ICICI Bank sees more pain ahead after Q3 bad loan surge

By Devidutta Tripathy

MUMBAI (Reuters) - ICICI Bank Ltd (ICBK.NS), India's biggest private sector lender by assets, saw its bad loans surge in the December quarter on a central bank order to reclassify some troubled loan accounts, and predicted sour assets will rise further this quarter.

The lender, which is also listed in New York (IBN.N), reported Thursday its standalone net profit in its fiscal third quarter to Dec. 31 rose 4.5 percent from a year earlier to 30.18 billion rupees ($443 million), in line with analysts' estimates of 30.17 billion rupees on average.

The profit was helped by tax adjustments.

Indian banks have seen a surge in their bad and restructured loans in the past three years as an economic slowdown squeezed companies' profitability and their ability to service debt.

As the regulator, the Reserve Bank of India (RBI), embarks on a drive to clean up bank balance sheets by March 2017, it has asked lenders to treat some stressed borrowers as non-performing even if they have not defaulted yet.

The RBI has yet to talk specifically about the direction, but bankers say they have been asked to downgrade the accounts by March.

About 60 percent of ICICI Bank's bad loan additions of 65.44 billion rupees in the December quarter were due to the RBI directive on asset reclassification, Chief Executive Chanda Kochhar said on a conference call after the results.

"You could assume a similar trend overall as this quarter," she said when asked about the quantum of bad loans and provisioning in the fourth quarter to March.

Kochhar cited steel and power as troubled sectors, without naming any companies.

ICICI Bank's bad loans as a percentage of total loans widened to 4.72 percent in the December quarter, from 3.77 percent in the previous three months. Provisions, including for loan losses, tripled to 28.44 billion rupees.

Third-biggest private sector lender Axis Bank (AXBK.NS) last week reported rise in bad loans due to the RBI move, but the second-largest HDFC bank (HDBK.NS), which has relatively less exposure to the troubled sectors, saw little impact.

The dominant state-run lenders, led by State Bank of India (SBI.NS), have yet to report December quarter earnings.

ICICI Bank's domestic loans at end-December grew 20 percent from a year earlier, helped by a faster 24 percent increase in retail loans. Net interest income in the quarter rose 13 percent from a year earlier, while non-interest income grew 36 percent.

($1 = 68.1100 Indian rupees)

(Reporting by Devidutta Tripathy; Editing by Subhranshu Sahu and Katharine Houreld)