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  • Why ICICI Bank is a good Investment Pick

    Publish Date: 9th August, 2018

    At the outset, ICICI Bank might not look like a strong investment choice following the earnings report released in July. The company reported a net loss of Rs 120 crore for the first quarter of FY19. This is the very first time that the banking giant reported a net loss since 2001. But if you dig a bit deeper in the annual report and 20F filing, you’ll find that most metrics show improving trends.

    Here are the reasons why ICICI bank is a top investment pick.

    Retail segment continues to shine

    The retail segment continued to grow at a strong pace with a 33% YoY earnings growth. Retail fees are more than 70% of the bank’s total fee income. In the corporate banking business, losses increased as a result of higher provisions for bad loans and a weak Net Interest Income (NII) growth. But on the other hand, capital market related subsidiaries enjoyed another strong performance during the year.

    Read the full report for the target price here.

    Asset quality concerns going down

    The bank’s impaired loan portfolio can finally come out of the dark in FY19 according to analysts. As per the 20F filings, it is clear that there is a sharp decline in ‘below investment grade’ portfolio. Gross Non-Performing Loans (NPLs) were stable at 8.8% of loans for the quarter while net NPLs declined by 60 basis points (bps) to 4.2% of loans on a QoQ basis.

    Read about ICICI’s first quarter earnings performance here.

    Strong improvement in early warning signals

    Early warning indicators analyse data points and signal a potential banking distress over a medium-term horizon. According to the current data, the early warning signals for ICICI bank are at the lowest levels in both the retail and corporate segments. The bank has also been growing its investment grade portfolio at a healthy pace.

    Conclusion

    Despite the disappointment in earnings, there are a lot of positives to take away from ICICI’s numbers. The company has made a shift towards low risk loans, healthy mobilisation of CASA deposits and a strong improvement in early warning signals. As a result, it is a strong investment pick and analysts at Kotak Institutional Equities maintain a ‘BUY’ rating for the stock with target price unchanged at Rs 400.

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