ICICI Bank an Update

Axis bank and HDFC with better CASA, good around increase in business and income are posing serious challenge to ICICI bank.

        The performance of ICICI bank was reviewed prior to its results. It is time to understand their numbers and that of other leading private sector banks operating in India. ICICI bank occupies the first place in terms of business turnover, capital adequacy, spread of business etc in amongst the private sectors banks. However in few parameters of importance there are other banks that are performing better than ICICI.

        The bank declared their results for the quarter ended December 31, 2007 posting 35% year-on-year growth in profit after tax.  The major highlights are

• Profit after tax for Q3-2008 increased 35% to Rs. 1,230 crore (US$ 312 million) from Rs. 910 crore (US$ 231 million) for the quarter ended December 31, 2006 (Q3-2007).

• Operating profit excluding treasury income increased 37% in Q3- 2008 to Rs. 1,977 crore (US$ 502 million) from Rs. 1,442 crore (US$ 366 million) for the quarter ended December 31, 2006 (Q3-2007).

• Net interest income increased 32% to Rs. 1,960 crore (US$ 497 million) for Q3-2008 from Rs. 1,485 crore (US$ 377 million) for Q3- 2007.

• Fee income increased 33% to Rs. 1,785 crore (US$ 453 million) for Q3-2008 from Rs. 1,345 (US$ 341 million) for Q3-2007.

• Current and savings account deposits increased 33% to Rs. 62,494 crore (US$ 15.9 billion) at December 31, 2007 from Rs. 47,062 crore (US$ 11.9 billion) at December 31, 2006 resulting in an increase in CASA ratio to 27% at December 31, 2007.

• Total advances increased 25% to Rs. 215,517 crore (US$ 54.7 billion) at December 31, 2007 from Rs. 172,763 crore (US$ 43.8 billion) at December 31, 2006.

• Profit after tax for the nine months ended December 31, 2007 (9M- 2008) increased 32% to Rs. 3,008 crore (US$ 763 million) from Rs. 2,285 crore (US$ 580 million) for the nine months ended December 31, 2006 (9M-2007).

Operating review

Deposit growth

        Current and savings account deposits increased 33% to Rs. 62,494 crore (US$ 15.9 billion) at December 31, 2007 from Rs. 47,062 crore (US$ 11.9 billion) at December 31, 2006. During this period, the Bank’s total deposits increased 17% to Rs. 229,779 crore (US$ 58.3 billion) at December 31, 2007 from Rs. 196,893 crore (US$ 49.9 billion) at December 31, 2006. The Bank had 955 branches and extension counters and about 3,687 ATMs at December 31, 2007.

Credit growth

        The Bank’s total advances increased 25% to Rs. 215,517 crore (US$ 54.7 billion) at December 31, 2007 from Rs. 172,763 crore (US$ 43.8 billion) at December 31, 2006. The proportion of advances of the Bank’s international branches in total advances increased from 12% at December 31, 2006 to 21% at December 31, 2007, reflecting effective synergies between the Bank’s strong corporate franchise and its international presence. The Bank’s retail advances were Rs. 132,311 crore (US$ 33.6 billion) at December 31, 2007 and constituted 61% of total advances. International operations

The Bank is present in 18 countries through wholly-owned subsidiaries, branches and representative offices. At December 31, 2007 the Bank’s international operations accounted for about 23% of its consolidated banking assets. ICICI Bank UK plc opened two additional branches in UK in Coventry and London taking the number of retail locations to nine. ICICI Bank Canada opened its seventh branch in Canada in the Greater Toronto Area.

Capital adequacy

        The Bank’s capital adequacy at December 31, 2007 was 15.8%1 (including Tier-1 capital adequacy of 12.1%), well above RBI’s requirement of total capital adequacy of 9.0%. (The figure excludes US$ 750 million Upper Tier II issue made in January 2007 pending clarifications required by Reserve Bank of India on the clauses for principal and interest payment.)

Asset quality

        At December 31, 2007, the Bank’s net non-performing assets constituted 1.47% of net customer assets. International funding plan At December 31, 2007, ICICI Bank’s consolidated balance sheet size was USD 115 billion. From January to December 2007, ICICI Bank and ICICI Bank UK plc raised USD 6.7 billion in the international bond markets in dollar, euro and sterling currencies. This is used primarily for financing the expansion of Indian businesses, including their organic and inorganic growth internationally and their large investment plans in India. Going forward, the Bank seeks to continue to capitalize on these growth opportunities. Based upon an evaluation of funding opportunities and returns thereof, the Bank currently expects to raise approximately the same amount through bond issuances during calendar year 2008 subject to market conditions. The Bank currently expects to continue to diversify and evaluate alternative markets to complement its dollar, euro and sterling bond issuances. The balance international funding is likely to come from retail and corporate deposits, bank loan markets, multilateral sources and trade financing.

