Is Videocon row forcing Chanda Kochhar led ICICI Bank to do what it knows best?

Is the Videocon loan controversy forcing ICICI Bank to do what it knows best retail loans? The focus on corporate loans, specially infrastructure ones, has eaten into the bank’s profitability and impaired its asset quality, forcing it to focus on smaller retail loans. If it was not for a tax write-back of Rs 220 crore and a one-time gain of Rs 3,300 crore the bank would have struggled to report a profit for the quarter ended March 31, 2018. Despite these two gains, the net profit of the bank for the fourth quarter ended was down 50% over to the corresponding period last year to Rs 1,020 crore.

Interestingly Chanda Kochhar, managing director and chief executive officer, ICICI Bank, has given a two-year horizon till 2020 for implementing the de-risking strategy. During this period, the bank will preserve its retail deposit franchise and digital banking initiatives, change its loan mix while growing its balance-sheet.

By 2020, the retail loans will be over 60% of the bank’s total loan book. The bank is also planning to bring down its exposure in corporate groups well below the regulatory requirements Already, the bank has brought down its exposure limits to the top ten borrowers to 14.3% at the end of March 2018 from 20.3% in 2014. The corporate exposure limits will be based on credit ratings and past track record.

ICICI Bank has a retail loan outstanding of Rs 289,900 crore at the end of March 2018. Of this, home loans constituted 51.8% of the book at Rs 1,50,168.2 crore. Vehicle loan comprised 16.1% of the total loans at Rs 46,673.9 crore, rural loans were about Rs 43,195 crore, credit card were 3.2% of the total retail book at Rs 9,276.8 crore and personal loans constituted 7.2% of the total retail book of the bank at Rs 20,872.8 crore.

The markets gave a thumbs-up to the bank’s announcement of a change in growth strategy and upfront recognition of stress. ICICI Bank’s share price rose 6.45% to close at Rs 308.45 on the BSE. During Q4 2018, the gross additions to NPA were Rs 15,737 crore the fourth quarter. This included Rs 9,968 crore of loans which were under RBI schemes and classified as standard under during the third quarter.

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Ashutosh Kumar Mishra, senior research analyst, Reliance Securities, “Looking ahead, we believe weak performance on the operating profit front and elevated credit cost will continue to negatively impact the bank’s overall performance in the next few quarters. Despite improving performance across the retail business franchise on assets, liabilities and retail fees front, the corporate segment continue to drag its overall performance on asset quality.”

Source: DNA Money