ICICI Bank plans to cut bad debt ratio

25 Aug, 2008

ICICI Bank, India's second-largest lender, is working towards cutting its bad debts ratio as its growth slows due to high interest rates and double-digit inflation, its joint managing director said.
India's leading private-sector bank, which is also listed in New York, has stopped several products such as small personal loans and is increasing vigilance on credit cards dues, Chanda Kochhar told Reuters in Mumbai.
"Recognising the fact the rate of our balance sheet growth is slower, we have to work towards reducing the quantum or ratio of non-performing assets. That is the next step," she said.
ICICI Bank posted an unexpected 6 percent fall in June quarter profit. Net non-performing assets rose to 1.8 percent of total advances in the June quarter from 1.35 percent a year earlier. The value of bad debts rose 51 percent to 40.3 billion rupees ($924 billion) from 26.7 billion rupees.
ICICI Bank had a net non-performing assets of 0.71 percent of total advances as at March 2006. Kochhar said asset quality was not a case for concern as credit losses had not surged. "It is not a significant change, but a quiet manageable change."
Annual balance sheet growth had halved from about 35 percent to 15-20 percent pushing up the ratio, but the quantum of bad debts is still in the comfort zone, she said. "Rising inflation, interest rates have hit the affordability of consumer loans," she said.
Retail loans, which contribute 56 percent of the bank's loan portfolio, comprised about 72 percent of its gross non-performing assets as at March 2008, ICICI's annual report showed. Last month, the central bank raised its key lending rate to a seven-year high of 9 percent as it sought to rein in annual inflation, which hit 12.44 percent in early August.
ICICI Bank has raised its benchmark lending rate by 150 basis points since March 2007. ICICI's retail loan growth has moderated to annual rates of 5-10 percent from more than 30 percent, but it has stepped up corporate lending and expected total loan growth of 15-20 percent in the 2008/09 fiscal year, Kochhar said.
Local rating agency CRISIL in July said the retail loan quality had deteriorated and some lenders could suffer significant losses. It expected gross retail bad debts for the sector at 4 percent by March 2009 from 2.7 percent in 2007.
"In a falling interest rate regime, it made sense to borrow from wholesale deposits and lend it to grow faster than the industry," Kochhar said.
"In a rising rate scenario, one has to grow on the basis of current and savings account growth. We are adjusting to the scenario."
The bank has doubled its branch network to about 1,500 since March 2007, improving its ability to tap low-cost deposits, and that expansion meant there was little value in buying a domestic bank, Kochhar said.
"An acquisition adds to your branch network. But we have been able to add to our branches at a fraction of the cost of an acquisition," she said. The central bank is due to review opening up the banking sector to foreign players next year, prompting expectations that leading local banks such as ICICI would beef up by buying smaller banks to be better prepared for the increased competition. HDFC Bank, the No 2 private-sector bank, bought Centurion Bank of Punjab for $2.4 billion in shares in February.
ICICI Bank shares have fallen 46 percent in 2008 compared to the 40 percent fall in the sector index and 28 percent fall in the main share index.

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