Recommendation From Private Banking Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

ICICI BANK : THE RIGHT STOCK TO BANK ON 

HERE IS WHY
☛Strong capital position
☛Improving asset quality
☛Low price to book valuation

ICICI Bank is one of the leading private sector banks in India offering a diversified portfolio of financial products and services to retail, SME and corporate customers. The bank had an extensive network of 5,288 branches, 15,158 ATMs and other touch-points as of September 30, 2020. It leverages on technology and offers services through digital modes like mobile and internet banking. It provides deposits, credits and financial services to individuals, households and small businesses across the country through an extensive branch network across urban and rural areas.

After the widespread of corona virus, the economy is returning to normalcy in the second half of this financial year with positive growth trends being reflected in the business and the results of the bank. On the revenue mix front, the bank earns approximately 28.9 per cent from its retail banking segment, 16.7 per cent from wholesale banking, 26.4 per cent from treasury, 17.9 per cent from life insurance, 5.4 per cent from general insurance and 4.8 per cent from other services. 

Following the gradual easing of lockdown restrictions, the bank has seen substantial month-on-month increase in disbursements across its retail products. For the quarter ended September 30, 2020, mortgage disbursements crossed its pre-pandemic levels and reached an all-time monthly high. Automobile loan disbursements have also seen an improvement; it has continued to rise from June 2020 and reached the prepandemic levels in September 2020 owing to an increase in passenger car sales. The loan disbursement across the rural portfolio also reached its pre-pandemic levels in the months of August and September. 

Credit card spend has reached 85 per cent of the pre-pandemic levels owing to increased expenditure in health, e-commerce and electronics. During the month of August, it raised Rs 15,000 crore through qualified institutional placement (QIP) to meet regulatory capital requirement, strengthen the bank’s capital adequacy ratio and improve its competitive position. As of September 30, 2020, the bank’s capital adequacy ratio stood at 19.33 per cent and Tier I capital adequacy was 17.89 per cent. 

The bank is leveraging on digitalization across business. It ranked third in the industry of digital payments. It saw an increase of 65 per cent YoY in the volume of mobile banking transactions in Q2FY21. The bank has seen an improvement in its asset quality on sequential and yearly basis. Its net non-performing asset (NPA) ratio declined to 1 per cent in Q2FY21 from 1.23 per cent in Q1FY21 and 1.6 per cent in Q2FY20. It stands at a comfortable provision coverage ratio of 81.5 per cent which saw a QoQ improvement from 78.6 per cent in Q1FY21. Loans under moratorium saw a decrease substantially from April to June and witnessed further decline at August-end. 

On the financial front, net interest income witnessed an increase of 16.24 per cent YoY to Rs 9,366.09 crore in Q2FY21 compared to Rs 8,057.43 Q2FY20. Provisions and contingencies registered a growth of 19.48 per cent YoY to Rs 2,995.27 crore in Q2FY21. Net profit for Q2FY21 stood at Rs 4,261.33 crore which jumped six-fold as against Rs 654.96 crore in Q2FY20. The bank trades at lower PB multiple of 2.44x compared to its peers like Kotak Mahindra Bank (5.85x) and HDFC Bank (4.05x). By virtue of these factors, we recommend our reader-investors to BUY this stock.