ICICI Bank expects its LCR to fall by 10-14 percentage points due to new norms

Mumbai: ICICI Bank expects a compression of 10-14 percentage point in its liquidity coverage ratio (LCR) from the Reserve Bank of India's recent guidelines, senior officials of the private lender said in a call with analysts after the June-quarter earnings on Saturday.

Last week, the RBI came out with draft guidelines asking banks to set aside a higher stock of liquid assets to meet a contingency like a potential bank run. RBI has asked banks to account for the possibility of an outflow of retail deposits through digital means, while calculating the liquidity coverage ratio (LCR). Currently, banks are required to maintain an LCR of 100%.

LCR refers to the proportion of highly liquid assets that lenders must hold to honour short-term obligations such as withdrawals of current account and savings account deposits.

In a recent note on the RBI guidelines, IIFL Securities said that ICICI Bank could see its LCR decline to 108% from 121%, once the new LCR comes into effect from 1 April.

ICICI Bank posts net profit growth

The country's second-largest private sector lender reported a 15% year-on-year (y-o-y) growth in deposits and a 15.9% rise in credit at the end of June quarter. While deposit growth has been in line with credit growth so far, ICICI Bank expects some impact due to the revised LCR guidelines.

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ICICI Bank reported a 14.6% year-on-year jump in net profit in the first quarter of this financial year owing to higher treasury gains and non-interest income.

The bank's net profit rose nearly 15% to ₹11,059 crore during the quarter. Non-interest income or other income jumped 23.3% to ₹6,389 crore, as the bank saw higher dividend from subsidiaries. The bank saw a dividend income of ₹894 crore, as against ₹291 crore during the corresponding quarter a year ago. Treasury gains more than doubled to ₹613 crore in the three months through June.

Core income slows, asset quality dips

The bank's core income slowed, with net interest income (NII) rising just 7.3% year-on-year to ₹19,553 crore in the first quarter of the current fiscal year. The core net interest income growth was restricted by a drop in net interest margin to 4.36% at the end of the June quarter from 4.4% in the previous quarter and 4.78% in the corresponding quarter a year ago.

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"We were at a peak NIM a year ago. But margins have been trending downwards due to the rate cycle, but this is largely done. We see margins rangebound going forward. We will have to see the impact of LCR guidelines and whenever the repo rate is cut," said Sandeep Batra, executive director, ICICI Bank.

Asset quality deteriorated marginally in the first quarter due to higher bad loans in the agriculture loan portfolio. The bank added fresh bad loans worth ₹5,916 crore during the quarter. Gross non-performing assets increased to ₹28,719 crore compared to ₹27,962 crore during the same quarter a year ago. As a percentage of total assets, gross NPA stood at 2.15% at the end of June quarter compared to 2.16% in the previous quarter. Provisions increased to ₹1,332 crore during the first quarter compared to ₹718 crore in the previous quarter.

ICICI Bank's advances grew by 15.7% y-o-y and 3.3% quarter-on-quarter, led by higher disbursements to non-banks and corporate segments. The management also said that it has calibrated the growth in personal loans from a 40% year on year growth in FY24, to 20% in FY25.

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