By Amriteshwar Mathur
The December 2024 quarter results of ICICI Bank, the second-largest private sector bank, were keenly awaited in a bid to see the impact of continued high interest rates and sluggish growth trends in the broader economy. In its quarterly monetary policy review meeting in early December 2024, the RBI had downgraded real GDP growth forecast to 6.6 % for FY 25 from the previous forecast of 7.2 per cent.
Performance in the December 2024 quarter
For a key performance metric, net interest margin (NIM), for ICICI Bank it was 4.25 % in the third quarter of FY25 vis-à-vis 4.43 % a year.
Smaller rival banks have also faced pressure on NIMs at a time when deposits rates have been high and the central bank has also curbed higher margin unsecured loans. For instance, Kotak Mahindra Bank reported NIM of 4.93 % in the December 2024 quarter vis-à-vis 5.22 % a year earlier.
However, in the case of larger rival, HDFC Bank, it was 3.62% on interest earning assets in the third quarter of FY 25 vis-à-vis 3.6 % a year earlier.
Meanwhile, ICICI Bank’s total advances increased by 13.9 % on a y-o-y basis to Rs 13.14 lakh crore in the December 2024 quarter led by strong demand for business loans. The growth in advance reported by ICICI Bank was better than rivals – HDFC Bank’s advances grew a lackluster 3% y-o-y to Rs 25.42 lakh crore in the December 2024 quarter while Axis Bank’s advances grew 9 % y-o-y to Rs 10.14 lakh crore in the quarter under review.
And despite high interest rates and sluggish growth rates in the broader economy, asset quality of ICICI Bank was more or less stable – % of net non-performing customer assets to net customer was 0.42 % in the third quarter of FY25 vis-à-vis 0.44 % a year earlier.
HDFC Bank’s percentage of net NPAs to net advances was 0.46 % vis-à-vis 0.31 % a year earlier. Similarly, Kotak Mahindra’s % of net NPAs to net advances was 0.41 % in the December 2024 quarter vis-à-vis 0.34 % a year earlier
A tight check on costs helped ICICI Bank’s standalone net profit grow 14.8 % y-o-y to Rs 11,792.4 crore in the December 2024 quarter, highest growth amongst the leading four private sector banks. HDFC Bank’s standalone net profit grew barely 2 % y-o-y to Rs 16, 735.5 crore in the quarter under review while Kotak Mahindra’s standalone net profit by 10% y-o-y in the quarter under review. Axis Bank had grown its standalone net profit by 3.8 % y-o-y in the December 2024 quarter.
In addition, ICICI Bank had superior return on assets (annualized) – it was 2.36 % in the third quarter of FY 25, while for HDFC Bank it was 1.9 % and for Kotak Mahindra Bank it was 2.3%.
Stock performance on Dalal Street
ICICI Bank stock has withstood the strong foreign institutional selling pressure witnessed on Dalal Street over the past 3 months much better than its bigger rival HDFC Bank. The ICICI Bank stock price declined nearly 3 % over the past three months compared to a 5 per cent fall in the broader Sensex. Rival HDFC Bank share price has fallen 6 per cent over the past three months.
Outlook going forward
Central banks like Federal Reserve and ECB have cut interest rates. The RBI had cut the cash reserve ratio (CRR) by 50 basis points to 4 per cent in its December 2024 quarterly review. And while the CRR cuts would provide additional liquidity to the banking system, interest rates cuts by the central bank look unlikely over the next 6 months, given that inflation forecast for FY25 has been hiked to 4.8% from the earlier 4.5%.
This comes at a time when the domestic economy has shown definite signs of slowdown, especially in urban areas, with employment opportunities under pressure and companies in different segments reporting sluggish growth. For instance, Hindustan Unilever, in its December 2024 quarter results that were released on Wednesday, also pointed out to ‘moderation in urban growth’.
Nevertheless, with the Union Budget barely a week away, all eyes will be focused on the steps planned by the central government to revive the domestic economy during FY 26 and its impact on the broader banking sector.
Also, ICICI Bank, with over 6,700 branches at the end of the third quarter of FY25, would help it to access low cost funds and grow its loan portfolio, going forward, at a time when ‘deposit war’ in the banking system has not shown any signs of easing.
ICICI Bank is also making further investments in its IT and technology platforms related to business lending and this comes at a time when private capex is expected to pick up over the next few quarters.
Valuations
At Rs 1,209.5, ICICI Bank trades at a P/E of nearly 19 times estimated standalone FY 25 earnings while HDFC Bank also trades at 19 times estimated standalone FY25 earnings. Kotak Mahindra Bank trades at 23.6 times estimated standalone FY 25 earnings.
ICICI Bank has also shown superior operating performance vis-à-vis its peers in the December 2024 quarter.
Investors could consider adding ICICI Bank shares to their long term watchlist and see if it continues to benefit from the ‘India growth story’.
Disclaimer
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer / his dependents hold stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.