ICICI Bank’s bad loans widens, expects to fall in next nine months

ICICI Bank Ltd expects its loans to stressed companies to fall significantly in the next six to nine months as asset sales help some with debt repayments, the second-biggest Indian lender said after reporting a rise in quarterly profits.

Its bad loans ratio widened in the three months to stand at 6.82 percent of total lending at the end of September, up from 5.87 percent at the end of June and leading to a jump in its provisions for bad loans.

That was offset by gains from the sale of shares in the bank's life insurance arm in an initial public offering, and lower tax expenses, helping net profit rise 2.4 percent from the same period last year to 31.02 billion rupees ($465 million). That was ahead of the 25.65 billion rupees expected on average by analysts.

Indian banks were saddled with $138 billion of stressed loans as of the end of June. While state-owned lenders account for the bulk, ICICI has the highest proportion among private sector banks.

The amount of bad loans has increased this year after an asset quality review ordered by the Reserve Bank of India uncovered more than previously thought. The central bank has set a March 2017 deadline for the sector to fully disclose and make provisions for those.

ICICI Bank said its watch list of potentially troubled loans had declined to about 325 billion rupees from about 387 billion rupees at the end of June.

"We expect a significant further reduction in this portfolio in the next six to nine months," Chief Executive Chanda Kochhar said on a conference call referring to clients the bank considers below investment-grade.

Recent deals by Essar group to sell its oil arm to a group led by Russia's Rosneft and Jaiprakash Associates' agreement to sell its cement plants will help lower stressed debt, Kochhar said.

Loans to five most-stressed industrial sectors - iron and steel, power, cement, mining and oil rigs - as a percentage of the bank's total outstanding loans fell to 11.9 percent at the end of September from 13.3 percent in March, she said.

The bank's total provisions jumped more than seven times from a year earlier to 70.83 billion rupees in the September quarter.

Retail loans rose by 21 percent in the quarter, faster than its overall local loan growth rate of 16 percent as corporate lending weakens. Tax expenses fell to 4.51 billion rupees in the September quarter from 11.86 billion rupees a year earlier due to deferred tax adjustments.

Ahead of the results, shares in the bank closed 3.3 percent higher in a Mumbai market that gained 0.75 percent.

($1 = 66.7300 Indian rupees)