Private sector lender ICICI Bank on Friday reported one of its biggest falls in profit in recent years for the quarter ended March 2016, due to exceptional provisioning for bad loans and additional reserves above these provisions.
ICICI Bank reported a 76 percent fall in profit to Rs 702 crore for the three months to March 2016, compared with Rs 2,922 crore a year ago. Its shares closed 1.04 percent down at Rs 237.6 on BSE on Friday.
Provisions for bad loans soared 147 percent during the fiscal fourth quarter to Rs 3,326 crore, against Rs 1,344.73 crore in the year-ago period.
The bank said that it also made a collective contingency and related reserve of Rs 3,600 crore ($543 million) during the last quarter, over and above the provisions made for non-performing and restructured loans as per Reserve Bank of India (RBI) guidelines.
“The weak global economic environment, the sharp downturn in the commodity cycle and the gradual nature of the domestic economic recovery has adversely impacted the borrowers in certain sectors like iron and steel, mining, power, rigs and cement,” the bank said in a statement to the stock exchanges.
“While the banks are working towards resolution of stress on certain borrowers in these sectors, it may take some time for solutions to be worked out, given the weak operating and recovery environment.”
The bank said that net non-performing assets as on March 31, 2016 were Rs 13,297 crore ($2 billion) compared with Rs 10,014 crore ($ 1.5 billion) on December 31, 2015, a 32 percent increase.
“The increase in non-performing assets was primarily due to the continuing challenges in the operating and recovery environment and the RBI’s objective of early and conservative recognition of stress and provisioning, pursuant to which the RBI had asked banks to review certain loan accounts and their classification over the two quarters ending December 31, 2015 and March 31, 2016.
The Bank has now completed the exercise of review of classification of cases highlighted by RBI, the statement added.
On a standalone basis, ICICI Bank’s net interest income—the difference between interest earned and interest expended—rose 6.4 percent to Rs 5,405 crore for the fourth quarter, against Rs 5,079 crore a year earlier.
Several public sector banks have been struggling to cope with rising bad loans and higher provisions to cover for a risk of defaults.
The RBI has directed banks to clean up their balance sheets by March 2017. It has introduced several regulations and powers to boost governance at the boards of banks. Massive recapitalisation of state-owned banks from the government is awaited, which will help them to start lending more as economic growth picks up.