net profit, up 13% year-on-year, was in line as strong treasury gains and dividends from subsidiaries had offset a slowdown in operating profits (+11% y-o-y). Non-operating items (treasury & dividend) aided reported ROA (return on assets)1.8%, stripped of which, core ROA was at 1.4%.
Loan growth was steady (+16% y-o-y) but the bank has slowed corporate loan growth to 7% y-o-y from 30% in FY13 and 57% in FY12, which was a key positive. Retail was the main growth driver (up 22% y-o-y). NIMs (net interest margins) held up (3.3%), which was supported by healthy savings deposit growth (17% y-o-y) and CASA (current, savings account) at 43%.
Asset quality stress is now reflecting in rising restructuring (Rs 20 bn in Q3) but is still not fully visible in credit costs (85 bp). Total annualised impairment was at 3.7% of loans in Q3, still credit costs guidance remains at <1% as NPL coverage has moderated (70%) and a large share of impairment is addition to the restructured loans.
Core reported ROE (return on equity) of the bank is stable at 14.5% and consolidated ROE at 15%. Increasing regulatory capital requirements and likely rise of credit costs limit the room for bank further ROE improvement; we maintain Neutral on the stock.
Operating performance in-line; asset impairment higher: ICICI Bank operating profit growth slowed to 11% y-o-y as healthy pre-provisions profit growth (21% y-o-y) on the back of margins holding up (3.3%) and steady loan growth (up 16% y-o-y) was offset by an increase in NPL provisions. Loan growth was driven by retail (+22% y-o-y). Domestic corporate loan growth slowed to 7% y-o-y from 30% in FY13 and 57% in FY12. Fee income growth was at 13% y-o-y, with the management guiding for low double-digit growth for FY14e as well. Domestic deposit growth traction was healthy, with savings deposit growth of 18% y-o-y, the key positive from results. Tax rate went up due to DTL (demand and time liabilities) created of Rs 2.1 bn against special reserve according to revised RBI guidelines.
Asset impairment rises; restructuring to increase: Impaired asset addition increased to 3.7% of loans (annualised) in Q3 on the back of a rise in both NPA addition and restructuring (Rs 20 bn in Q3 cf. Rs 10 bn in Q2). The management has guided for further acceleration and restructuring in Q4 to be up another 50%. Asset quality impairment at ICICI is now outpacing other private banks such as Axis (~0.6% of loans in Q3).
Earnings growth to slow: Consolidated profit growth slowed to 9% y-o-y on slowdown in core banking as well as general insurance earnings. Life insurance reported healthy profits (Rs 4.3 bn); however, new business margins fell to 10.9% from 14% in Q2FY14 with newnorms for traditional and non-par products implemented from 1 Oct 2013. We increase our EPS estimate by 4% for FY14e on higher dividend and treasury income.