Performance highlights of key subsidiaries

ICICI Bank’s un-audited consolidated profit after tax was Rs. 2,762 crore (US$ 701 million) for 9M-2008 compared to Rs. 2,203 crore (US$ 559 million) for the 9M-2007.

ICICI Prudential Life Insurance Company (ICICI Life) continued to maintain its market leadership among private sector life insurance companies with a private market share of 25.8% and an overall market share of 11.8% on the basis of new business weighted received premium. During April- November ICICI Life’s new business weighted received premium increased by 67% as compared to industry growth of 14%. The growing operations of ICICI Life had a negative impact of Rs. 674 crore (US$ 171 million) on the un-audited consolidated profit after tax of ICICI Bank in 9M- 2008. However, ICICI Life’s un-audited New Business Profit (NBP) in 9M4 2008 was Rs. 748 crore (US$ 190 million). The assets held by ICICI Life increased from about Rs. 15,818 crore (US$ 4.0 billion) at March 31, 2007 to Rs. 28,409 crore (US$ 7.2 billion) at December 31, 2007.

        ICICI Lombard General Insurance Company (ICICI General) maintained its leadership position with a market share of 31.9% among private sector general insurance companies and an overall market share of 12.7% during April-November 2007. ICICI General’s premiums increased 17% to Rs. 2,722 crore (US$ 691 million) in 9M-2008 despite the impact of de-tariffication. ICICI General’s profit after tax increased by 134% to Rs. 115 crore (US$ 29 million) in 9M-2008 from Rs. 49 crore (US$ 12 million) in 9M-2007.

ICICI Securities’ revenues for Q3-2008 and 9M-2008 were Rs. 257 crore (US$ 65 million) and Rs. 527 crore (US$ 134 million) respectively. The company’s profit after tax for Q3-2008 and 9M-2008 was Rs. 71 crore (US$ 18 million) and Rs. 108 crore (US$ 27 million) respectively. ICICI Prudential Asset Management Company‘s (ICICI AMC) assets under management (including portfolio management services and advisory assets) increased by 59% to Rs. 69,230 crore (US$ 17.6 billion) at December 31, 2007 from Rs. 43,440 crore (US$ 11.0 billion) at March 31, 2007. ICICI AMC’s profit after tax increased by 127% to Rs. 75 crore (US$ 19 million) in 9M-2008 from Rs. 33 crore (US$ 8 million) in 9M-2007. ICICI Venture Fund Management Company (ICICI Venture) is the largest private equity company in India with assets under management of about Rs. 9,600 crore (US$ 2.4 billion). ICICI Venture’s profit after tax for 9M- 2008 was Rs. 52 crore (US$ 13 million).

How does ICICI bank compare with its peers in the private sector?

The quarterly results of select private sector banks is given in following table

         The Axis bank leads the pack with good net profit margins, while ICICI bank has the highest operating margin. HDFC bank has posted highest income ((64%) and assets growth of nearly 50% leading the private banks. It has also recorded the lowest bad loans at 0.4 of the asset base with capital adequacy of 13.8%. The comparable figures for ICICI bank are NPA at 1.5% of the assets and capital adequacy of 15.8% the highest.

        The expenses on the employees as a percentage of the total income and interest spent show a very good 12.99% for HDFC, 11.37% for Axis and 14.07% for the ICICI bank. The ICICI bank is better prepared to handle the rising employee costs as they have integrated a sound pay as you drink in outsourcing the services. Further ICICI bank leads others in terms of other income being a substantial part of their income more due to the structuring of their lending terms.

         The HDFC and Axis are well placed as the proportion of demand and savings accounts form well over 50% of their assets. Much of this business is derived from the good growth the stock market has witnessed as these two banks have major high value clients from the stock and capital market intermediaries. ICICI bank with around 28% deposits from current and savings has naturally a higher resource cost.

        ICICI bank is well placed to handle further expansion of assets and has sound infrastructure in place.

It is worthwhile to stick to ICICI bank and take an exposure to Axis and or HDFC bank when their stock prices decline.