ICICI Bank (ICBK.NS), India’s largest private sector lender, expects more loans made to sectors like steel may sour, a belief that forced it to set aside a bigger sum to cover any losses from them and drove its quarterly profit down to a decade low.
Indian lenders including ICICI have seen their bad loans surge in the past six months after an asset-quality review ordered by the regulator Reserve Bank of India as part of a clean-up exercise of their loan books.
Many Indian companies are struggling to repay loans as the domestic economy has remained sluggish for years, and they face additional headwinds from a steep commodities downturn.
ICICI, also listed in New York (IBN.N), said on Friday it had completed the central bank-directed review, but was keeping its balance sheet ready in case there are any surprises from five troubled sectors – iron and steel, mining, power, oil rigs and cement.
Its net profit fell 76 percent to 7.02 billion rupees ($105.60 million) for its fiscal fourth quarter to March 31, missing analysts estimates of a profit of 31.42 billion rupees. The quarterly profit was the smallest for ICICI since the June quarter of 2006, according to Thomson Reuters data.
“The weak global economic environment, the downturn in the commodity cycle and the gradual nature of the domestic economic recovery has adversely impacted borrowers in certain sectors,” Chief Executive Chanda Kochhar said on a conference call.
“It may take some time for the resolutions to be worked out,” she said.
ICICI added in the fourth quarter 36 billion rupees as contingency and related reserves, over and above provisions of 33.3 billion rupees made including for bad and restructured loans, hurting its profit for the quarter.
Gross bad loans were 5.82 percent of total loans in March, compared with 4.72 percent in December.
ICICI said it expects overall domestic loan growth of about 18 percent for the fiscal year that began in April compared with 16 percent last year. Loans to individuals will grow at a faster 25 percent compared to 23 percent last year, it said. Corporate loans are set to grow only 5-7 percent as the bank focuses on higher-rated companies, it said.
The lender plans to file for an initial public offering of its life insurance unit this fiscal year, it said.
ICICI shares closed 1.3 percent lower in a Mumbai market that was little changed.
($1 = 66.4800 Indian rupees)