ICICI Bank is India’s second largest private bank. It released its Q1FY23 results on July 23 with a 50% YoY growth in net profit and a 20% YoY growth in its loan book and in net interest income. The bank also beat Trendlyne Forecaster's estimates by 3.5% on revenue and 5.7% on net profit.

The large private banks of the country are among the preferred investments by FIIs, mutual funds as well as savvy investors. Comparing the stock performance of the leading private sector banks, ICICI Bank outshines them on a one-year basis as well as in its three-year CAGR (Compound Annual Growth Rate). This is a big change, as previously ICICI Bank was among the laggards in the banking sector. ICICI Bank outperformed HDFC Bank, Kotak Mahindra Bank, Axis Bank, and IndusInd Bank

The bank is moving from being a lending focused organisation to a digital enabler of transactions, and this difference is beginning to show results. Apart from digitally sourcing customers, transactions across UPI and Fastag have added to the growing digital transactions. In Q1FY23, ICICI Bank outpaced HDFC Bank and Kotak Mahindra Bank in terms of sequential growth. Growth during the quarter was driven by the retail, rural and the business and corporate banking segments.

Quick Takes

• Net profit grew 19.4% YoY to Rs 6,904.9 crore in Q1FY23
• Fee income growth of 31.8% YoY to Rs 4,243 crore
• Excluding dividend income from subsidiaries, core operating profit is up 21.1% YoY to Rs 6,904.9 crore
• Domestic loans grew by 21.7% YoY, retail loans by 24.4% YoY and business banking portfolio grew by 44.7% YoY
• Net NPA ratio declined to 0.70% in Q1FY23 from 0.76% in Q4FY22 and 1.16% in Q1FY22
• Average savings account deposits increased by 19.1% YoY and 4.4% sequentially in Q1FY23

The stock performance of ICICI Bank is strong and shows how good strategic moves and management decisions over several quarters can transform a company.

Over the past year, various industry-specific metrics for the bank consistently improved over the past four quarters. These include NII (net interest income) as well as the gross and net NPA ratios.

In Q1FY23, ICICI Bank’s standalone revenues were up 16.2% YoY at Rs 28,336.7 crore. Although net profit rose 49% YoY to  Rs 6,904.9 crore, on a sequential basis, it fell 1.6%.

In Q1FY23, ICICI Bank’s net interest income (NII) was Rs 13,210.2 crore, up 20.1% YoY. Net interest income is the difference between the interest earned and the interest expended. 

Domestic advances were up 22% YoY and 4% QoQ, leading to a 21% YoY and 4% QoQ rise in overall advances. Deposits increased 13% YoY but declined 1% QoQ. The sequential decline was due to a 5% QoQ drop in CASA deposits.

The sourcing in unsecured loans has largely been through cross-selling, strong tie-ups, and careful evaluation of NTB (new to bank) customers.

The net interest margin (NIM) was 4.01% higher than 3.8% in Q1FY22 but almost equal to 4% in Q4FY22.

At the close of Q1FY23, ICICI Bank’s total advances were at Rs 8,95,625 crore, registering a growth of 21% YoY and a sequential growth of 4%.

Average current account deposits increased by 23.0% YoY and 2.9% sequentially in Q1FY23 and the average savings account deposits increased by 19.1% YoY and 4.4% sequentially.

Asset quality improving as NPAs fall over last few quarters

ICICI Bank’s asset quality improved in Q1FY23, with gross and net non-performing asset ratios declining both on a yearly and a sequential basis. In Q1FY23, the gross NPA ratio was at 3.41% versus 3.60% a quarter ago and 5.15% a year ago. The net bad loan ratio fell to 0.70% as of June 30, 2022, from 0.76% a quarter ago, and 1.16% a year ago.

Gross additions to bad loans for Q1FY23 were at Rs 5,825 crore, which were largely offset by recoveries and upgrades loans of Rs 5,443 crore. The bank also wrote off loans worth Rs 1,126 crore during the quarter. The bank made additional contingency provisions of Rs 1,050 crore on a prudent basis. With this, contingent provisions now stand at Rs 8,500 crore or 0.9% of loans.

