India's ICICI Bank quarterly profit up 30 percent

MUMBAI, India -- ICICI Bank reported a better-than-expected 30 percent rise in quarterly profit Friday on strong interest income and demand for retail loans, as India's largest private lender managed to improve loan quality despite rising corporate defaults.

ICICI said Friday that net profit for the July to September quarter was 19.6 billion rupees ($370 million).

Analysts polled by FactSet forecast quarterly profit to jump 25 percent from a year earlier to 18.7 billion rupees.

The ratio of net nonperforming assets to the total loan book was 0.66 percent on September 30, down from 0.8 percent the year before. Loans rose 18 percent to 2.8 trillion rupees ($52.0 billion).

ICICI chief executive Chanda Kochhar said those numbers reflected the bank's classification of a 5.0 billion rupee ($93.3 million) loan to an Indian media company as non-performing during the quarter.

She declined to name the company. Kochhar said an additional 5.0 billion rupees of loans are in corporate debt restructuring and could turn bad.

India's banks have been struggling with rising bad debt as companies face slowing economic growth, but private sector banks have fared far better than state-owned banks, which dominate the sector.

"In general private sector banks have a larger proportion of retail assets. Retail assets have been pretty stable, the performance has been good," Kochhar said. She said that for corporate loans, not all companies and projects in a given sector face the same fate. "A lot depends on which are the projects various banks have financed," she said.

ICICI Bank's loan book is 33 percent retail, 25 percent international and 28 percent corporate, she said.

Kochhar said she still expects ICICI's loan book to grow by 20 percent in the fiscal year ending March, as strong consumption takes the sting out of an investment slowdown that has helped drag India's economic growth to its lowest levels since the Great Recession.

"Today even if there is a little slowdown on investment activity, consumption continues to grow, therefore people's jobs are intact and people's salaries continue to increase," she said. "People are still buying homes. People are still buying cars. People are still buying two-wheelers. That continues to provide a source of growth for retail credit."

Angel Broking analyst Vaibhav Agrawal said private sector banks have made more prudent lending decisions than their public sector peers, but even they are not immune from deteriorating credit quality going forward.

"Private sector banks went quite cautious after the Lehman crisis. They really clamped down on credit growth and went for only quality assets," he said. "During this period public sector banks continued to lend aggressively, including in infrastructure. In the economic environment deteriorating, a lot of those loans are turning bad."

But he said things won't stay sunny for private lenders like ICICI. He forecasts earnings growth to slow to 15 to 18 percent for India's private banks and said private banks will likely have to set aside 25 percent more money to cover bad loans for the year ending March than they did last fiscal year.

"We can't expect these numbers to sustain forever," he said.