At a time when a majority of banks are opting for a higher provisioning that is depleting their bottom line, ICICI Bank has gone off the beaten track.

The country’s largest private lender reduced such provisioning by 27 per cent, helping it to report a 20 per cent increase in net profit, to Rs 1,728 crore for the quarter ended December, compared to the year-ago period. Net profit in the corresponding period last year was Rs 1,437 crore. While net non-performing assets decreased 28 per cent to Rs 2,082 crore from Rs 2,873 crore, the net NPA ratio decreased to 0.83 per cent from 1.39 per cent. The provision coverage ratio stayed at a healthy 78.9 per cent.

“The reason why non-performing loans are falling is basically because our unsecured (retail) advances continue to come down. Also, we are seeing healthy growth in secured loans and the credit quality in these assets continue to remain strong," said Chanda Kochhar, managing director and chief executive officer.

The stock surged nearly six per cent after the numbers were announced, outperforming the Sensex, which was up by about two per cent on Tuesday. The net addition to the restructured loans was Rs 500 crore after adjusting for loans worth Rs 300 crore that were upgraded and moved out of the restructured category, Kochhar said.

She said on a year-on-year basis, unsecured retail loans had decreased by 35 per cent. Kochhar also said the process of cleaning the books was almost complete and the bank had started offering credit cards and personal loans “in a measured way" to customers with an existing banking relationship.

The profit growth on the bank was also driven by 17 per cent growth in net interest income — the difference between interest earned and expanded — on the back of a 19 per cent growth in advances. Advances growth was driven by working capital finances, disbursement of project loans sanctioned earlier and secured retail loans. Advances are expected to grow 18 per cent in the current financial year, Kochhar said.

Fee income growth, however was muted because large merger and acquisition deals have reduced. Fee income increased five per cent to Rs 1,701 crore during the reporting period. The results were in line with peers Axis Bank and HDFC Bank, which had also posted stellar results.

On valuations, analysts believe upsides seem capped for HDFC (trading at 3.9 times FY13 price/book value). Most analysts are bullish on both ICICI and Axis, due to strong operating metrics.

Most public sector banks which have announced earnings for the December quarter reported muted profit growth due to high provisioning. Provisioning from restructured accounts also increased for government owned lenders such as Union Bank of India and Central Bank of India.

“ICICI posted good numbers on margins, as well as asset quality. The profitability seems intact. Axis and ICICI are our top buys in the private bank space, given the reasonable valuations and good earnings growth outlook," said Vaibhav Agarwal of Angel Broking.

Net interest margin was 2.63 per cent for the October-December quarter and the bank expects it to remain stable at 2.7 per cent. Improvement in the share of low-cost deposits helped the margins remain stable. Current and savings account deposits improved to 43.6 per cent from 42.1 per cent in end-September.

ICICI Prudential Life Insurance paid a dividend of Rs 150 crore to the bank, for the first time ever, on the back of improved earnings. Its profit after tax in the first nine months of this financial year was Rs 1,056 crore, compared with Rs 513 crore a year earlier.