“Recoveries and upgrades of NPAs, excluding write-offs and sales, were Rs 5,443 crore in Q1-2023 compared to Rs 4,693 crore in Q4-2022. The gross NPAs written-off in Q1-2023 was Rs 1,126 crore,” the bank’s management said post the announcement of results. 

ICICI Bank's Executive Director, Sandeep Batra said in the earnings call that the bank was “quite happy” with the way that NPA ratios were moving in the context of credit costs.

The bank's operating expenses increased due to the addition of 7,200 employees in FY22 and ESOP cost of Rs 129 crore, driven by the fair valuation of ESOP granted from April 1, 2021, as per RBI guidelines.

Digital channel, UPI transactions drive growth in last few quarters

The latest version of the bank's app, iMobile Pay 3.0 can be seamlessly used to make transactions from other banks as well. This app was downloaded by nearly 73 lakh customers, who are not the bank's account holders. This resulted in a conversion of 2.7 lakh customers who either took an auto loan or another product from the bank. The rate of transactions across this app is growing with a jump of 35% QoQ on total transactions in Q1FY23.

The changing customer preferences for digital payments are seen in rising UPI transactions of the bank. Over the last five quarters, the transaction value, as well as volumes, have grown consistently in Q1FY23 accounting for Rs 1,03,314 crore in value at a volume of 93.2 crore transactions.

Apart from the retail customer, the bank has separate apps for small businesses - InstaBIZ, which already has more than a million users. Financial transactions through this app saw a  growth of 57% YoY in Q1FY23. Similarly, the bank offers separate app solutions for MSMEs, Bulk Payments, and supply chain solutions.

The bank saw a high percentage of sourcing for different products via the digital route. In Q1FY23, from personal loan disbursements, 44% were from InstaBIZ app, which functions on the self-service mode, while 50% were sourced digitally but completed physically. Only 6% of disbursements were from a purely physical mode. 

The bank’s ‘Insta’ loan feature on its app directly offers pre-approved loans in different segments, based on customer history and analytics. This feature directly enables digital transactions on products. This feature saw 42% of personal loans, 16% of credit cards, and 33% of mortgage loans in Q1FY23 via the digital Insta route.

The bank's technology spend stood at 8.5% of its operating expenses and the results of these are reflected in the growing adaptation by regular customers as well as non-banking customers of ICICI Bank.

Growth across the lending portfolio in all segments

The retail loan portfolio grew by 24% YoY and 5% on a QoQ basis. It now accounts for 53.1% of the total loan portfolio at the end of Q1FY23. The retail loan portfolio consists of different segments such as home loans, auto loans, commercial vehicle and equipment loans as well as personal loans and credit cards.

Taking into account non-fund outstanding (credit facilities by banks in favour of a third party to provide monetary compensation on behalf of their clients, where the lending bank does not commit any physical outflow of funds), ICICI Bank’s retail portfolio was 44% of the total portfolio. The rural loan book grew 8% YoY but was flat sequentially.

The total advances in Q1FY23 stood at Rs 8,95,626 crore, up 21.3% YoY. Of these, Rs 45,763 crore belong to the overseas book. Among the key lending segments which grew in Q1FY23 were business banking with a growth of 44.7% YoY, SME lending with a growth of 32.3% YoY, and the retail segment with a growth of 24.4% YoY. The retail segment comprises all consumer loans like housing mortgages, vehicle loans, personal loans, and credit cards.

The growth in SME and Business Banking was driven by its leveraging branch network, cross-selling, and tech-based offerings like InstaBIZ.

With robust Q1FY23 results, ICICI Bank once again posted strong growth in retail deposits and has succeeded in building a healthy liability franchise over the past few years. The bank enjoys one of the lowest funding costs among private banks, which enables it to underwrite a profitable business without taking undue balance sheet risk. With a focus on digital transactions, ICICI Bank looks set to become investors' preferred pick in the banking space