ICICI Bank shares gain over a billion dollars in value after signs of turnaround

• The stock of ICICI Bank jumped by 4% in early trade, due to strong quarterly earnings.
• The bank not only posted strong growth in profits but also managed to reduce the amount of bad loans.
• Global broking firm CLSA called the numbers as a sign of turnaround in the bank that has been hamstrung in recent years by rising bad loans and allegations of a financial scandal.

The stock of ICICI Bank jumped by 4% in early trade, worth over ₹10,600 crore ($1.5 billion), on the first trading day, after it announced better-than-expected earnings.


The bank not only posted strong growth in profits but also managed to reduce the amount of bad loans. Global broking firm CLSA called the numbers as a sign of turnaround in the bank that has been hamstrung in recent years by rising bad loans and allegations of a financial scandal.


ICICI Bank posted a consolidated net profit of ₹2,513 crore for the quarter ending June 2019, which is a massive increase on the stressed quarter it experienced last year where it posted a mere ₹4.9 crore in profit. It is also fair improvement on the ₹1,170 crore profit posted three months ago.


Signs of recovery

But that is not the only thing which could be driving the stock which was trading at ₹432.8 at 11 am, on Monday (July 29).


The country’s largest private bank is showing strong signs of recovery. This quarter its net interest income went up by 27% to 7,737 crore from last year. More importantly, the bank has made lower provisions which are made to cover for bad loans, at ₹3,496 crore as compared to ₹5,971 crore last year.


“ICICI is exiting the corporate non-performing loans cycle, reflected in the 31% year on year fall in slippage and some upgrades below-rated loans to the steel industry). Moreover, its rise in better-rated clients and low exposure to new stressed corporates will insulate from risks,” said a report by CLSA.


Improved loan book

All of its top 20 loans are rated A- or better, according to the brokerage which gave the stock a ‘Buy’ rating, as it see 2019-20 as the year of turnaround. The brokerage predicts that its shareholders will be able to make as much as 15-16% returns from the stock, as the company chugs on its path to recovery.


“As structural changes become more entrenched at the bank , ICICI Bank’s reported financials will improve and stabilise. Continuous stability and improvement in core parameters underpin our thesis of its trajectory towards normalized earnings,” said a report by HDFC Bank.


ICICI has been emerging from last year’s revelation of bad loans weighing on its books year. Adding fuel to fire is a scandal involving its long-time CEO Chanda Kochhar , who allegedly gave loans to Videocon Group in exchange for favours. An Enforcement Directorate probe is still underway in the case. Kochhar was later ousted and asked to pay back all her hefty bonuses as well.