ICICI Bank CMP: Rs. 956.

05

Result Update August 06, 2010

ICICI Bank recently came out with its Q1FY11 results. On a standalone basis, the bank has posted a net profit of Rs 1025.98 crs for the
quarter ended June 30, 2010 as compared to Rs 878.22 crs for the quarter ended June 30, 2009. Total Income has decreased from Rs
9223.32 crs for the quarter ended June 30, 2009 to Rs 7493.05 crs for the quarter ended June 30, 2010.

On a consolidated basis, the group has posted a net profit of Rs 1091 crs for the quarter ended June 30, 2010 as compared to Rs
1035.26 crs for the quarter ended June 30, 2009. Total Income has decreased from Rs 14615.06 crs for the quarter ended June 30,
2009 to Rs 13535.31 crs for the quarter ended June 30, 2010.

Financials – Consolidated – Rs Crs Q1FY11 Q1FY10 % Chg Q4FY10 % Chg FY10

Total Income 13535.31 14615.06 -7.39 16212.02 -16.51 59599.77
Net Profit 1091.00 1035.26 5.38 1449.71 -24.74 4843.41
EPS 9.78 9.30 5.16 13.00 -24.79 43.44

Financials - Standalone
Particulars – Rs Crs Q1FY11 Q1FY10 % Chg Q4FY10 % Chg FY10 FY09 % Chg
Interest Earned 5812.54 7133.44 -18.52 5826.98 -0.25 25706.93 31093.09 -17.32
Interest/Discount on Advances 3778.53 5086.56 -25.72 3816.78 -1.00 17372.73 22323.83 -22.18
Income on Investments 1658.55 1576.10 5.23 1570.93 5.58 6466.35 7403.60 -12.66
Interest on bal with RBI 98.06 200.72 -51.15 130.51 -24.86 624.99 518.71 20.49
Others 277.40 270.06 2.72 308.76 -10.16 1242.86 846.95 46.75
Other Income 1680.51 2089.88 -19.59 1890.84 -11.12 7477.65 7603.72 -1.66
Total Income 7493.05 9223.32 -18.76 7717.82 -2.91 33184.58 38696.81 -14.24
Interest Expended 3821.49 5148.18 -25.77 3792.04 0.78 17592.57 22725.93 -22.59
Employee Expenses 575.59 466.52 23.38 582.70 -1.22 1925.79 1971.70 -2.33
Other Operating Expenses 907.90 1079.50 -15.90 944.19 -3.84 3934.04 5073.41 -22.46
Operating Expenses 1483.49 1546.02 -4.04 1526.89 -2.84 5859.83 7045.11 -16.82
Total Expenditure 5304.98 6694.20 -20.75 5318.93 -0.26 23452.40 29771.04 -21.22
Net Interest Income 1991.05 1985.26 0.29 2034.94 -2.16 8114.36 8367.16 -3.02
Operating Profit before Prov & Cont 2188.07 2529.12 -13.48 2398.89 -8.79 9732.18 8925.77 9.03
Prov & Cont 797.82 1323.65 -39.73 989.75 -19.39 4386.86 3808.26 15.19
Exceptional Items 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
PBT 1390.25 1205.47 15.33 1409.14 -1.34 5345.32 5117.51 4.45
Tax 364.27 327.25 11.31 403.57 -9.74 1320.34 1358.84 -2.83
PAT 1025.98 878.22 16.82 1005.57 2.03 4024.98 3758.67 7.09
Equity 1115.50 1113.36 0.19 1114.89 0.05 1114.89 1113.29 0.14
CAR - Basel II 20.20 17.38 16.23 19.41 4.07 19.41 15.53 24.98
EPS 9.20 7.89 16.60 9.02 1.97 36.10 33.76 6.93
Gross NPA 9829.03 9416.32 4.38 9480.65 3.67 9480.65 9929.00 -4.52
Net NPA 3456.18 4607.84 -24.99 3841.11 -10.02 3841.11 4619.00 -16.84
Gross NPA% 5.14 4.63 11.02 5.06 1.58 5.06 4.32 17.13
Net NPA% 1.87 2.33 -19.74 2.12 -11.79 1.87 1.96 -4.59
Return On Assets 1.15 0.95 21.05 1.15 0.00 1.13 0.98 15.31
Segmental Financials

