ICICI Q2 profit drops on tax expenses; operating profit up 24%

Tax expenses increased more than ten times to Rs 3,712 crore compared from Rs 347 crore a year ago.

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The bank however saw a slight increase in loans to companies and SMEs in the BB and below rated category as a consequence of some of these loans being downgraded.
MUMBAI: ICICI Bank's net profit dropped 28% to Rs 655 crore in the quarter ended September 2019 from Rs 909 crore a year ago because of higher tax expenses as the bank chose to take a one-time additional charge due to re-measurement of accumulated deferred tax to move to a lower tax rate of 25% as allowed by the government.

Tax expenses increased more than ten times to Rs 3,712 crore compared to Rs 347 crore a year ago. These tax expenses included the one-time additional charge of Rs 2,920 crore due to re-measurement of accumulated deferred tax assets consequent to a reduction in marginal tax from 35% to 25%.

Excluding the impact of one-time additional charge due to re-measurement of accumulated deferred tax, profit after tax would have been Rs 3,575 crore a four fold increase from Rs 909 crore a year ago as core operating profit (profit before provisions and tax, excluding treasury income) grew by 24% year-on-year to Rs 6,533 crore from Rs 5285 crore a year earlier.


"We are focussed on expanding our business and growing our operating profit in a risk calibrated manner and will continue to do so. We are focussed on achieving the 15% return on equity (RoE) target we have set ourselves by June 2020," Sandeep Batra, executive director (designate) said in a conference call.

The bank's operating profit was driven by strong loan growth especially due to demand for loans from individuals, increase in fee income and also stable asset quality which kept provisions under control. The bank's domestic advances increased 16% year-on-year led by a 22% growth in retail loans. Domestic corporate loans grew 7% year-on-year,. Total advances increased by 13%.

Net interest income (NII) or the difference between interest earned on loans and that paid on deposits increased 26% to Rs 8,057 crore from Rs 6,418 crore a year earlier. Net interest margin improved to 3.64% from 3.33% a year earlier. Non-interest income, increased to Rs 3,854 crore compared to Rs 3,191 crore a year earlier led by a 16% growth in fee income.
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Asset quality continued to show improvement with net NPAs halving to Rs 10,916 crore from Rs 22,086 crore a year earlier. Net NPA ratio decreased to 1.77% from 3.65% a year earlier and was at the lowest in 15 quarters. Gross additions to NPAs were ? 2,482 crore down from Rs 3,117 crore a year earlier and Rs 2,779 crore reported in the quarter ended June 2019. The additions to NPAs were split 50-50 between corporate and retail and SME loans.

"Overall our NPA numbers are down substantially. Our additions to NPAs are also down. There are no lumpy loans or large ticket size loans because in the last one year we have moved to better rated clients with more granular loans. Of course one cannot predict on what to expect from corporate loans but we do not expect any sharp spike," said Batra from ICICI.

The bank however saw a slight increase in loans to companies and SMEs in the BB and below rated category as a consequence of some of these loans being downgraded. Such loans totaled Rs 16,074 crore in September 2019 up from Rs 15,355 crore in June 2019 but were lower than Rs 17,525 crore reported a year earlier.

Batra said the bank's risk team keeps a close eye on these lower rated clients and some of the stressed companies in the news recently would most likely figure in these loans. He declined to give any details on individual clients. ICICI's loans to the stressed NBFC sector is Rs 26,000 crore while loans to housing finance companies total Rs 15,000 crore. Loan to telecom companies make 1.8% of the bank's loan book.
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