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Fundamental View
AS OF 23 May 2023ICICI Bank is one of the leading private banks in India and has a good diversified business model, with well regarded life and general insurance subsidiaries.
Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18 but the situation has since stabilised following a leadership change and the bank has done well ever since.
The bank’s Baa3(sta)/BBB-(sta)/ BB+(sta) ratings make it a cross-over credit but we assess fallen angel risk to be low. ICICI Bank performed very well in FY22 and Moody’s upgraded its standalone rating to baa3 in June 2022. It has continued the good performance in FY23.
Business Description
AS OF 23 May 2023- The original Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 by the World Bank, the Government of India and representatives of Indian industry as a financial institution to provide Indian businesses with medium and long-term project financing.
- In 1994, ICICI established a commercial banking subsidiary, ICICI Bank as India's financial sector opened up, and in 2002 ICICI merged with ICICI Bank, keeping the latter's name.
- Retail now accounts for 54% of its loan book, corporates are at 23%, while rural, business banking and SMEs are at 8%, 7% and 5% respectively, and overseas (which is being de-emphasised) consists of just 3% at FY23.
- The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.
Risk & Catalysts
AS OF 23 May 2023Despite ICICI’s relatively smaller SME book (~4.8% of total loans), we are cautious about the bank’s rapid loan growth in this sector, as well as that in business banking and unsecured retail loans given the sharp rise in interest rates, but India’s growth momentum looks comfortable for FY24.
ICICI Bank has a strong franchise and its profitability has caught up with that of HDFC Bank in recent quarters thanks to a very strong NIM momentum as well as loan growth. From an asset quality perspective it is still behind HDFC Bank, but the gap has been narrowing.
Leadership and governance issues under the previous CEO Ms. Chanda Kochhar have been dealt with well, since her replacement in Oct-18.
Key Metrics
AS OF 23 May 2023| INR bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Interest Margin | 3.42% | 3.73% | 3.69% | 3.96% | 4.48% |
| ROA | 0.36% | 0.77% | 1.39% | 1.77% | 2.13% |
| ROE | 3.2% | 7.1% | 12.3% | 14.7% | 17.2% |
| Equity/Assets | 11.2% | 10.6% | 12.0% | 12.1% | 12.6% |
| CET1 Ratio | 13.4% | 13.2% | 16.7% | 17.3% | 16.9% |
| NPA Ratio | 6.70% | 5.53% | 4.96% | 3.60% | 2.81% |
| Provisions/Loans | 3.02% | 1.95% | 2.05% | 0.97% | 0.65% |
| PPP ROA | 2.54% | 2.72% | 3.13% | 2.97% | 3.28% |
CreditSights View
AS OF 25 Apr 2023ICICI Bank is a preferred name among the Indian FIs we cover. We like the bank’s robust capital and loan loss buffers, high margins and strong profitability. Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18 but the situation has since stabilised following a leadership change. The bank has emerged stronger from a capital, asset quality and earnings perspective, as it de-risked its book, and took pro-active actions to protect its capital by raising equity and selling small stakes in its well-regarded insurance subsidiaries to raise funds and set aside more general provisions. We are slightly cautious about its brisk expansion in riskier segments of late. We have a M/P reco. ICICI last issued a $ bond in 2017.
Recommendation Reviewed: April 25, 2023
Recommendation Changed: December 07, 2020
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