Particulars – Rs Crs Q1FY11 Q1FY10 Q4FY10

Segmental Revenue
Retail Banking 3827.78 4936.18 4018.21
Wholesale Banking 4214.89 5593.90 4240.51
Treasury 5518.80 7363.59 5473.95
Other Banking 73.75 53.91 129.95
Total Segmental Revenue 13635.22 17947.58 13862.62
Less Inter Segment Revenue 6142.17 8724.26 6144.80
Income from Operations 7493.05 9223.32 7717.82

Segmental PBT
Retail Banking -217.33 -437.33 -342.32
Wholesale Banking 929.84 576.65 1051.55
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Treasury 656.15 1097.99 621.22
Other Banking 21.59 -31.84 78.69
Total Segmental Results 1390.25 1205.47 1409.14
Unallocated Expenses 0.00 0.00 0.00
PBT 1390.25 1205.47 1409.14

Capital Employed
Retail Banking -54123.90 -25073.15 -44905.3
Wholesale Banking 40181.79 18016.68 26929.31
Treasury 61325.72 53610.40 63238.4
Other Banking 547.30 600.58 470.63
Unallocated 4891.92 3038.92 5885.34
Total 52822.83 50193.43 51618.37

Some of the key highlights of the results are as follows:

• The advances increased by 1.8% q-o-q (however, declined by 6.9% y-o-y to Rs 1,84,378 crs, while the total deposits of the bank
declined marginally by 0.5% q-o-q (fell by 4.4% y-o-y) to Rs 2,00,913 crs during Q1FY11. The drop in advances was in line with
expectations, even after factoring in the strong uptick in systemic credit demand during Q1FY11. The drop in the advances book was
attributed to the repayments from retail and short-term corporate loans. Partly due to this, NII growth remained muted at 0.3% y-o-y.
The net interest income of the bank stood at Rs 1991.05 crs as against Rs 1985.26 crs in Q1FY10 and Rs 2034.94 crs in Q4FY10.
41% of the loan book consists of Retail Advances, 4% SME, 20% Domestic Corporate, 9% Rural advances and the remaining 26%
overseas branches advances at the end of Q1FY11.

• The total retail loan book at the end of Q1FY11 stood at Rs 76300 crs as against Rs 79000 crs in Q4FY10. 62% of the retrial loans
consist of Home loans in Q1FY11, while the same constituted 60% in Q4FY10. 26% of the retail loans consisted of vehicle loans in
Q1FY11 as against 27% in Q4FY10. Personal loans constituted 5% of the retail loans in Q1FY11 as against 6% in Q4FY10. Credit
Cards and Other segments remain unchanged from Q4FY10 and constituted 5% and 2% of the retail loans in Q1FY11 respectively.

Retail Loan Split

70%
60%
50%
40%
30%
20%
10%
0%
Home Vehicle Loans Other Secured Personal Credit Cards
Loans
Q1FY11 Q1FY10 Q4FY10

• The Gross NPAs of the bank stood at Rs 9829.03 crs at the end of Q1FY11 as against Rs 9416.32 crs in Q1FY10. The gross NPA %
stood at 5.14% in Q1FY11 as against 4.3% in Q1FY10. Net non-performing assets decreased by 25% to Rs 3,514 crs Q1FY11 from
Rs 4,667 crs in Q1FY10. The bank’s net non-performing asset ratio decreased to 1.62% in Q1FY11 from 2.19% in Q1FY10. The
bank’s provisioning coverage ratio computed in accordance with the RBI guidelines at June 30, 2010 was 64.8% compared to 51.1%
at June 30, 2009. At the current pace, the bank could achieve the RBI requirement of 70% PCR by March 2011. Going forward as the
bank continues to raise its provision coverage ratio, the net NPAs on an absolute and percentage basis could witness a fall thereby
improving the asset quality of the bank.

Retail Research 2
 Asset Quality

6.00

5.00

4.00

3.00

2.00

1.00

0.00
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11
GNPA% NNPA%

• CASA deposits increased 32% to Rs 84,618 crs at June 30, 2010 from Rs 63,977 crs at June 30, 2009 and the CASA ratio increased
to 42.1% at June 30, 2010 from 30.4% at June 30, 2009. The bank has started to focus more on the CASA front and is fast following
the CASA centric model. The merger with Bank of Rajasthan, which is now awaiting RBI approval, is a part of the strategy to increase
the branch network and improve the CASA ratio.

