ICICI BANK Stock Research Report

IN A LEAGUE OF ITS OWN; PREFERRED PICK AMONGST BANKS…

ICICI Bank (ICICIBC) is one of the largest private sector banks in India with business operations spread across Retail, Corporate, and Insurance. It is supported by a strong liability franchise and a healthy retail corporate mix. The bank’s subsidiaries such as ICICI Venture Funds, ICICI Pru AMC, ICICI Securities, ICICI Prudential, and ICICI Lombard are among the leading companies in their respective domains.

Key Rational

◼ NIMs to stabilize:

In Q2FY25, margin compression of 9bps was higher than expected and the management attributed this to the higher number of days in Q2FY25, which should seasonally reverse in Q4FY25. ICICIB indicated that the retail deposit rates have largely stabilised and the management does not expect any meaningful increase hereon. However, the wholesale deposit rates continue to remain higher and are expected to stabilise as the systemic liquidity improves. Thus, the management expects NIMs to remain steady over the next few quarters until the start of the rate cut cycle. Currently, 51% of loans are repo-rate linked, 16% MCLR linked and 32% of loans are fixed rate. While the impact of a rate cut could be higher initially, in the event of a rate cut, we expect ICICIB’s NIMs to remain stable at 4.2-4.3% over FY25.

◼ Asset quality remains pristine:

Gauging the headwinds in the unsecured lending space, ICICIB gradually decelerated its pace of growth in the unsecured segment (~14% portfolio mix). In line with industry performance, the bank has also seen an inch-up in delinquencies in the Credit Card and Personal Loan portfolio. The bank has taken measures to improve the quality of underwriting and tightening credit filters for each category of customers sourced while adjusting the pricing. With these measures, the bank has been able to control slippages in the personal loans portfolio (slippages are flat QoQ). The management expects credit costs to be contained at 40-50bps on a normalised basis.

◼  Growth momentum to sustain:

The bank has invested in developing its business banking segment and continues to see substantial headroom for growth in this vertical. Similarly, despite the asset quality challenges in the credit card segment, the bank will continue to pursue growth in this segment. The management indicated that the penetration of credit cards in the overall customer base is lower and the bank will continue to grow this segment. We expect ICICIB to deliver a healthy 16% CAGR broad-based credit growth over FY25-27E.

◼  Outlook & Valuation:

We expect the bank to continue delivering a strong performance over the medium term enabling a consistent RoA/RoE delivery of 2.2-2.3%/17-18% supported by (1) strong business growth while maintaining a steady C-D Ratio, (2) focus on strengthening fee income, (3) range-bound Opex ratios with no aggressive investments in sight, (4) pristine asset quality metrics and (5) adequate capitalisation. ICICIB remains our most preferred pick amongst banks.

◼ Key Risks: a) Slowdown in credit growth momentum due to lag in deposit mobilisation

Key Financials (Standalone)