ICICI Bank Ltd posted its slowest quarterly profit growth in four years as the ability of corporate borrowers to repay loans declined and the amount of funds set aside for bad debt almost doubled.
India's biggest private sector lender, like rivals Yes Bank, HDFC Bank and IndusInd Bank, has had to contend with a wave of defaults by companies struggling to make ends meet as India's economy grows at its slowest pace in a decade.
As a result, banks have increased the proportion of funds they extend to consumers from whom demand for home and car loans in particular has picked up as banks open branches in new territories.
That shift helped ICICI on Wednesday report net profit of Rs 25.3 billion in October-December from 22.5 billion a year earlier. That compared with the rs 24.6 billion mean estimate of 23 analysts polled by Thomson Reuters I/B/E/S.
Net interest income, or the difference between interest earned and paid, rose about 22 per cent to Rs 42.6 billion.
Tax expense rose 45 per cent to Rs 12.1 billion, hurting profit growth.
Shares of ICICI, with a market value of $18.6 billion, briefly fell after the results but pared losses to trade up 0.8 per cent. The Sensex was up 0.3 per cent.
ICICI's 13 per cent profit growth compared with Yes Bank's 21 per cent, HDFC Bank's 25 per cent and IndusInd Bank's 30 per cent.
For graphic on ICICI Bank's loans, click link.reuters.com/dyr46v
Past its best
Of 50 analysts following ICICI, 44 recommend or strongly recommend buying the bank's shares, according to Thomson Reuters Starmine.
The remaining six advise investors to stick with their current ownership, as some expect revenue growth to slow in coming quarters and credit costs to rise.
"We believe the bank is past its best in earnings, at least in the medium term," Kotak Securities banking analyst M. B. Mahesh said this month in a research note.
Net interest margin, a gauge of profitability, is likely to narrow because of a switch in focus to retail lending, Mahesh said.
ICICI's net interest margin grew to 3.32 per cent from 3.07 per cent, higher than an industry average of around 3 per cent.
Net non-performing loans as a percentage of total assets rose to 0.94 per cent from 0.76 per cent, primarily because of corporate defaults. The industry average is 2 per cent.
Mahesh changed his recommendation on ICICI to buy from sell after the stock fell 12 per cent over the past two months. Even so, he maintains a "cautious" view on the stock.
Shares of ICICI, 38.4 per cent held by foreign investors including Deutsche Bank Trust Company Americas and Merrill Lynch Capital Markets, are undervalued when compared with peers, trading at 1.8 times the book value of the bank's assets, according to Thomson Reuters Starmine.
By comparison, HDFC Bank trades at 4.4 times its book value, IndusInd Bank at 3 times and Yes Bank at 2.2 times.