CASA%

43.00
41.00
39.00
37.00
35.00
33.00
31.00
29.00
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

• The borrowing profile of the bank at the end of Q1FY11 was healthy. It had total borrowings of Rs 94997 crs in Q1FY11 as against
Rs 91231 crs in Q1FY10 and Rs 94264 crs in Q4FY10. The borrowings were mainly done through capital instruments and other
borrowings from both domestic and international markets.
Borrowings Split Q1FY11 Q1FY10 Q4FY10
Domestic 45070 39039 45818
-Capital Instruments 31648 25285 31797
-Other borrowings 13422 13754 14021
Overseas 49927 52192 48446
-Capital Instruments 1572 1621 1520
-Other borrowings 48355 50571 46926
Total 94997 91231 94264

• The bank reported a NIM of 2.5% for Q1FY11 as against 2.6% in Q4FY10 and 2.4% in Q1FY10. The bank has been able to maintain
its NIMs in the range of 2.4% – 2.6% over the past five quarters. The net interest income of the bank stood at Rs 1991.05 crs for
Q1FY11 as against Rs 1985.26 crs in Q1FY10 and Rs 2034.94 crs in Q4FY10. Going ahead, the bank expected to maintain its NIMs
in the same range, however a further rise in the CASA deposits going ahead, could improve the NIMs going ahead.

Retail Research 3
 NIM%

2.60

2.55

2.50

2.45

2.40

2.35
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

• The total non-interest income of the bank at the end of Q1FY11 stood at Rs 1680 crs as against Rs 2090 crs in Q1FY10 and Rs 1891
crs in Q4FY10. The fee income stood at Rs 1413 crs as against Rs 1319 crs in Q1FY10 and Rs 1521 crs in Q4FY10. Q1FY11 saw a
drop in the other income on a y-o-y basis due to a fall in the treasury income from Rs 714 crs in Q1FY10 to Rs 104 crs in Q1FY11.

Particulars Q1FY11 Q1FY10 Q4FY10 Q3FY10 Q2FY10

Non Interest Income 1680 2090 1891 1673 1824
-Fee Income 1413 1319 1521 1422 1387
-Lease & Other Income 163 57 174 277 140
-Treasury Income 104 714 196 -26 297

• The bank continued to invest in expansion of its branch network to enhance its deposit franchise and create an integrated distribution
network for both asset and liability products. The branch network of the Bank has increased to 2,016 branches at June 30, 2010,
(from 1,741 branches as on April 24th 2010) the largest branch network among private sector banks in the country.

• The bank’s capital adequacy at June 30, 2010 on Basel II norms was 20.2% and Tier-1 capital adequacy was 14.0%, well above
RBI’s requirement of total capital adequacy of 9.0% and Tier-1 capital adequacy of 6.0%. The bank is adequately capitalized and
need not raise capital in the near future.

Performance of Subsidiaries

• ICICI Life maintained its position as the largest private sector life insurer based on retail new business weighted received premium
during Q1FY11. ICICI Life’s new business annualized premium equivalent (APE) increased by 90% to Rs 1,182 crs in Q1FY11 from
Rs 622 crs in Q1FY10. ICICI Life’s renewal premium in Q1FY11 was Rs 1,988 crs. ICICI Life’s unaudited new business profit (NBP)
increased by 91% to Rs 225 crs in Q1FY11 from Rs 118 crs in Q1FY10. Assets held increased 38% to Rs 59,547 crs at June 30,
2010 from Rs 43,035 crs at June 30, 2009.

• For Q1FY11, ICICI Prudential Life Insurance Company (ICICI Life) reported a loss after tax of Rs 116 crs (vs. Rs 36 crs loss in
Q1FY10 and Rs 258 crs profit in FY10) before accounting for a surplus of Rs 235 crs in the non-participating policyholders’ funds,
which would be transferred at the end of the financial year based on the appointed actuary’s recommendation. If this surplus were
transferred in Q1FY11, the profit after tax of ICICI Life for the quarter would have been Rs 119 crs.

