In Q4FY20, ICICI Bank reported PAT of Rs 12.2 bn (down 70% q-o-q) as the bank made higher provisions for COVID-19 related contingencies and NPAs. The bank reported NII growth of 17% y-o-y (in line with our estimate). Non-interest income growth of 18% was driven by Treasury and retail fee income. With opex growing 16% y-o-y, core operating profits grew 17% y-o-y (in line with our estimate). Slippages remained elevated at 3.7% of loans (vs 2.5% in 9MFY20), led by two overseas corporate loans. Net stressed loans (down 4% q-o-q) stood at 4.4% of loans (4.7% in Q3).
COVID related provisions drove total provisions: The bank reported slippages of Rs 53 bn (3.7% of loans) vs average Rs 32 bn in the past seven quarters. 43% of the corporate slippages came from the earlier recognised stressed book. Two large international accounts drove the rest of the corporate slippages. Along with NPA provisions, the bank also provided Rs 27.3 bn (170bp of loans) related to COVID-19-linked contingencies. Credit costs thus increased to 373bp vs average 180bp in 9MFY20.
Standard and contingent provisions now stand at Rs 79.4 bn (1.2% of outstanding loans). Net stressed book (net NPA, sub-investment grade exposures and security receipts) was down 4% q-o-q and now stands at 4.4% of loans (4.7% at end-Q3). ICICI Bank reported c30% of total loans are now under moratorium as per RBI guidelines (at end-April 2020).
Retail driving loan growth; operating trend in-line: Domestic loans grew by c13% y-o-y in Q4, led by retail loan book growth of 16% y-o-y. Further, non-mortgage and non-auto retail loans grew faster (c26% y-o-y), led by business banking, personal loans and credit cards. Average CASA grew at 12% y-o-y in Q4FY20. NIM expanded by 10bp q-o-q to 3.9%. NII growth of 17% y-o-y was higher than loan growth. Fee income growth remained healthy at 18% y-o-y. Core operating profits grew by 17% y-o-y as operating expenses also grew by 16% y-o-y. Cost-to-income was stable at 44%.
Conservative recent risk underwriting to help in the slowdown; maintain Buy: While we expect NIM to compress by c20bp over FY21-22e due to the large share of floating rate loans in a falling rate cycle, a higher focus on conservative credit underwriting in recent years should help the bank navigate credit quality stress in this volatile climate. We expect average standalone RoE of 11% with a loans CAGR of c12% over FY21-22e. Our FY21-22e PAT estimates are largely unchanged (up 2-3%). Our TP of Rs 415 (Rs 396 earlier) implies 1.2x FY22e standalone bank BVPS. Maintain Buy.