News Analysis

Picture perfect Q4 for ICICI Bank; looks to recreate its legacy

Hamsini Karthik |BL Research Bureau | Updated on: Apr 25, 2022

NIM, Capital adequacy and return ratios at a multi-quarter high

Does the search for the next HDFC Bank stop with ICICI Bank? , asks the popular banking sector analyst Suresh Ganapathy of Macquarie Capital

But it looks like ICICI Bank is on a path to (re)create its legacy.

For the first time in several years, at 2.8x estimated FY23 book, ICICI Bank’s valuation is neck-to-neck with HDFC Bank. And what’s more, when asked if the bank was okay being a distant number two to its largest competitor HDFC Bank post the merger, Sandeep Batra, Executive director, ICICI Bank, ruled out chasing inorganic opportunities for the sake of bridging the balance sheet gaps.

Strategy pays off

For those following the bank for long, this speaks volumes. Known as a super-aggressive player in the past, ICICI Bank’s contentment with its current position is highly reassuring for investors. After all, with every engine firing and the gone by March quarter (Q4) being the multi-quarter best on all fronts - whether net interest margin (NIM or profitability) at four per cent, net non-performing assets at 0.76 per cent, return on assets at 2.11 per cent and capital adequacy at 19.16 per cent, ICICI Bank has every ingredient in place needed for a money-making machine. It is a big positive that it doesn’t intend to spoil the party to stay on par with the competition (in terms of size).

In FY19, the bank decided to look at growth opportunities that fit its risk parameters. This strategy seems to have paid well, going by FY22 numbers. In fact, at BL Portfolio, we had a buy recommendation on ICICI Bank stock in February and Q4 results further reiterate the optimism on the stock (

Risks ahead

But if there’s one thing to watch out for, it’s the NIM. At four per cent, how sustainable is this number in the long run? NIM is a function of yield and loan book mix. Unlike peers, who are augmented by high-yielding microfinance loans and a higher proportion of shorter duration unsecured retail loans, ICICI Bank’s retail portfolio draws its strength from home loans (nearly 50 per cent of retail loans), which is a very price sensitive book. In a rising interest rate scenario, to stay competitive in the business, passing on the entire cost burden may be tricky and hence how well ICICI Bank holds on to NIM at four per cent may be tested by mid-FY23.

Having turned into a retail heavy outfit, will this strategy continue given that there are green shoots of corporate lending? This would be another thing to watch out for. For now, the bank maintaining its approach of targeting risk calibrated growth offers comfort. But the overhang on profitability is something that investors should be mindful of, given that it is not being priced in valuations right now.

Published on April 25, 2022
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