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Best-in-class

ICICI Bank delivered RoA/RoE of 2.0%/16.8% in 4QFY22 – ahead of our and street estimates led by a strong overall performance on margins, credit costs and growth. NIMs inched up sequentially as share of high yielding credit card/personal loan products inched up (c.10% QoQ growth in both products) even as cost of deposits remained stable. Domestic wholesale loans grew at a relatively soft pace of 9.7% YoY (retail loans +19.7% YoY, SME loans +34% YoY). Overall core revenues grew 18.2% YoY (core fees up 11.4% YoY) which led to an 18.7% YoY growth in core-PPOP. Credit costs remained low at 54bps (with almost negligible core credit costs) even though slippages stood at 2.1% (upgrades and recoveries outpacing slippages). ICICI Bank, in our view, continues to deliver strong risk-adjusted metrics with steady growth, partly also benefitting from low credit cost environment. Incrementally, repo rate hike by RBI could act as a tailwind for margins which can potentially absorb normalization of credit costs and thus protect the bank’s RoA profile which is now best-inclass. We see ICICI Bank delivering strong compounding returns with valuations set to re-rate higher. ICICI Bank continues to be our top pick in the sector. Maintain BUY with SoTP-based target price of INR 1,010 (values the core business at 2.75 FY24E P/BV).

Retail-led growth; CC/PL share inches up, aiding NIMs: ICICIBC’s witnessed strong growth in loans (+5.5% QoQ, +17.1% YoY) and deposits (+4.6% QoQ, +14.2% YoY). Loan growth was led by strong growth in retail (+19.7% YoY) driven by strong traction in credit card/personal loan products (c.10% QoQ each) and mortgages (+20.3% YoY). Management indicated that credit cards spends were up 77% YoY. SME and Business banking also witnessed robust growth of 33.6% YoY and 43.2% YoY resp. while domestic corporate loans growth was relatively soft at 9.7% YoY. Average CASA ration inched up further to 45.2% (+30bps QoQ). NIMs inched up sequentially as share of high yielding credit card/personal loan products inched up (c.10% QoQ growth in both products) even as cost of deposits remained stable. Overall core revenues grew 18.2% YoY (core fees up 11.4% YoY) which led to an 18.7% YoY growth in core-PPOP.

Strong balance sheet; gross slippages should taper off further: While slippages were at 2.1% (annualised), credit costs were low at 54bps (with almost negligible core credit costs as upgrades and recoveries outpaced slippages). GNPL/NNPL were at 3.8%/0.8% (-56bps/- 9bps QoQ). Restructuring quantum declined to 1.0% of loans (vs 1.2% in 3Q22) and bank holds c.31% provision on this book. Around 73% of overall restructuring pool is from retail. ICICIBC’s provision buffer continues to be robust at INR 74.5bn (0.9% of loans) and we see slippages to taper off going ahead. We expect ICICI bank reverting to near normal credit costs of c.0.7% for FY23-24E

Best-in-class return profile – expect further re-rating: ICICI bank cemented its stalwart position with a very strong revenue momentum and continued asset quality improvement; RoA is now best-in-class and RoE has hit 17% mark earlier than expected. Incrementally, repo rate hike by RBI could act as a tailwind for margins (despite 34% mortgage share). We see ICICI Bank delivering strong compounding returns with valuations set to re-rate higher. ICICI Bank continues to be our top pick in the sector. Maintain BUY with SoTP-based target price of INR 1,010 (values the core business at 2.75 FY24E P/BV).

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