ICICI Bank, recognized as India’s second-largest lender, announced on Friday an impressive quarterly profit increase of 31 percent, surpassing expectations. The bank has also forecasted a robust growth rate for domestic loans and anticipates stable asset quality for the forthcoming year.
As India braces for a resurgence in loan demand, it follows a significant cut in the central bank's benchmark lending rate last week, a move aimed at stimulating the economy which has been experiencing sluggish growth. Notably, the Reserve Bank of India has projected a loan growth rate for Indian banks of 17 percent for the fiscal year 2013, compared to the previous year's 16 percent.
According to Chief Executive Chanda Kochhar, ICICI is optimistic about its domestic loans, expecting a 20 percent growth this fiscal year after realizing a 17 percent increase last year. The anticipated growth is largely fueled by heightened demand from corporations seeking working capital, alongside growing home and car loan needs.
“These numbers may give us comfort to keep what we have (but) we don’t have any particular plans to increase our stakes. We have concerns about the India story in general,” expressed Olsson Jan-Olov, portfolio manager at Carnegie Emerging Markets, Sweden, which holds shares in ICICI.
Additionally, he mentioned, “We have been a little hesitant towards increasing positions in India due to the overriding political and macroeconomic situation.” Earlier this week, Standard & Poor’s downgraded India's credit rating outlook from stable to negative, signalling potential risks associated with substantial fiscal and current account deficits and the prevailing political paralysis affecting Asia’s third-largest economy.
This negative outlook could threaten India's long-term BBB- rating, which marks the lowest investment grade. Under these pressures, Indian banks have begun to ease their loan terms for companies amid high interest rates and an ongoing economic downturn that has compromised some borrowers' ability to meet repayment deadlines. Sectors such as power, textiles, aviation, construction, and real estate have been particularly affected.
ICICI, which also has a presence on the New York Stock Exchange and competes with State Bank of India and HDFC Bank, perceives a “very small” and “minimal” pipeline for corporate debt restructurings, according to Kochhar.