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Steady Quarter; Ready to Resume Growth Momentum!

Est. Vs. Actual for Q1FY26: NII – BEAT; PPOP – BEAT; PAT – BEAT

Changes in Estimates post Q1FY26

FY26E/FY27E (in %): NII -2.4/-2.1; PPOP -1.0/-0.8; PAT -1.1/-0.8

Recommendation Rationale

• NIM Compression Lower on Changed Methodology: The bank has changed its NIM computation methodology, wherein it has changed its convention of computation of margins and other return ratios from the actual number of days to the number of months. While the change in methodology is unlikely to have a meaningful impact on the reported NIMs, it evens out any quarterly volatility due to differences in days in a quarter. Resultantly, the NIM compression during the quarter was at 7bps, despite a sharp 33bps contraction in yields and a marginal 3/16bps QoQ drop in CoD/CoF, respectively. Currently, ~53% of the portfolio is EBLR-linked, 15% MCLR-linked, 1% to other benchmarks, and 31% is fixed rate. The management highlighted that the impact of the rate transmission would be sharper in Q2; however, this impact would be partially offset by the deposit rate actions (SA rate cut taken in May-Jun’25 and gradual TD repricing) taken by the bank. We expect NIMs to remain rangebound between 4.2-4.3% over FY25-28E, with near-term challenges on margins persisting.

• Growth Momentum to Pick-up: The decline in the AA-rated (highly rated) has been a function of fine pricing and demand. As against this, the growth in the BBB-book has been in a calibrated manner with tight origination controls and limits in place. The bank remains optimistic about the business banking segment picking up meaningfully and expects growth in this segment to outpace overall growth for the bank. The sluggish growth in the vehicle finance portfolio is owing to pricing competition and slower growth in the asset class. The management has highlighted that the bank is comfortable in resuming and accelerating growth in the unsecured segments – Personal loans and Credit cards, as it remains comfortable with the asset quality metrics in terms of originations over the last 12-15 months. We expect ICICIB to deliver a healthy 15% CAGR credit growth over FY25-28E

• No Challenges on Asset Quality: In Q1FY26, slippages were elevated owing to the seasonally higher KCC slippages. Apart from this, asset quality continues to remain benign across most segments, with the bank exercising tight control and continuous monitoring of its portfolio. The bank does not expect any major challenges to asset quality. Resultantly, we pencil-in credit costs of 50-55bps over FY26-28E.

Sector Outlook: Positive Company

Outlook: We expect the bank to continue to deliver a strong performance over the medium term, enabling a consistent RoA/RoE delivery of 2.3-2.4%/16-17% over FY26-28E. This would be supported by (1) Strong business growth while maintaining a steady C-D Ratio, (2) Focus on strengthening fee income profile, (3) Range-bound Opex ratios with no aggressive investments in sight, (4) Pristine asset quality metrics, and (5) Adequate capitalisation.

Current Valuation: 2.75x FY27E ABV;

Earlier Valuation: 2.75x FY27E ABV

Current TP: Rs 1,650/share; Earlier TP: Rs 1,650/share

Recommendation: We maintain our BUY recommendation on the stock. Alternative BUY Ideas from our Sector Coverage HDFC Bank (TP – Rs 2,300/share)

Financial Performance:

? Operating Performance: ICICIB reported a healthy credit growth of 12/2% YoY/QoQ, in line with our expectations. Domestic advances grew by 12/1.5% YoY/QoQ. Retail book grew by 7/1% YoY/QoQ, Business Banking grew by 30/4% YoY/QoQ. The domestic corporate book grew by 7.5/-1% YoY/QoQ. Deposit growth was flat QoQ and stood at 13% YoY. C-D Ratio stood at 83.3% vs 85.8/83.3% YoY/QoQ

? Financial Performance: NII grew by 11/2% YoY/QoQ. Margins contracted by 7bps vs expectations of ~15bps. NIMs stood at 4.34% vs 4.41% QoQ. Non-interest income growth was strong at 21/17% YoY/QoQ, led by strong treasury gain of Rs 12.4 Bn (vs gain of Rs 2.4 Bn QoQ) and fee income growth of ~7.5% YoY. Opex growth was higher at 8/6% YoY/QoQ. Owing to healthy top-line growth, C-I Ratio remained stable at 37.8% vs 39.7/37.9% YoY/QoQ. PPOP grew by 17/6% YoY/QoQ. Provisions were marginally (+36/104% YoY/QoQ). Credit costs (calc.) stood at 54bps vs 44/27bps YoY/QoQ. PAT grew by 15/1% YoY/QoQ.

? Asset Quality: GNPA/NNPA remained stable at 1.67/0.41%, flat QoQ. Slippages during the quarter were lower QoQ. Slippage ratio was at 1.8% vs 2% QoQ. The bank wrote off loans of Rs 23.6 Bn. PCR stood at 75.3% vs 76.2% QoQ