• ICICI Lombard General Insurance Company (ICICI General) maintained its leadership in the private sector during Q1FY11. ICICI
General’s premium income in Q1FY11 increased by 27% to Rs 1,118 crs from Rs 878 crs in Q1FY10. ICICI General’s profit after tax
was Rs 33 crs in Q1-2011 compared to Rs 38 crs in Q1FY10 and Rs 144 crs in FY10.

• ICICI Prudential Asset Management Company’s profit after tax increased by 68% to Rs 32 crs (US$ 7 million) in Q1FY11 from Rs 19
crs in Q1FY10 and Rs 128 crs in FY10.

• ICICI Securities’ profit after tax increased by 79% to Rs 25 crs in Q1FY11 from Rs 14 crs in Q1FY10 and Rs 123 crs in FY10.

• ICICI Bank UK’s profit after tax increased to USD 9 mn in Q1FY11 from USD 4.9 mn in Q1FY10 and USD 37 mn in FY10. ICICI Bank
UK’s capital position continued to be strong with a capital adequacy ratio of 18.4% at June 30, 2010. The proportion of retail term
deposits in total deposits increased to 69% at June 30, 2010 from 63% at June 30, 2009.

• ICICI Bank Canada’s profit after tax decreased to CAD 6.5 mn in Q1FY11 from CAD 8.9 mn in Q1FY10 and CAD 35.4 mn in FY10.
ICICI Bank Canada’s capital position remained strong with a capital adequacy ratio of 22.5% at June 30, 2010.

Retail Research 4
Concerns
• The provision coverage ratio of the bank stands at 64.8% as at the end of Q1FY11. The RBI norms require banks to maintain a
minimum of 70% provision. For ICICI Bank, the deadline is March 2011. The bank could therefore witness dips in the profits due to
increase in the provisions till the 70% level is achieved.

• The bank is successfully able to reduce its dependency on term deposits and increase the CASA%. If this trend for some reason
does not sustain then the bank could see an increase in the cost of deposits and therefore witness a shrink in the overall NIMs of the
bank.

• The subsidiary businesses of the bank are performing well as of now (except for life insurance subsidiary, which posted a loss in
Q1FY11). Going ahead, a slowdown in any of the businesses could result in poor financials and hence could impact the consolidated
numbers of the bank.

• ICICI faces very stiff competition from its peers largely Axis Bank and Yes Bank in the private sector and SBI, BOB and PNB in the
public sector. Now with public sector banks, stepping up on their technology and service front, ICICI could witness strong competition
going ahead.

• The bank, from April 1, 2010 has started to provide interest based on daily saving balance calculations. This could increase the cost
of interest of the banks by ~60-70 basis points on an overall basis and impact its NIMs.

• The bank has merged with Bank of Rajasthan (BoR) recently. This is supposed to increase the CASA ratio of the bank substantially.
On the downside, integration issues and employees concerns need to be tackled appropriately for the fruits of the merger to be
realized soon enough. Further the merger could also strain the asset quality if the NPA levels of BoR are in reality higher than that
disclosed.

• All Banks have moved to the base rate system from Jul 01, 2010. Impact of this could prima-facie be marginally positive for Banks.
However competitive pressures in an era of sluggish credit growth could impact the NIMs temporarily.

• The cost to income ratio of the bank has risen in Q1FY11 to 40.4% as against 37.94% in Q1FY10 and 38.89% in Q4FY10 (highest in
5 quarters). Going ahead, if the bank does not bring down this ratio, it could see a negative impact on its profit margins.

Cost Income Ratio

44.0
42.0
40.0
38.0
36.0
34.0
32.0
Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

Conclusion:

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634 billion (US$ 81 billion) at March 31, 2010. The bank has a large
international base and is a fast growing private sector bank in the country. The bank has 2016 branches as at the end of Q1FY11. The
CAR of the bank under Basel II norms stood at 20% in Q1FY11 much higher than the RBI requirement of 9%.

