ICICI Bank leading the recovery in earnings with a sharp rise in profitability and loan growth post-COVID-19 has positioned it better than other lenders, including HDFC Bank, India’s largest private sector bank that now faces tough competition from the former on the execution front.

ICICI Bank is delivering industry-leading metrics across most areas, said brokerage house CLSA in its latest report, adding that the lender is doing better than HDFC Bank on priority sector lending (PSL) compliance.

PSL is a lending requirement monitored by the Reserve Bank of India (RBI), according to which the banks are required to give a minimum proportion of their loans to sectors of development importance.

CLSA has a ‘Buy’ call on ICICI Bank stock with a target price of Rs 1,040 per share, an upside of over 20 percent from the current market price.

Kotak Institutional Equities also has a ‘Buy’ rating on the stock, with the target raised to Rs 1,025 per share. According to the brokerage, it is one of the best-positioned banks with a focus on broad-based loan growth.

How did ICICI Bank become the darling of Dalal Street?

ICICI Bank has increasingly become the favourite of Dalal Street, emerging as more profitable than HDFC Bank.

ICICI Bank's net profit jumped 49 percent for the June quarter, while HDFC Bank's net profit rose 19 percent during the quarter on a YoY basis.

Net interest income rose 20.8 percent for ICICI Bank in Q1, while HDFC Bank saw a rise of 14.5 in NII. The net interest margin for both stood at 4 percent while both the lenders reported a 21 percent growth in loans in Q1.

In terms of asset quality, bad loans or gross non-performing assets (GNPA) for HDFC Bank stood at 1.28 percent, up from 1.17 percent in the March quarter, and net NPA came in at 0.35 percent against 0.32 percent.

For ICICI Bank, the gross NPA stood at 3.4 percent against 3.6 percent QoQ, down 20 basis points, while net NPA was down by 6 basis points to 0.70 percent.

In the previous quarter, ICICI Bank’s net profit was up 60 percent while it was up 22.8 percent for HDFC Bank. Not just this, the bank did better than HDFC Bank on most fronts, including NII and non-performing assets.

Data courtesy: Indus Equity Advisors

ICICI Bank, in its Q1 earnings call, said that it would continue to invest in technology, people and building its brand.

"If you look at the relative positioning of ICICI, within all the leading private sector banks, they are very well placed at this point of time. And because of this positioning, where HDFC Bank is facing its merger issues, Axis Bank is still taking over some of the assets, and there can be some surprises coming in from there. So, certainly, the income looks much more stable in the case of ICICI Bank, and that is what was demonstrated in this quarter too, and that's why I see the evaluation rerating will continue at least for the year for ICICI Bank going forward," Ashutosh Mishra from Ashika Stock Broking had said after the earnings announcement.

Krishnan ASV, Lead Analyst-BFSI, HDFC Securities, had also told CNBC-TV18 that ICICI Bank is emerging as the sector leader while HDFC Bank has its challenges of the past and recent merger decision.

“They (ICICI Bank) are the sector leader right now…they are in position, and the performance only stands to strengthen the merits of that argument,” he said, adding, “It’s but natural that the sector leadership is now veering towards ICICI Bank purely based on execution.”

Last week, the mega-merger of housing finance company HDFC with HDFC Bank was approved by the Competition Commission of India (CCI).

Amid the HDFC Bank-HDFC merger, which will lead to a wider growth of the country’s largest lender, ICICI Bank says it is focused on growing organically and will not look at any acquisitions beyond portfolio buys.

ICICI Bank has gained 15.37 percent this year so far, while it has gained 25.51 percent in the last year. HDFC Bank, on the other hand, is down 0.45 percent this year and 2.72 percent in the last 12 months. Both the stocks were trading over a percent lower on Monday.

First Published:Aug 22, 2022 12:31 PM IST