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Fundamental View
AS OF 12 Aug 2024ICICI 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 since continued the good performance.
Business Description
AS OF 12 Aug 2024- 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 55% of its loan book, corporates are at 21%, while rural, business banking and SMEs are at 8%, 8% and 5% respectively, and overseas (which is being de-emphasised) consists of just 3% at 1QFY25.
- The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.
Risk & Catalysts
AS OF 12 Aug 2024We are cautious about ICICI’s strong growth in riskier segments including business banking, personal unsecured loans and credit cards. The RBI’s increased risk weights on retail unsecured loans however has applied some brakes on that growth which is a credit positive, and India’s resilient growth momentum should keep credit costs relatively contained.
ICICI Bank has a strong franchise and its profitability has surpassed that of HDFC Bank to lead the peers we cover. Margins are under pressure from tight system liquidity, but the bank’s LDR is less tight than peers. We see ICICI’s credit costs normalizing upwards slightly in FY25 as the recoveries tailwind tapers off.
Leadership and governance issues under the previous CEO Ms. Chanda Kochhar have been dealt with well, since her replacement in Oct-18.
Key Metric
AS OF 12 Aug 2024| INR bn | FY21 | FY22 | FY23 | FY24 | 1Q25 |
|---|---|---|---|---|---|
| NIM | 3.69% | 3.96% | 4.48% | 4.53% | 4.36% |
| ROAA | 1.39% | 1.77% | 2.13% | 2.37% | 2.35% |
| ROAE | 12.3% | 14.7% | 17.2% | 18.7% | 18.1% |
| Equity/Assets | 12.0% | 12.1% | 12.6% | 12.7% | 13.3% |
| CET1 Ratio | 16.7% | 17.3% | 16.9% | 15.4% | 15.1% |
| Gross NPA Ratio | 4.96% | 3.60% | 2.81% | 2.16% | 2.15% |
| Provisions/Loans | 2.05% | 0.97% | 0.65% | 0.30% | 0.41% |
| PPP ROA | 3.13% | 2.97% | 3.28% | 3.36% | 3.41% |
CreditSight View Comment
AS OF 28 Oct 2024ICICI Bank is a preferred name among the Indian FIs we cover. We like the bank’s robust capital and loan loss buffers, strong asset quality, as well as peer leading margins, profitability and liquidity position. Under its previous CEO, the bank suffered setbacks from sizable 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. ICICI last issued a $ bond in 2017.
Recommendation Reviewed: October 28, 2024
Recommendation Changed: December 07, 2020
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