ICICI Bank reported a 20.1% increase in quarterly profit as rapid loan growth, higher interest income and improving asset quality outweighed pressure on lending margins.
India’s second-largest private-sector lender reported standalone net profit of 148.43 billion rupees for the quarter ended September 30, up from 123.59 billion rupees a year earlier and above analysts’ expectations.
Net interest income — the difference between interest earned from loans and interest paid on deposits — increased 17.7% from a year earlier to 253.39 billion rupees.
Loan growth was particularly strong.
Total loans expanded approximately 30% from a year earlier, while deposits increased 27.1%.
Asset quality also improved.
ICICI’s gross non-performing asset ratio declined to 1.20% at the end of September from 1.38% during the previous quarter and 1.58% a year earlier.
The net non-performing asset ratio declined to 0.30%.
One important pressure point remains profitability on lending.
The bank’s net interest margin narrowed to 4.18% from 4.36% during the previous quarter and 4.30% a year earlier.
That illustrates the tradeoff confronting rapidly growing banks: expanding lending can generate additional interest income while competition for deposits and higher funding costs place pressure on profitability from individual loans.
The results nevertheless suggest credit demand in India remains resilient.
Rapid expansion in both loans and deposits, combined with improving asset quality, gives ICICI greater room to continue growing its balance sheet without an immediate deterioration in credit performance.
For investors, the next question is whether the bank can maintain that pace while preventing additional compression in net interest margins.
Deposit costs, loan growth and asset quality will remain important indicators as India’s banking sector moves through the second half of its fiscal year.
