ICICI Bank, one of India’s leading private sector lenders, continues to shine in the market, showcasing robust profitability and investor appeal amidst challenges faced by its peers. Over the past two years, the bank has witnessed strengthened profitability, reduced volatility in bottom-line growth, and maintained exceptional asset quality, all contributing to impressive return ratios for investors.
Most brokerages have maintained or upgraded their ratings on ICICI Bank, particularly as its return on assets surged to an impressive 18.9 percent for FY24, a significant leap from just 7.3 percent four years ago.
Peers hit
ICICI Bank’s rise in popularity among investors has been further bolstered by setbacks faced by its competitors. Both HDFC Bank and Kotak Mahindra Bank, once valued higher than ICICI Bank, have encountered regulatory challenges impacting their growth trajectories. Regulatory actions from the Reserve Bank of India (RBI) against these banks for digital infrastructure lapses and business restrictions have caused significant declines in their valuations.
Despite its own digital challenges, such as a card mapping issue affecting 17,000 customers, ICICI Bank swiftly managed to address and mitigate the problem. This proactive approach demonstrated the bank’s resilience and ability to navigate challenges effectively.
While Axis Bank has emerged as a strong competitor, showing improvements in profitability similar to ICICI Bank, it has not matched the latter’s performance consistently.
The hurdles
However, ICICI Bank has also faced some internal deceleration, with loan growth slowing to 16 percent from a peak of 23 percent in FY23, net interest margins declining, and the share of current and savings accounts in total deposits decreasing. Despite these challenges, the bank’s management remains optimistic about future growth and margins.
Analysts foresee further potential for re-rating of ICICI Bank’s valuation in the coming quarters, given its strong deposit growth of 20 percent in the fourth quarter and anticipated moderation in operating expenses. The bank’s management is focused on optimizing costs, particularly in employee additions and technology investments, which is expected to positively impact future operating expenses.
