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ICICI’s RoA seems to settle at a premium level

Our view – Sequential margin compression slightly worse than otherwise due to non-structural factors

A 10 bps sequential margin compression was contributed to by multiple nonstructural factors, other than rise in cost of deposits: The key reason for the sequential decline in NIM was the lagged impact of rise in cost of deposits. The yield on advances declined 2 bps QoQ to 9.79%. The impact from interest on income tax refund on NIM amounted to 3 bps for the quarter compared with nil impact in 2Q. There was also some negative impact due to derecognition of interest income on part of the KCC loan book but the same has not been quantified. The bank reiterated that full year FY24 margin would be similar to FY23. This implies that there would be some more margin compression in 4Q but the quantum would be lower than earlier. Management stated that the share of highyielding loans is still not that high, implying further scope for ramp up.

The moderate sequential rise in slippages was on account of the usual seasonal farm slippages during odd quarters of the financial year: Gross additions to GNPA amounted to Rs 57.14bn for the quarter compared with Rs 43.64bn in 2Q. The retail, rural and business banking portfolio contributed Rs 54.82bn to the gross additions to GNPA. Of this, Rs 6.17bn was contributed to by the KCC (Kisan Credit Card) portfolio. Management stated that net slippages in retail segments would be expected to normalize upward. Provisions were Rs 10.9bn, up by 80% QoQ but down -53% YoY, translating to calculated annualised credit cost of 37bps. Provision of around Rs.6.27bn were towards applicable Alternate Investments Funds (AIF) Investments pursuant to the RBI circular. We maintain ‘Buy’ rating on ICICI with a revised price target of Rs 1260: We value the standalone bank at 2.7x FY25 P/BV for an FY24E/25E/26E RoE profile of 17.8%/17.6%/17.5%. We assign a value of Rs 188 per share to the subsidiaries, on SOTP.

Result Highlights (See “Our View” above for elaboration and insight)

*Asset quality: Gross NPA additions amounted to Rs 57.14bn for the quarter, translating to an annualized slippage ratio of 2.0% in 3QFY24

*Margin picture: NIM at 4.43% was down -10 bps QoQ, primarily due to the lagged impact of rise in cost of deposits

*Asset growth: Advances grew 3.9%/18.5% QoQ/YoY driven sequentially by healthy growth in Retail, Business Banking, SME and Overseas loans

*Opex control: Total opex grew 2.0%/22.3% QoQ/YoY, Employee expense grew 2.3%/30.5% QoQ/YoY and other expense rose 1.8%/17.8% QoQ/YoY

*Fee income: Fee income grew 2.1%/19.4% QoQ/YoY. Fees from retail, rural, business banking and SME customers constituted about 79% of total fees

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