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ICICI Bank 4Q20: Despite COVID-19, it remains a proxy for future India growth

ICICI Bank reported operationally sound 4Q20 results (for the quarter ended 31 March 2020) on 9 May. The bank’s net interest income grew 17% YoY, with loan growth of 10% YoY and deposit growth of 18% YoY. The net interest margin (NIM) advanced by 10 bpts to 3.9%. Non-interest revenue increased by 13% YoY, while costs rose 16% YoY. A few abnormal staff charges, relating to big retirement provisions, saw staff costs rising 18% YoY. Pre-provision operating profit (PPoP) grew 19% YoY. Credit quality, for the most part, was stable and within expectations – up 9% YoY. It would have been down 11% YoY if not for the additional COVID-19 (CV19) provisioning. As has become common with banks reporting results to end-March 2020, there is an additional layer of provisioning due to the CV19 pandemic. ICICI’s common equity tier-1 (CET1) ratio of 13.4% is steady from 13.6% in both 3Q20 and 4Q19. No dividend was allowed as per the regulator.

In our view the bank is well capitalised going into the current period of stress. The thesis was playing out according to plan, with CV19 obviously a hindrance. The Indian economy was in the process of undergoing some big structural changes, most of which were seen to be more business-friendly in the longer term. The country has a young and very large labour force, and productivity is still quite low, making the value proposition compelling. The Indian economy is also not as structurally vulnerable as the likes of Brazil, South Africa or Turkey – the selloff in India has not been as aggressive as those in more challenged emerging markets (EMs), with the Indian rupee losing c. 10% YTD.

On 12 May, India’s Prime Minister Narendra Modi announced government’s proposed fiscal response to the pandemic to keep the economic wheels greased. The plan amounts to about 10% of the country’s GDP. This was larger than economists were expecting and it focusses on land, labour, liquidity and laws – in the arc of where structural reforms were taking place. Modi said that India’s so-called self-reliant strategy will depend on five pillars – growing a new economy, creating a state-of-the-art infrastructure, setting up a technology-based delivery system, leveraging the country’s young demographics and exploiting local demand. However, even with this larger-than-expected fiscal response, India’s economy is still expected to contract between 6% and 8% YoY in 2020 vs our beginning-of-the-year expectation of 5% YoY growth.

In a statement on CV19 from its results announcement, the bank explained its approach in the current scenario noting that it is well-capitalised and has a strong deposit franchise. It said that the digital and technology platforms are key strengths and the present scenario provides an opportunity to re-engineer the delivery of banking. ICICI added that it is using this period to further strengthen its digital platforms, its ability to capture market potential and its delivery capabilities, while at the same time enhancing efficiency. On a trailing basis, ICICI is currently trading at 1.7x book.



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