ICICI Bank has once again reinforced its standing as one of the most fundamentally robust financial institutions in the country. Prabhudas Lilladher has reiterated a BUY rating on the stock, raising the target price to Rs 1,700 from the previous Rs 1,550, reflecting strong core performance and superior earnings quality. Despite modest sequential loan growth and looming interest rate cuts, ICICI Bank’s prudent provisioning, improving asset quality, and growing fee income helped it exceed expectations on profitability. The lender continues to lead its peers on return ratios, underpinned by healthy margins and a well-capitalized balance sheet.

Strong Core Profitability and Provision Discipline

ICICI Bank delivered a core profit after tax (PAT) of Rs 118.3 billion, exceeding street estimates by 3.7%, mainly driven by better asset quality outcomes and controlled provisions. Operating profit (PPoP) stood at Rs 176.6 billion, in line with expectations.

Provisions were sharply lower at Rs 8.9 billion, down from an expected Rs 13.6 billion, thanks to improved recoveries and sale of non-performing assets (NPAs). Net interest income (NII) rose to Rs 211.9 billion, slightly beating projections.

The net interest margin (NIM) adjusted for tax refunds stood at a healthy 4.42%, suggesting ICICI Bank’s continued ability to manage its funding cost despite liquidity constraints.

Asset Quality: Sequential Improvement and NPA Reduction

The bank saw a material improvement in its asset quality:

Gross NPAs declined by 33 basis points QoQ to 1.67%, significantly better than the expected 1.97%. Net NPA ratio remained steady at 0.4%.

Fresh slippages were contained at Rs 51.4 billion, with higher recoveries of Rs 38.2 billion and write-offs of Rs 21.2 billion. Additionally, ICICI Bank executed a sizeable NPA sale worth Rs 27.9 billion, with 100% provisioning already in place.

This improvement underscores the bank’s conservative credit risk management and disciplined underwriting, especially in the business banking (BuB) segment, which saw robust growth without compromising quality.

Loan Growth Moderates Amid Systemic Pressure

Overall loan growth was somewhat tepid, rising just 2.1% QoQ and 13.3% YoY, below the broader banking system’s growth.

Corporate and agricultural lending contracted by 0.4% and 1.5% QoQ, respectively, reflecting pricing pressure and sluggish demand. Even retail credit, which has been the bank’s traditional growth engine, registered a modest 2.0% QoQ uptick.

However, business banking (BuB) continued its strong momentum with a 6.2% QoQ and 33.7% YoY growth, supported by enhanced distribution, technology adoption, and efficient turnaround times.

Deposit Accretion Outpaces Advances Growth

ICICI Bank reported 14% YoY growth in deposits, ahead of its loan growth. The loan-to-deposit ratio (LDR) fell to 83.3% from 86.5% in the previous quarter, indicating healthy liquidity.

CASA mix improved by 134 basis points QoQ to 41.8%, supporting lower cost of funds. The focus on granular deposits and retail franchise has been a key enabler of stable margins and funding resilience.

Technology-Led Operating Efficiency

While the bank’s operating expenses rose modestly to Rs 107.9 billion, this increase was primarily due to higher staff costs.

A notable development is that technology expenditure accounted for 10.7% of total opex in FY25, up from 9.4% in FY24. This suggests investments in digital infrastructure are progressing without materially impacting cost-income dynamics.

Overall cost-to-income ratio improved to 37.9%, down 130 basis points YoY, reflecting gains from operating leverage.

Management Commentary and Forward Guidance

Management remains cautious on loan growth, attributing recent softness to industry-wide pricing pressure and macroeconomic headwinds. Retail credit is expected to align with system growth, with a rebound in unsecured lending anticipated.

The bank is guiding for steady NIMs despite potential 75–100 basis point rate cuts by the RBI. Deposit rate cuts will be calibrated, depending on competitive dynamics.

BuB credit quality remains robust, while NPLs in unsecured books have stabilized and are likely to moderate further.

Valuation Uplift and Revised Target Price

Prabhudas Lilladher values the core bank at 2.9x FY27E core adjusted book value (ABV), leading to a revised sum-of-the-parts (SOTP) target price of Rs 1,700.

Key contributors to the SOTP valuation include:

ICICI Prudential Life: Rs 63/share

ICICI Lombard: Rs 65/share

ICICI AMC: Rs 83/share

ICICI Securities: Rs 41/share

ICICI Home Finance: Rs 12/share

After applying a 10% holding company discount, the target consolidates to Rs 1,700.

Investment Takeaway

At the current price of Rs 1,407, ICICI Bank trades at 3.1x FY26E P/ABV and 17.5x FY27E P/E, reflecting premium valuations justified by superior return ratios and balance sheet quality.

FY27E return on assets (RoAA) is expected at 2.2% and return on equity (RoAE) at 16.2%, placing ICICI among the most efficient private sector lenders.

For long-term investors, ICICI Bank offers a compelling risk-reward profile, backed by best-in-class profitability, improving asset quality, and strategic growth across core verticals.

Long Term View: Maintain BUY with Confidence

ICICI Bank continues to distinguish itself through prudent risk management, technological agility, and consistently high earnings quality. Even as loan growth cools temporarily, the fundamentals remain strong, supported by a diversified book and scalable business banking momentum.

Investors should consider accumulating the stock at current levels, with an upside target of Rs 1,700. With resilient profitability and proactive management, ICICI Bank remains one of the best-positioned private lenders in the Indian banking landscape.