Shares in ICICI Bank shed early gains to close lower on Thursday, as concerns about the lender's net interest margins weighed on the stock amid a rally in Indian equity markets.
ICICI said on Wednesday its profit dropped in the third quarter, but the country's third-largest private sector lender by market value posted a fall in its gross bad loan ratio.
That news was initially welcomed by markets, with its shares rising as much as 2.9 percent. However, ICICI reversed direction to fall as much as 3.2 percent over concerns on the net interest margins. The stock ended the session nearly flat.
A senior fund manager at a mid-sized asset management firm told Reuters that recoveries from India's bankruptcy process had helped improve the bad loan ratio in the latest quarter.
"But that is a one-off. If we strip this out, then like-to-like there is a compression in net interest margin. Because of that the stock has corrected," the fund manager said, adding the bank's credit cost is showing signs of improving.
Investors were also heartened by the bank's move to distance itself from tainted former chief executive Chanda Kochhar. ICICI said on Wednesday a fresh probe had found that Kochhar had violated internal bank policies. The bank said it will seek to revoke her financial entitlements.
Kochhar, who has been dogged by allegations of conflict of interest and misconduct over the last two years and had sought early retirement from the bank in October, said she was "utterly disappointed, hurt and shocked by the decision".
BROKERAGES UPBEAT ON Q3 RESULTS
At least four brokerage firms raised their target price on ICICI's stock, despite the bank posting a decline in its third-quarter profit on Wednesday.
Gross bad loans as a percentage of total loans, a measure of asset quality, fell to 7.75 percent at the end of December, from 8.54 percent in the previous quarter and 7.82 percent a year earlier.
ICICI Bank accounts for a chunk of the country's bad loans. For an interactive graphic on the bad loans ratio at some Indian private sector lenders, click https://tmsnrt.rs/2HFMoJq
ICICI Bank "continues to show promise with trending lower new NPL formation, and balance sheet growth with higher granularity on both asset and liability side," Jefferies analysts wrote in a note.
The brokerage raised its target price to 450 rupees from 385 rupees, while HSBC hiked it to 415 rupees from 400 rupees.