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Fundamental View

AS OF 25 Aug 2022
  • ICICI 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 over the past couple of years.

  • The bank’s Baa3(sta)/BBB-(sta)/ BB+(sta) ratings make it a cross-over credit but we assess a fallen angel risk to be low. ICICI Bank perfomed very well in FY22 and Moody’s upgraded its standalone rating to baa3 in June 2022.

Business Description

AS OF 25 Aug 2022
  • 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.
  • ICICI Bank's shareholding pattern is fragmented. Various institutional investors hold a total of >90% stake in the bank, retail investors hold 6.4%, while the Indian government has a tiny share of 0.19%.
  • Retail now accounts for over 62% of its loan book, while corporates, business banking and SMEs have been reduced to 22%, 6% and 4% respectively, and overseas (which is being de-emphasised) consists of just 5%.
  • The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.

Risk & Catalysts

AS OF 25 Aug 2022
  • The SMEs will likely bear the compounding effects of both higher costs of goods and financing costs disproportionately, especially since their finances have been stretched over the pandemic period. ICICI’s relatively smaller SME book (~4% of total loans) will serve the bank well in volatile times.

  • ICICI Bank has a strong franchise and its profitability has caught up with that of HDFC Bank in recent quarters. From an asset quality perspective it is still behind HDFC Bank, but the gap has narrowed.

  • Leadership and governance issues arose from potential irregularities in the granting of loans to India’s Videocon group by the previous CEO Chandra Kochhar (an ongoing independent probe remains).

Key Metrics

AS OF 25 Aug 2022
bn INR 1Q23 FY22 FY21 FY20 FY19
Net Interest Margin 4.01% 3.96% 3.69% 3.73% 3.42%
ROA 1.95% 1.77% 1.39% 0.77% 0.36%
ROE 15.9% 14.7% 12.3% 7.1% 3.2%
Equity/Assets 12.5% 12.1% 12.0% 10.6% 11.2%
CET1 Ratio 16.3% 17.3% 16.7% 13.2% 13.4%
NPA Ratio 3.41% 3.60% 4.96% 5.53% 6.70%
Provisions/Loans 0.52% 0.97% 2.05% 1.95% 3.02%
PPP ROA 2.92% 2.97% 3.13% 2.72% 2.54%
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CreditSights View

AS OF 25 Aug 2022

ICICI Bank is a preferred name amongst the Indian FIs under our coverage. We like the bank’s robust capital and loan loss buffers, higher margins, and smaller SME book. Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18 but the situation has stabilised over the past few years following a leadership change, and the bank has emerged stronger from a capital, asset quality and earnings perspective. The bank de-risked its book and took pro-active actions to protect its capital by raising equity and has sold small stakes in its well-regarded insurance subsidiaries to raise funds and set aside more general provisions. We have a M/P reco on the bank as its $ bonds trade appropropriately vs SBI’s. It however last issued a $ bond in 2017.

Recommendation Reviewed: February 07, 2023

Recommendation Changed: December 07, 2020

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