as some expect revenue growth to slow in coming quarters and credit costs to rise.

"We believe the bank is past its best in earnings, at least in the medium term," Kotak Securities banking analyst M. B. Mahesh said this month in a research note.

Net interest margin, a gauge of profitability, is likely to narrow because of a switch in focus to retail lending, Mahesh said.

ICICI's net interest margin grew to 3.32 percent from 3.07 percent, higher than an industry average of around 3 percent.

Net non-performing loans as a percentage of total assets rose to 0.94 percent from 0.76 percent, primarily because of corporate defaults. The industry average is 2 percent.

Mahesh changed his recommendation on ICICI to buy from sell after the stock fell 12 percent over the past two months. Even so, he maintains a "cautious" view on the stock.

Shares of ICICI, 38.4 percent held by foreign investors including Deutsche Bank Trust Company Americas and Merrill Lynch Capital Markets, are undervalued when compared with peers, trading at 1.8 times the book value of the bank's assets, according to Thomson Reuters Starmine.

By comparison, HDFC Bank trades at 4.4 times its book value, IndusInd Bank at 3 times and Yes Bank at 2.2 times.

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