ICICI Bank Share Prices Surge 9% Today. Should You Buy?

Shares of ICICI Bank surged nearly 9 per cent today to Rs 314.50 despite the private lender reporting its smallest quarterly profit in two years. ICICI Bank's net profit for its fiscal fourth quarter to March 31 almost halved to Rs 1,020 crore, which was mostly in line with expectations. The Reserve Bank of India (RBI) in February did away with half a dozen loan restructuring schemes in a surprise move to hasten a clean-up of near-record levels of soured loans and tightened some other rules, which has led to banks disclosing more bad loans in the March quarter.

Many brokerages retained their 'buy' rating on the stock citing a significant decline in the "drilldown" list of potential troubled loans. The bank's drilldown list i.e. below investment grade exposure in key sectors identified earlier and promoter entities decreased from Rs 44,065 crore at March 31, 2016 to Rs 4,728 crore at March 31, 2018, it said.

Domestic brokerage Elara Capital has an "accumulate" rating on ICICI Bank shares, saying "loan book cleansing approaching an end". Another brokerage Edelweiss, which also has a "buy" rating on ICICI Bank shares said: "Upfront stress recognition, as anticipated, took the sheen off ICICI Bank's otherwise operationally steady Q4." Edelweiss has a target price of Rs 370 on ICICI Bank shares.

HDFC Securities has maintained "buy" rating on ICICI Bank shares with a target price of Rs 377."We   believe the  stress  recognition  process  for  ICICI Bank  is  nearing completion," the brokerage said.   

ICICI's long-serving Chief Executive Chanda Kochhar said the focus is turning to recovery and resolution and the private lender would aim to lower its net non-performing loan ratio to 1.5 percent in two years from 4.77 percent at the end of March. "We believe that since a lot of the stress has already been recognised, going forward, in fact, our focus will be on recovery and resolution," she said.

She also outlined other medium-term goals for the bank such as growing retail loans to more than 60 per cent of total loans, bringing down overseas loans to less than 10 per cent, and boosting the provision coverage ratio of the bank to 70 per cent by March 2020.

The new RBI rules on bad loans led to Rs 9,968 crore of bad loans being added to its pile in the March quarter, ICICI Bank said. Including other bad loans, the gross non-performing loan ratio shot up to 8.84 per cent from 7.82 per cent at the end of December. The net NPA ratio was 4.77% at March 31, 2018.

Domestic loans were up 15 percent year-on-year at the end of March, and the chief executive said the aim would be to increase the overall domestic loan book by 15 per cent a year, with retail loans growing at above 20 percent until March 2020.

Last month, Axis Bank posted its first ever quarterly loss last month as its bad loans surged. ICICI Bank shares settled 7 per cent higher at Rs 309 as compared to a flat closing in Mumbai market. 

At 12:43 pm, shares of ICICI Bank were up 8 per cent to Rs 312 as compared to a marginal gain in Nifty.