Hitting a six-month high, the ICICI Bank stock gained 4.64% and ended the session at Rs 332.95 on Thursday on the back of optimism that the bad loan cycle may be nearing an end. ICICI Bank’s stock has risen 28.40% from its July low. In a note to investors, Credit Suisse said ICICI Bank has been reflecting low new NPL formation over the past few quarters. “While NPLs were rising, total bad loans have continued to decline for about two years, and coverage on bad loans is up to 46% from ~20% in FY2016. Over the next three quarters, we expect coverage on bad loans to improve to 60% and then ROE to start picking up to ~15% by F20,” the note said.
“Despite NPL problems, ICICI Bank has continued to improve its retail franchise — both assets and liabilities. We expect a continued pick-up in loan growth, helped by retail. Moreover, NIMs should improve from Q3FY19 onwards, helped by higher rates and bad loan recoveries. This should drive a strong revenue growth,” the note added.
Further, the note said the new bankruptcy law in India is forcing resolution quicker. “It’s still been slow — given that it’s a new law — but some fairly big resolutions have come through for banks,” the note said. Further, market participants said valuation wise ICICI Bank is more attractive compared to its more retail-focused peers.
ICICI Bank’s stock trades at a price to book value of 1.93 while Kotak Mahindra Bank trades at 4.82. HDFC Bank trades at a price to book value of 5.02. Out of the 50 analysts who track the stock on Bloomberg, 45 have a ‘buy’ rating, one has sell and four have a ‘hold.’