Loan growth picked up further and grew 6.5% QoQ and 15%+ YoY. YTD (year-to-date) loans grew 14%, driven by higher disbursals in the corporate segment. For FY11, the bank is targeting 18% growth, translating into 4% QoQ growth in Q4FY11 (to moderate from current levels, with moderation in some of the bulky corporate loans).
CASA (current account, savings account) grew 23% YoY (declined 2% QoQ) to Rs 962 bn. On an average daily basis, CASA ratio stood at 40.3%. Fee income grew 2% QoQ and 14% YoY to Rs 16.3b, driven by higher income from corporate and international business. We expect fee income growth to be in line with asset growth. Provisions declined 28% QoQ to Rs 4.6 bn (vs our expectation of Rs 5 bn), led by stable asset quality. In Q2FY11, the bank had made excess provision of Rs 4 bn to reach 70% PCR (provision coverage ratio). PCR increased to 72% vs 69% a quarter ago. Credit cost during the quarter stood at 0.9% of loans vs 1.4% a quarter ago and 1.55% in H1FY11.
We have upgraded our earnings estimates by 2% for FY11-12 to factor in higher loan growth. We expect ICICI Bank to report EPS (earnings per share) of Rs 45 in FY11, Rs 57 in FY12 and Rs 68 in FY13. BV (book value) would be Rs 514 in FY12 and Rs 559 in FY13. Adjusted for the value of subsidiaries (Rs 233/share for FY12 and Rs 263/share for FY13, post 20% holding company discount), the stock trades at 14.8x (times) FY12e and 12.1x FY13e EPS, and 2.1x FY12e and 1.8x FY13e ABV (adjusted for investment in subsidiaries). Maintain Buy.
Loans grew 6.4% QoQ and 15.3% YoY to Rs 2.07 trln; the bank has started building up priority sector loans (PSL) to meet PSL targets. Rural loans grew 16% QoQ and 22% YoY to Rs 153 bn. Corporate loans grew 17% QoQ and 65% YoY to Rs 533 bn, driving overall loan growth. For the full year, the management is targeting an 18% loan growth, which translates into Q4FY11 loan growth of 4% QoQ. The management has clarified that while retail disbursements remain strong (though some slowdown seen in mortgages), run-off of short-term loans given at the beginning of the year will impact overall growth. The management remains confident of overall loan growth of 20% in FY12.
Deposits increased 10% YoY (declined 2.5% QoQ) to Rs 2.2 trln. CASA grew 23% YoY (declined 2% QoQ) to Rs 962 bn. SA (savings account) deposits grew 26% YoY (+2% QoQ), but CA deposits grew just 16% YoY (declined 9% QoQ). The last quarter included one-off float business (in Q2FY11, CA grew 24% QoQ). CASA ratio (calculated) increased to 44.2% in Q3FY11 vs 44% at the end of Q2FY11. On an average daily basis, CASA ratio stood at 40.3% for Q3FY11 v/s 39.2% a quarter ago.
NII grew 5% QoQ and 12% YoY to Rs 23.2 bn (5% higher than our estimate), driven by utilisation of excess liquidity in the balance sheet and stable margins QoQ (despite increase in low yielding priority sector loans). Overall margins remained stable QoQ at 2.6%; domestic margins stood at 3% (stable QoQ) while margins on international business improved by 5 bp (basis point) to 0.85%. The management has guided that structurally international margins will again go back to 125 bp levels and domestic margins will be above 3% over the next 6-8 quarters. However, in the near-term, a sharp rise in the cost of deposits and an increase in priority sector loans will put pressure on margins. We expect margins to remain stable/ marginal decline in Q4FY11 and then rise by 10-15 bp in FY12.
Fee income grew 2% QoQ and 14% YoY, driven by higher income from corporate and international business. The management expects fee income growth to be in line with asset growth. Trading gains were Rs 210m vs a loss of Rs 1.4 bn a quarter ago and Rs 260 m a year ago.
Operating expenses increased 9% QoQ and 26% YoY to Rs 17.2 bn. Employee expenses grew 22% QoQ and 78% YoY to Rs7.6 bn as the bank provided for bonus expenses in Q3FY11 and the full impact of Bank of Rajasthan merger has been included. As a part of its 5C strategy, it expects to contain cost to income ratio at 40-42%. We believe the bank's focus on cutting excess operating cost has already yielded the desired results; for the next phase of growth, investment in people and brand building is a must. With a pick-up in loan growth, other operating expenses are also likely to rise; we model in 20% opex growth over FY12/13.