The bank has reported decent Q1FY11 numbers, with a net profit of Rs 1025.98 crs for the quarter ended June 30, 2010 as compared
to Rs 878.22 crs for the quarter ended June 30, 2009 (albeit helped by lower provisioning in Q1FY11). The bank needs to improve on
some parameters, especially its cost income ratio which has seen a rise in Q1FY11. Going ahead, management of expenses could be
one of the key areas that the bank needs to focus. The Q1FY11 numbers does not include numbers of Bank of Rajasthan as certain
approvals are awaited.

With the Bank of Rajasthan merger process almost completed, the bank could see its CASA and NIMs improving in the coming
quarters. However the bank could also see a significant jump in its expenses going ahead, which needs to be contained in order to
report stronger numbers.

The bank is still in a consolidation mode with advances continuing to de-grow y-o-y with a focus on bringing down the NPAs. While the
gross NPA in absolute terms has flattened due to slow / no growth in advances, the net NPAs have fallen due to provisions quarter after

Retail Research 5
quarter. This situation could change once the bank starts growing its loan book (guidance for FY11 advances growth by management is
~15-16%). Contribution from retail banking in terms of profitability continues to fall while that of wholesale banking continues to rise.
This situation cannot last for long. Once there are visible signs of advances growth (with less focus on wholesale advances), the bank
could get a better rating. Further, subsidiaries’ performance will need to be more consistent going ahead.

We had released a Stock Note – Nifty Series on ICICI Bank on 9th July 2010 at the then CMP of Rs 871.55. We had mentioned in our
report that the stock could trade in the range of Rs 803 – Rs 907 in the next quarter. Post the release of our report; the stock price
touched a high of Rs 973 on 5th August 2010.

We are revising the components of our FY11 (E) estimates, while keeping the PAT estimates almost intact. We think that the
stock could trade in the range of Rs 814 (1.8x FY11E Adj. BV) and Rs 994 (2.2x FY11E Adj. BV) for the next quarter.

Quick Estimates -Standalone Rs Crs

Particulars FY08 FY09 FY10 FY11 OE FY11 RE
Interest Earned 30788.34 31093.09 25706.93 28209.00 25936.00
% Chg 0.00 0.99 -17.32 9.73 0.89
Interest Expenses 23484.24 22725.93 17592.57 18639.00 17236.00
% Chg 0.00 -3.23 -22.59 5.95 -2.03
Net Interest Income 7304.10 8367.16 8114.36 9570.00 8700.00
% Chg 0.00 14.55 -3.02 17.94 7.22
Other Income 8810.77 7603.72 7477.65 8169.00 7200.00
% Chg 0.00 -13.70 -1.66 9.25 -3.71
Total Income 39599.11 38696.81 33184.58 36378.00 33136.00
% Chg 0.00 -2.28 -14.24 9.62 -0.15
Operating Profit 7960.69 8925.77 9732.18 11341.00 9500.00
% Chg 0.00 12.12 9.03 16.53 -2.39
Provision & Contingencies 2904.59 3808.26 4386.86 4793.00 3200.00
% Chg 0.00 31.11 15.19 9.26 -27.05
PBT 5056.10 5117.51 5345.32 6548.00 6300.00
% Chg 0.00 1.21 4.45 22.50 17.86
Tax 898.37 1358.84 1320.34 1964.40 1700.00
% Chg 0.00 51.26 -2.83 48.78 28.75
PAT 4157.73 3758.67 4024.98 4583.60 4600.00
% Chg 0.00 -9.60 7.09 13.88 14.29
EPS 37.37 33.76 36.10 41.11 41.26
% Chg 0.00 -9.65 6.93 13.88 14.29
BV 417.64 438.32 459.77 485.68 485.68
% Chg 0.00 4.95 4.89 5.64 5.64
Adj. BV 385.61 396.83 424.78 448.94 452.44
% Chg 0.00 2.91 7.04 5.69 6.51
Source: Capitaline, HDFC Sec Estimates

Analyst: Tiju K Samuel (tiju.samuel@hdfcsec.com)

RETAIL RESEARCH Fax: (022) 3075 3435

Corporate Office: HDFC Securities Limited, I Think Techno Campus, Building –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton
Greaves, Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: www.hdfcsec.com

Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This
document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy
any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be
relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time
solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail Clients
only and not for any other category of clients, including, but not limited to, Institutional Clients

Retail Research 6