Operating metrics are getting better steadily; core RoA/RoE expected to improve to 1.5/15.5% by FY21e; ‘Buy’ maintained
ICICI Bank’s (ICICIBC’s) annual report reaffirms our view that the bank is progressing well in its endeavour to strengthen balance sheet with strong focus on retail franchise. While its retail portfolio has been leading overall loan growth, GNPA has remained stable at 1.7% for many years; also, retail fees contribute over 70% to total fees. Concentration of the top-20 advances/exposures improved by 206bp/208bp to 12.1%/ 11.9% during the year. On the liability side, concentration of the top-20 depositors improved by ~50bp to 5.7%.
BB and below pool reduced to Rs 175 bn (~3.0% of total loans) while net stressed loans declined to 3.3% (excluding NNPA). During Q1FY20, the BB & below pool further reduced to Rs 154 bn (~2.6% of loans) while net stressed loans declined to 2.9% (excl. NNPA). SA per branch improved to Rs 448 m in Q1FY20 v/s Rs 354 m in FY17, thus, indicating higher productivity and operational efficiency at branch level. The bank has one of the highest proportions of retail deposits with a strong CASA mix.
With asset quality stabilising, we expect credit cost to moderate sharply and estimate core RoA/RoE to improve to 1.5%/15.5% by FY21. Maintain Buy with SOTP-based TP of Rs 520 (2.2x FY21e ABV). ICICIBC remains our top pick in the sector.
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Strong traction in building retail franchise continues
ICICIBC’s deposit growth came in at ~16% CAGR while CASA grew at ~18% CAGR over FY15-19. The average CASA ratio improved from ~39.5% in FY15 to ~44.6%. Since garnering CASA has been a challenging task for banks over the last few quarters, ICICIBC has increased its focus towards retail term deposits. While its liability franchise stands strong, the bank intends to maintain a healthy and stable funding profile to deliver benefits on the cost of funds.
Loan growth driven by retail
The bank increased its focus on high yielding retail loans like personal loans and credit cards. The share of unsecured retail loans increased to 8.2% of loans as of Q1FY20 (v/s 5.9% in FY18). ~90% of the disbursements were made over FY19 to the A-and above. The retail business remains a key growth driver and constitutes ~61% of the total loan book. The bank also launched new products, both in retail assets as well as in Corporate & SMEs.