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Q3 in-line, well situated versus peers

Better long-term outlook with high earnings quality ICICI Bank (ICICIBC IN) delivered steady Q3, reflected in resilient earnings delivery. Q3 PAT of INR 102.8bn was in line. Core profitability (ex-treasury) growth was below trend (up 10% YoY), but curtailed credit cost helped >20% YoY earnings growth, as expected. ICICIBC has started to tilt towards the narrative of core operating profit less provision growth from risk-calibrated core PPoP growth. Investors may have a transitionary concern, but this is not idiosyncratic to the bank and is an industry phenomena and may eventually align with strong compounding story. With robust underlying and levers to continue delivering better risk-adjusted return, even on high base, we see the risk of an earnings disappointment rather low.

NIM drop largely in line, core growth, a sectoral concern

ICICIBC saw loan growth of >18% YoY, aided by >21% YoY loan growth in retail, 27% YoY in SME and 32% YoY in business banking. NIM drop of 10bps QoQ to 4.43%, as expected, reflected the lag impact of deposit rate hike. While NIM may be strained (cost of deposit to rise further), ICICIBC may not see an aggressive NIM dip, unlike some frontline peers. Transition from high-teen core PPoP growth to lower-teen growth may render narrative dislocations as the bank has limited levers to improve that, but it may eventually get adjusted as we believe levers are in place to sustain overall earnings delivery with RoA of 2% and RoE of 15%.

Asset quality, a non-issue; trend durable

Asset quality continues to hold fort, with no signs of stress. Slippages rose marginally to INR 57bn (INR 46.9bn QoQ), with rise in KCC slippages (seasonal trend). Retail slippages were controlled, with ICICIBC confident of near-term trends (no red flags on unsecured segments). Meanwhile, higher corporate recovery pushed down GNPLs 4% QoQ. ICICIBC used this to provide for AIF exposure (INR 6.27bn), thus keeping credit cost curtailed. Coverage of >80%, NNPLs of sub50bps and contingent buffer at 1.1% of loans imply that ICICIBC has buffers to ensure earnings consistently (this is missing for most peers).

Valuations: Reiterate Buy; new

TP at INR 1,214 While banking may be facing strain, ICICIBC may hold against the tide with steady earnings – FY24E ROA/ROE of >2%/16%. With mergerrelated uncertainties for HDFCB, ICICIBC is a clean play on best-in classRoA. ICICIBC's RoRWA has drastically improved and is now better than HDFCB’s. ICICIBC should trade at a premium on high-quality granular earnings. Maintain BUY with revised SoTP-TP of INR 1,214 (from INR 1,192) as we roll to September 2025E – ICICIBC is our top sectoral pick.

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