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ICICI Bank delivered another superlative performance on NIMs (4.78%, just -12bps QoQ) and growth (loans +18% YoY, deposits 18% YoY) delivering a PAT beat of 12% on our estimates (1QFY24 PAT at INR 96bn, +40% YoY). For 1QFY23, RoA stood at 2.4% with RoEs of 18.7%. Over the past 15months, ICICI Bank has benefitted meaningfully from its high floating rate portfolio (69% high floating rate book within the domestic loan mix) which has also coincided with its growing share of unsecured loans (13% in 1Q24 vs 10% in 4Q22) in the mix. However, 1QFY24 NIM performance also stands out given that its deposit growth (4.9% QoQ) outpaced the system and other larger peers. SME (29% YoY) and business banking (30% YoY) continued as the fastest growing segments with domestic loan growth at 19% YoY (3% QoQ). Going forward, management expects cost of deposits to continue to increase over the next couple of quarters (at 4.31% for 1QFY24, +33bps QoQ, 85bps YoY) as deposit repricing plays out. In our view, while this could lead to some margin compression from current elevated levels – ICICI Bank’s ability to manoeuvre NIMs in this transition is likely to be a key performance driver as we expect NII growth of 18% for FY24 (implying largely stable NIMs for FY24 vs FY23). Asset quality continues to be in fine fettle with credit costs at 0.53% which unlike recent trends did not include any contingence provisions – implying gradual normalization of credit costs vs the suppressed levels in last few quarters. Opex growth was relatively high (26% YoY) led by higher staff costs (36% YoY) and we closely watch trends on this front as ICICI Bank will need to further increase branch presence. We expect ICICI Bank to deliver RoAs of 2.27%/2.22% in FY24/FY25 and value the bank on SoTP basis with a target price of INR 1155 (core bank valued at 2.7x FY25e BVPS).

* Strong NII performance even as deposit growth picks up: NII grew 38% YoY as loans yields continued to improve for ICICI Bank (+11bps QoQ) though increase in cost of deposits was higher (33bps QoQ). Over the past 12months, ICICI Bank’s asset yields are up 155bps while its cost of funds has gone up 93bps implying further catch up in deposit costs over the next couple of quarters. However, we expect its loan mix change (towards unsecured loans) continuing to offset the cost of funds impact as credit metrics in this portfolio remain at benign levels. Loan growth was 18% YoY with SME/ business banking growing 29%/30% YoY and personal loans and credit cards grew 39% YoY and 45% YoY respectively. Deposit growth, expectedly, was led by term deposits (+26 % YoY) and avg CASA ratio dropped 100bps QoQ and was a key highlight in our view given the bank outpaced system deposit growth and larger peers (should assuage concerns on deposit trajectory given 2HFY23 saw relatively lukewarm trends). We expect ICICI Bank to deliver 17% CAGR in loans and in deposits with NII CAGR of 17% over FY23-FY25.

* Asset quality in fine fettle though credit costs normalizing: Gross slippages stood at 2.18% (INR 53bn) vs 1.83% QoQ partly due to seasonal trends in the agriculture portfolio and net slippages were at a more normalized level of INR18.1bn (0.8% of loans) as benefits of upgrades/recoveries are gradually petering out. However, gross slippages across other segments (ex-agri) are still are at comfortable levels implying benign stress formation trends. Management indicated despite strong growth in unsecured portfolio

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