ICICI Bank Q3 Results Review: Lower Credit Costs Offset Decline In Net Interest Margin

ICICI Bank Ltd. has been able to maintain its healthy return on assets as the decline in net interest margin in the third quarter was offset by lower credit costs, according to analysts.

However, the compression in margin is nearing its end, analysts said.

ICICI Bank reported a healthy net profit in the December quarter, despite setting aside provisions worth Rs 630 crore against alternative investment funds.

Further, the net interest margin contracted 10 basis points on a quarter-on-quarter basis to 4.43%, a slightly lower decline than analysts' expectations.

"ICICI Bank reported a steady and healthy Q3 FY24 result, with continued strength in loan growth, slight margin compression and a still healthy RoA of 2.3%," Bernstein said in a note.

On asset quality, seasonal slippages from the Kisan Credit Card segment were higher. Analysts drew comfort from the contingency buffer of Rs 13,100 crore, which is 1.1% of loans.

The stable mix of a high-yielding portfolio and continued traction in business banking, small and medium enterprises, and secured retail is enabling broad-based growth, which helps to retain business diversification, according to Motilal Oswal.

Here is what analysts said about ICICI Bank's Q3 results:

Bernstein Research

• The expected NIM decline is offset by lower credit costs to maintain a healthy RoA.

• NIM compression is nearing its end.

• Unsecured personal loans and credit cards led to retail loan growth of 21% on a yearly basis.

• Corporate loan growth is softer, at 13% YoY.

• Maintains a "market-perform" rating. with a target price of Rs 1,150.

Motilal Oswal Financial Services

• Increase the earnings-per-share estimate by 1.6% for FY24 and 0.9% for FY25.

• The return on assets was seen at 2.3%, and the return on earnings was 18.3% in FY25.

• Sustained a 15% CAGR in net profit over FY24 and FY26.

• Reiterate the 'buy' rating with a target price of Rs 1,230.

Citigroup

• Meaningful upside on fundamental medium-term operating improvements such as margins, business balance, and leverage on its franchise.

• The bank's profitability has been improving continuously.

• See a net interest margin of 4.55% by FY24, 4.42% by FY25, and 4.4% by FY26.

• Credit costs were seen at 0.4% by FY24, 0.5% by FY25, and 0.7% by FY26.

• Maintain the 'buy' rating with a target price of Rs 1,322 apiece.

• Downside risks could be a higher-than-expected deterioration in asset quality, a fall in NIMs, or an inability to leverage capital.

Nomura Global Markets Research

• Core pre-provision operating profit was in line with the estimate, as moderation in NIM was along expected lines.

• A seasonal uptick in agri slippages was offset by a slight drop in the provisional coverage ratio on a sequential basis.

• Credit costs were still slightly below the estimate.

• The highest provision buffer in the sector exemplifies the abundant levers in the business model.

• Raises FY24 earnings per share by 7% due to lower credit costs.

• Maintain 'buy' with a target price of Rs 1,225.

• The risks are a slowdown in loan growth and a sharp fall in NIM.