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We met with the management of ICICI Bank to understand the overall outlook on growth, margins, and asset quality, further to the ongoing tariff war, GST relief, and rate-cut cycle. KTAs:

Growth, margins may moderate a bit, albeit still better than most peers

ICICIB reported some moderation in credit growth at ~12% YoY in 1Q, mainly due to slower growth in retail loans (incl mortgages and unsecured loans) and demand remaining slack in the corporate portfolio. That said, better yielding SME (reclassified) has been a key growth driver for the bank (up 30% YoY) and now contributes nearly 20.5% of its loan portfolio (nearly the same as the corporate portfolio size). The management highlighted that the bank’s SME portfolio is skewed toward high-ticket loans which, hence, does not pose much risk to asset quality for now, although the bank may face some growth pressure amid the ongoing trade war. ICICIB has lost market share in home loans due to higher pricing; however, it has realigned pricing in line with peers (Exhibit 15) which should help partly offset the expected growth normalization in SME. Overall, loan growth is expected to remain soft through FY26, prompting a cut of 70bps in our growth estimate to around 11.5% (though still better ex-Kotak). So far, it has shown margin resiliency vs peers which may contract amid the ongoing rate cut cycle, though it may continue to outperform peers given its better portfolio mix (asset/liability).

Differentiated and digital banking to drive up value per customer

The bank continues to differentiate itself by adopting unconventional measures, including phasing out the bell-curve appraisal system and focusing on profitability as a key KRA vs growth; though this initially raised eyebrows, it resulted in lower employee attrition (18% vs peers at 23-33%). Additionally, the bank has cut promotion of traditional life insurance products while merging the securities business to promote the 3-in-1 product and the recently hiked minimum savings account balance (MAB) to Rs50k from Rs10k (though rolled-back to Rs15k for now), to emerge as the primary bank for its customer and to drive minimum investment balance (MIB) vs MAB. The bank has also heavily invested in its tech stack for retail/business customers, while ensuring less downtime and avoiding regulatory ire. It has built a strong SME loan portfolio over the past few years and intends to focus on cross-selling liability/fee products to drive better value per customer.

ICICI Bank – Well placed to sustain premium valuations

Notwithstanding the near-term margin pressure across banks, as also for ICICIB (though lower), we believe the bank is well positioned to deliver peer-best RoA of 2.1-2.3% over FY26-28E, aided by better cost management, core fees, and contained LLP. This, coupled with credible top management, leadership pool, digital banking edge, and asset quality resiliency, should help the bank command premium valuations versus large-cap PVBs. Thus, we retain BUY while revising up our TP by 6% to Rs1,700 (from Rs1,600), rolling forward on 2.6x Sep-27E ABV and subs valuation at Rs270/sh. The forthcoming IPO of ICICI Pru AMC is likely to unlock value and provide an incremental catalyst. Key risks: slower-than-expected growth and asset quality disruption owing to weakening macros.

Overall Credit growth may moderate a bit, as SME growth to normalize

ICICIB reported some moderation in credit growth at 12% YoY in 1QFY26 from a high of 16% YoY last year, although it is better than that of most large private peers (ex-Kotak). The moderation was mainly due to slower growth in retail loans (including mortgages and unsecured loans) and demand continuing to be slack in the corporate portfolio; the bank continues to consciously trim down its low-yielding overseas loan portfolio. That said, better yielding SME (reclassified) has been a key growth driver for the bank (up 30% YoY) and now contributes 20.5% of it loan portfolio (nearly the same as the corporate portfolio size). The management highlighted that its SME portfolio is skewed toward high-ticket loans and thus does not pose much risk to asset quality for now, although the bank may face some growth pressure amid the ongoing trade war. The bank has ceded some market share in home loans over the past few years due to higher pricing; however, it has now realigned its product pricing (lowest among peers) and hopes to benefit from some pick-up in the mortgage segment and thus partly offset the expected growth normalization in SME. Factoring in the continued softness in unsecured retail loans and some moderation in SME loans, we cut our FY26 credit growth estimate by 100bps to 11.5%.

