>ICICI Bank (CITI)

Strategic Direction – Finally?

■ Strategic direction – signs of a more prudent, and return-oriented one — ICBK does appear to be following in deeds (and words) a more prudent, returnoriented and ‘market palatable’ strategic direction. This is showing through in better margins, lower/negative growth, signs of asset quality and balance-sheet mix management, and apparently greater respect for capital (while not closing out the growth option). There are gaps – off-shore strategy remains debatable, asset risks/funding gaps could widen and the new strategy could be environment induced (reverts, when economy turns); but combined with a meaningful management revamp, we are more positively biased than skeptical.

■ Asset deterioration continues, but is not worsening — ICBK continues to see almost 2.5%pa deterioration; poor and lags industry, but retail appears to be stabilizing (in-line with industry trends). There is 1.5% of new restructured loans (not a big surprise); we do see further deterioration (management cautious on outlook), but would not expect ICBK to lag industry here-on.

■ P&L disappoints, but there are positives — 4Q09 profits are down 35%, and 12% below our estimates; primarily on weak fee incomes (-30% yoy, flat qoq), and possibly suggesting some recent franchise damage. But margins have bounced 20bps qoq, and management has put out a robust medium-term outlook (well grounded too); ICBK’s core profitability problem being addressed?

■ Maintain Buy, High Risk — If ICBK were to continue down its espoused strategic path (with some tweaks and changes), and gets support from the economy; it could well retrieve more of its lost profitability and valuations.


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