Investors have been keenly awaiting ICICI Bank's September quarter results to analyse the impact of higher deposit rates on the bank's key operational parameters, including net interest margin (NIM), loan growth, and non-performing assets. They have been rather bullish on the bank going into the earnings season.
The stock hit a 52-week high of ₹1,361.4 on 20 September, and traded broadly flat at ₹1,255.5 on Friday. The scrip has outperformed rivals over the past year: it has gained 37% vis-à-vis a 24% rise in the benchmark index Sensex.
Meanwhile, HDFC Bank gained 16.7% during this period, while Axis Bank has gained 24%. Has ICICI Bank also outperformed its peers in its Q2 earnings?
The impact of a higher interest rate regime is visible. ICICI Bank’s NIM in the second quarter of FY25 was 4.27% vis-à-vis 4.53% a year ago.
Earlier, smaller rivals also faced similar pressures. Kotak Mahindra Bank’s NIM was at 4.91% in the second quarter of FY25 against 5.22% a year earlier. Axis Bank reported an NIM of 3.99% in the September quarter versus 4.11% a year earlier.
However, larger rival HDFC Bank, the biggest private sector bank, reported an NIM of 3.65 % on interest-earning assets in the second quarter of FY25 vis-à-vis 3.6% a year earlier.
To ICICI Bank’s credit, its loan growth has been fairly strong even in the high-interest environment. Its total advances grew 15% year-on-year in the September quarter to ₹12.77 trillion, led by strong growth in its rural lending. HDFC Bank’s gross advances grew a lackluster 7% year-on-year to ₹25.19 trillion in the second quarter of FY25.
Asset quality of ICICI Bank, too, has been fairly stable. Its percentage of net non-performing customer assets to net customer assets was 0.42% in the second quarter of FY25 and broadly similar to the levels reported a year earlier.
Improved treasury income and strong loan growth helped ICICI Bank’s standalone net profit grow 14.4% year over year to ₹11,745.9 crore in the second quarter of FY25, which was better than expectations.
Rival, HDFC Bank’s standalone net profit grew just 5.3% y-o-y to ₹16,820 crore in the quarter, largely due to higher expenses like employee costs.
Global central banks like the Federal Reserve, Bank of England and European Central Bank have cut interest rates recently. However, the RBI in its recent policy meeting broadly hinted that rate cuts in the domestic economy are still some time away, given food and retail inflation are still running at higher than expected levels.
The domestic economy has shown signs of sluggishness over the past few months, with curtailed demand for 4-wheelers and FMCG companies reporting lacklustre demand in urban areas.
Nevertheless, the Indian economy is expected to grow between 6.5% and 7% during FY25 coupled with an anticipated revival in private sector capital expenditure. Demand for credit is also expected to remain strong in the ‘busy’ lending season, currently underway.
ICICI Bank had over 6,600 branches at the end of the first half of FY25 and these would play a key role in the “deposit war” currently underway in the broader Indian banking system, helping it access low-cost CASA funds and grow loan portfolio, going forward.
For more such analysis, read Profit Pulse.
At ₹1,255.5 apiece, ICICI Bank shares trade at a price to equity or P/E ratio of 18.5 times estimated standalone FY25 earnings, while HDFC Bank trades at 19.5 times on a standalone basis. Kotak Mahindra Bank trades at 17.8 times on a standalone basis.
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Amriteshwar Mathur is a financial journalist with over 20 years of experience. The writer’s mother has been a shareholder of ICICI Bank for nearly two decades.
