ICICI Bank on Friday reported a 24% sequential rise in bad loans in Q4 and provisions of Rs 3,326 crore. In an interaction with reporters, the bank’s managing director and CEO Chanda Kochhar said the bank has created reserves of Rs 3,600 crore to act as buffer against vulnerabilities in five sectors – iron & steel, mining, power, rigs and cement. Excerpts…
Why was it necessary to create the additional reserve of Rs 3,600 crore?
I just want to reiterate that the Rs 3,600 crore of reserves that we have created is an additional reserve and is a collective contingency reserve. This is, of course as I mentioned that while all the banks are working towards resolution for stress in certain borrowers and due to the global economic environment, the commodity cycle and so on there has been an impact on borrowers in certain sectors. These sectors are iron and steel, mining, power, rigs and cement. In general towards our exposure in these sectors we have created these kinds of collective reserves.
Which sectors will you focus on for credit growth?
First of all when you look at the future, you should look at the fact that one is already started seeing growth opportunities in areas around orders coming out of highway and road projects and of railways and defence and so on. We would first target to continue to grow domestically arising out of those opportunities. We will also continue to actually keep our momentum on retail asset growth.
What is your guidance on credit growth?
We have achieved a robust growth in our loan portfolio where the retail portfolio has grown by 23.3% and it now constitutes 46.6% of total loans. Our overall domestic loan growth was 16.4% for the year.
So for the year ahead, we would target a loan growth of about 18% within which retail will grow by about 25%. On the domestic corporate side, the growth is expected to be between 5-7% given the fact that we want to focus on lending to higher rated corporates and reducing the concentration risk to our portfolio.
Now based on this, we expect as far as credit quality is concerned, we have actually been working on resolution of certain of these large cases, in fact transactions which have been recently announced by borrowers along with other assets which are under discussion will lead to deleveraging of borrowers and reduction in bank exposures. In fact they would lead to deleveraging of borrowers in the five sectors I mentioned to you. But given the fact that some of these solutions take time and globally the economic recovery is coming only gradual, we have thought it only prudent that we should keep certain reserves aside for exposures related to these sectors.
What was the effect of AQR on your asset quality?
The additions towards NPAs were Rs 6,500 crore in Q3 and this quarter it is about Rs 7,000 crore. It is as we had mentioned that NPA additions in Q4 would be more or less similar to the additions in Q3 and I am stating that we have completed RBI’s asset quality review (AQR) exercise in line with the AQR exercise. As I said that this is also the result of the AQR exercise and it has also been across sectors certain part of it is also restructured assets which have now been reclassified as NPAs. All of it is not really new stressed assets. Rs 2,700 crore loans have slipped to the NPA category from restructured assets.
How many 5/25 refinances were done in the quarter?
We did Rs 679 crore of 5/25 refinance and SDR worth Rs 1,200 crore, but that finally gets included in the restructured and NPA numbers and therefore it is not over and above that. We sold approximately Rs 700 crore of loans to asset reconstruction companies (ARCs). We plan to work towards resolution of exposures in the context of the challenges facing the corporate sector, and to maintain and enhance the strength of our balance sheet as well as our robust capital levels.