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Healthy asset quality, positive outlook

ICICI Bank Limited operates a network of banks located throughout India. The bank specialises in retail and corporate banking, in addition to forex and treasury operations. ICICI Bank also provides a wide variety of investment banking, insurance, and financial services to its clients.

• In Q2FY24, the bank’s net interest income (NII) grew a significant 23.8% YoY to Rs. 18,308cr, while net interest margin (NIM) expanded 22bps YoY to 4.53%.

• GNPA and NNPA ratios were 2.48% and 0.43% (vs. 2.76% and 0.48% in Q1FY24), respectively.

• With strong growth momentum in advances and deposits, healthy asset quality, robust digital capabilities, and sufficient capitalisation, the bank is poised to deliver strong earnings performance. Although NIM may moderate in the near term, due to the lagged impact of increase in the term deposit rates in FY23, we remain positive about the company’s long-term growth prospects. Hence, we upgrade our rating to BUY from HOLD with a SOTP-based target price of Rs. 1,054.

Robust PAT growth with lower provisioning

Interest income grew 34.1% YoY to Rs. 34,920cr (up 4.8% QoQ), led by robust growth in interest on advances. Interest expense rose 47.7% YoY to Rs. 16,612cr (up 10.0% QoQ). Consequently, NII increased 23.8% YoY to Rs. 18,308cr (flat QoQ). NIM margin expanded 22bps YoY to 4.53% (down 25bps QoQ). Pre-provisioning profit was Rs. 14,229cr (up 21.8% YoY), partly impacted by higher operating expenses. However, profit after tax (PAT) surged 35.8% YoY to Rs. 10,261cr, aided by lower provisioning which more than halved YoY, partly offset by higher taxes.

Improving asset quality

Advances grew 18.3% YoY to Rs. 1,110,542cr (up 5.0% QoQ), driven by robust growth in domestic loans. Retail book grew 21.4% YoY, led by mortgage (up 16.2% YoY), personal (up 40.4% YoY) and vehicle loans (up 19.9% YoY). It now constitutes 54.3% of the total loan portfolio. Rural/ business banking / SME / domestic corporate loans rose 17.3% / 30.3% / 29.4% / 15.3% YoY. Deposits increased 18.8% YoY to Rs. 1,294,742cr (up 4.5% QoQ). The CASA ratio shrank 420bps YoY to 40.8%. Gross nonperforming assets (GNPA) came in at Rs. 29,837cr (down 6.2% QoQ), aided by lower slippage and higher recoveries and upgrades. GNPA and NNPA ratios were 2.48% and 0.43% (vs. 2.76% and 0.48% in Q1FY24), respectively. The provision-coverage ratio stood at 82.6%. The capital adequacy ratio was 17.6% and the Tier-I ratio was 16.9%, well above the required level.

Key quarter highlights

• 174 new branches opened in Q2FY24, taking the total branch count to 6,248. Branch expansion in future may largely depend on the available opportunities in the micro markets and capacity required to service that demand.

• Over 1 cr iMobile Pay app activations from non-ICICI account holders by Sept-23.

Outlook and valuation

ICICI Bank delivered a superior performance in Q2FY24, and we expect a robust growth momentum in advances and deposits, particularly during the upcoming festive season. Diversified loan portfolio, healthy asset quality, digital capabilities, and sufficient capitalisation augur well for the company’s future performance. However, NIM may moderate in the near term, due to lagged impact of increase in term deposit rates in FY23. We are optimistic about the company’s long-term growth prospects and hence, upgrade our rating on the stock to BUY from HOLD with a SOTP-based target price of Rs. 1,054.

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SEBI Registration Number: INH200000345