Stock Review: ICICI BANK

ICICI Bank, which chose not to grow its balance sheet for a while nearly two years ago after the sub-prime crisis, surprised the Street with a strong 30.5% year-on-year growth in net profit along with an improvement in its asset quality. But, concerns linger as to whether the country's largest private lender would be able to mobilise deposits to keep pace with its swiftly growing loan book. The

   expanded 15.3% compared with a year ago while its credit deposit ratio, or the proportion of loan assets created by the bank from deposits received, rose to 95%. Given this high credit to deposit ratio, the challenge will be for the bank to mobilise deposits swiftly.

   ICICI Bank raised its deposit rates by 25-50 basis points across maturities during the quarter. However, it has managed to maintain its net interest margin at 2.6%, consistent with the margin during the previous quarter, as the bank raised both its prime lending and base rates by a similar amount. Maintaining margins could also be challenging with bets on the Reserve Bank of India raising interest rates being high.

   But what will get ICICI Bank going is its high share of current and savings account balances, which formed 44% of its total deposit base. Such a high share of lowcost deposits will help cushion the blow when borrowing costs rise with a change in the rate cycle.

   In terms of business size, deposits and advances mirror that of the fourth quarter of FY09.

   Another positive was the improvement in its asset quality. Net non-performing assets were pruned to 1.16% from 2.12% last year. There have been moderate slippages. The provisional coverage ratio of the bank has improved from 51.3% to 71.8% in just about a year and just three months prior to March 2011, the deadline set by the regulator.

   ICICI Bank's show on the asset quality front has been good. But the real challenge lies in raising deposits at a fast pace to meet its high loan book growth at a time when there is a strain on liquidity.