ICICI Bank Q3: Treasury gains, stake sale in ICICI Sec to aid profitability

Q3 preview: ICICI Bank’s net profit during the December quarter of FY21 (Q3FY21) could take a hit, fear analysts, who are factoring-in up to 14 per cent year on year (YoY) decline in PAT. The lender is scheduled to report its earnings report card for the recently concluded quarter on Saturday, January 30.

Forecasting a growth of single digit (9 per cent each) in net interest income (NII) and operating profit, analysts at Centrum Broking peg the bank’s net profit at Rs 3,576.7 crore, down 14 per cent on year. PAT stood at Rs 4,146.5 crore in the previous year quarter (Q3FY20), and at Rs 4,251.3 crore in the September quarter of the current fiscal (Q2FY21).

Corresponding with the stance, Edelweiss Securities and IDBI Capital, too, expect the lender’s PAT to decline, albeit at a lower rate of 4 per cent and around 7 per cent YoY, respectively.

That said, a section of analysts remain positive on the bank and expect it to report over 18 per cent jump in net profit on a yearly basis.

Aided by nearly 68 per cent YoY gain in treasury income at Rs 893 crore, Kotak Institutional Equities foresees the PAT at Rs 4,917.8 crore for the quarter under review. Treasury income was Rs 531 crore in Q3FY20 and Rs 542 crore in Q2FY21.

Those at Phillip Capital expect the bank’s PAT to rise on the back of stake sale gains in ICICI Securities. Early December, the lender sold 2.21 per cent stake in its brokerage arm, ICICI Securities, to clock investment gains around Rs 330 crore.

Meanwhile, operating profit and profit before tax (PBT) is each seen rising up to 14 per cent YoY to Rs 8,621.3 crore and Rs 6,225.1 crore, respectively. Operating profit was Rs 8,261.1 crore in Q2FY21, and Rs 7,548.6 crore in Q3FY20).

Loan book and NII

Analysts expect the bank’s loan book to show ‘modest’ growth during the quarter under review. Motilal Oswal Financial Services see the credit off-take at Rs 6.77 trillion during the quarter, up 6.6 per cent from Rs 6.35-trillion loan book in Q3FY20. In the September quarter, loan book of the bank stood at Rs 6.52 trillion.

The deposits are pegged at Rs 8.64 trillion, logging a growth of around 21 per cent from previous year’s deposits of Rs 7.16 trillion. The liabilities stood at Rs 8.32 trillion in Q2FY21.

Effectively, NII — the difference between interest income earned and interest expended – is expected to grow anywhere between 9 per cent and 15 per cent YoY, up to Rs 9,832.1 crore in Q3FY21. In the previous year quarter, the NII was Rs 8,545.3 crore while it was Rs 9,366 crore in Q2FY21. Net interest margin (NIM) is expected to moderate to 3.5 per cent.

Key monitorables

The key monitorable will be downgrades to BBB and below list; outlook on asset quality; update on restructuring account; and business outlook.

“We expect focus to remain on the expected restructuring by Q4FY21. We are building slippages of 4.5 per cent (subject to Supreme Court ruling) mainly from the retail portfolio,” said earnings preview note by Kotak Institutional Equities. In absolute terms, Phillips Capital expects slippages of around Rs 5,000 crore.

Provisions are pegged between Rs 2,396.2 crore and Rs 3,830 crore. Loan-loss provisions were around Rs 2,083.2 crore in the corresponding quarter of the previous fiscal, and Rs 2,995.3 crore in Q2FY21.

ICICI Bank’s stock price outperformed both, Nifty50 and Nifty Bank index, in three months to December by soaring nearly 51 per cent on the National Stock Exchange. In comparison, the Nifty50 and Nifty Bank index surged 24 per cent and 46 per cent, respectively, ACE Equity data show.

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