Well managed margins due to structural shifts; some pressure inevitable amid recent rate cuts

ICICI Bank has maintained healthy margins over the past few years vs peers, supported by a favorable portfolio mix with higher share of retail and SME (including BB) loans at ~73%, reduced share of low-yielding overseas assets (~2% of loans), and an overall lower cost of funds. In addition, the bank has scaled down its exposure to RIDF (Rural Infrastructure Development Fund) loans which has further contributed to margin resilience. Such margin resilience has reflected in 1QFY26 as well with ICICIB reporting only 7bps margin contraction vs peers, at 17-32bps. However, the full impact of the 50bps repo rate cut in June will be visible in Q2 and lead to higher margin contraction, following which margins are expected to improve supported by the CRR, SA, and deposit rate cuts. The bank has also strategically shortened the deposit maturity in FY25, to benefit from the faster TD repricing and thus support margins.

Focusing on better customer engagement and, hence, value per customer via differentiated, digital banking

The bank continues to differentiate itself by adopting unconventional measures, including phasing out the bell-curve appraisal system and profitability as a key KRA vs growth; though this initially raised eyebrows, it has resulted in lower employee attrition (18% vs peers at 23- 33%) and greater customer satisfaction. Additionally, the bank has stopped promotion of traditional life insurance products while merging the securities business to promote 3-in-1 products. After a long time, the bank recently hiked minimum savings account balance (MSB), from Rs10k to Rs50k, to naturally weed out low-value customers, though it had to roll-back to Rs15k amid immense social media noise. That said, the bank remains firm that it will keep exploring raising the minimum balance gradually, as it plans to focus on better customer experience instead of just adding unhappy customers. It intends to emerge as a primary bank for the customer (retail/SME) and focus on minimum investment balance (MIB; rather than MAB) including TDs, wealth management products, etc. The bank has also invested heavily in upgrading its tech stack for retail/business customers, led by app interoperability and ecosystem expansion, while ensuring less downtime and avoiding regulatory ire. Its open-access strategy for iMobile Pay (allowing customers of other banks to onboard) is a standout move that has helped create a fintech-style super-app experience. The strong performance of InstaBIZ and its dominant FASTag and UPI volumes further reinforce ICICIB’s lead on the technology front.

Overall asset quality remains manageable; credit cost could normalize gradually

Gross slippage increased QoQ to Rs 62bn/2.0% of loans in 1Q, driven by seasonally higher agri NPAs (mainly KCC) and should ease in 2Q. The bank believes that the stress in unsecured loans is easing gradually and should thus lead to steady improvement in the overall retail asset quality. That said, bank has built a sizable SME portfolio over the past few years (even excluding the reclassification). Notably, overleveraging concerns have recently emerged in the low-ticket SME segment, while the ongoing tariff war could pose a risk to the higher ticketsize segment mainly dependent on exports to the US. The management claims that it does not have much exposure to the lower end of the SME segment, while the higher end of the SME segment is well collateralized. Additionally, the bank has relatively lower exposure to most vulnerable sectors—textiles; gems and jewelry—among peers, while export credit as a % of overall credit stands at 1.4%. That said, banks remain watchful of emerging disruption in its portfolio due to the tariff war, and shall take necessary measures to keep risk in check, while keeping hopes up for some government intervention toward easing the pain for such SMEs. We also note that the bank has a strong contingent provision buffer at ~0.95% of loans/Rs18 a share.

ICICI Bank – Well placed to command premium valuations

Notwithstanding the near-term margin pressure across banks, as also for ICICIB (though lower), we believe the bank is well positioned to deliver peer-best RoA of 2.1-2.3% during FY26-28E, aided by better cost management, core fees, and contained LLP. This, coupled with credible top management, leadership pool, and digital banking edge, should help the bank command premium valuations (though HDFCB has recently caught up with it) versus largecap PVBs. Thus, we retain BUY on ICIC Bank while revising up our TP by 6% to Rs1,700 (from Rs1,600 earlier), rolling forward on 2.6x Sep-27E ABV and subs valuation at Rs270/sh. Additionally, the forthcoming IPO of ICICI Pru AMC is likely to unlock value and provide an incremental catalyst.

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