ICICI Bank Ltd. Q2 FY2027 earnings call

• Loan Growth: Total loans grew 30% YoY and 12% sequentially. Retail and rural portfolio grew 14.8% YoY, with mortgages up 15.3% and personal loans up 16.6%. Business banking portfolio surged 33.8% YoY.
• Credit Quality: Net NPA ratio improved to 0.30% from 0.35% in Q1. Gross NPA additions were INR 12.13 billion. Provisioning coverage ratio stands at 75%. Capital adequacy remains strong with CET1 at 16.01%.
• Liquidity & Funding: Deposits grew 27.1% YoY, significantly aided by USD 18 billion in FCNR(B) deposits mobilized under RBI swap facility. Average LCR was 126%.
• Margins & Costs: Net Interest Margin (NIM) moderated to 4.18% due to the expansion of lower-margin overseas assets and term deposits. Operating expenses rose 8.5% YoY, driven by employee costs (+13.5%) and branch expansion (+145 branches).
• Subsidiaries: ICICI Life saw APY growth to INR 49.35 billion in H1. ICICI General faced combined ratio pressure (107%) due to cat losses but maintained profitability.

The bank reported Profit Before Tax (excluding treasury) of INR 199.54 billion, a 23.4% year-on-year increase. Core Operating Profit reached INR 208.05 billion (up 21.8% YoY), while Profit After Tax grew by 20.1% to INR 148.43 billion. Net Interest Income increased by 17.7% YoY to INR 253.39 billion. Non-interest income (excluding treasury) rose 12.5% YoY to INR 82.77 billion. Key subsidiaries showed strong performance: ICICI Life’s H1 profit after tax increased to INR 7.6 billion; ICICI General’s Q2 PAT rose to INR 9.46 billion; ICICI AMC’s PAT was INR 8.89 billion; and ICICI Securities’ consolidated PAT was INR 4.39 billion.

• NIM Outlook: Management expects further moderation in NIMs in Q3 as the full impact of FCNR(B) deposits and expanded overseas book reflects in averages. However, they anticipate a healthy recovery in margins starting Q4, supported by potential rate hikes and reversal of transient factors.
• Credit Cost: Normalized credit cost is expected to remain around 50 basis points, adjusted for one-offs and seasonality.
• Growth Trajectory: The franchise remains open for both retail and corporate growth. Management sees no structural change slowing down loan growth, citing robust client demand and shifts from bond markets.
• Agri Provisioning: The reversal of INR 13 billion agricultural standard asset provision is pending regulatory satisfaction, with updates expected over the next two quarters.

• Margin Compression: Short-term NIM pressure due to the structural shift in balance sheet composition (higher proportion of low-yield overseas/FCNR-funded assets). Full impact expected in Q3.
• Regulatory Uncertainty: Pending review and remediation for agricultural priority sector standard asset provisioning (INR 13 billion) before reversal can be recognized.
• Asset Quality Volatility: While current NPAs are low, management noted net NPA additions in corporate portfolios this quarter compared to deletions last year, requiring continued monitoring.
• Operational Compliance: Jewel loan growth alignment with new RBI guidelines caused sequential volume fluctuations, indicating operational adjustments for compliance.

Q: An investor asked if the strong corporate loan growth is temporary parking of FCNR funds or sustainable, and questioned the timing of agri-provision reversals. / A: Management clarified that corporate growth is driven by genuine client demand across working capital and long-term lending, not just liquidity parking. They stated that normalized credit costs will remain around 50 bps and that the agri-provision reversal depends on regulatory approval, likely within two quarters.

Q: Questions were raised regarding the decline in credit card volumes and slower gold loan growth, along with future margin trends. / A: Management attributed the credit card dip to seasonal base effects rather than fundamental weakness, noting ongoing product launches. For jewel loans, sequential slowdown was due to aligning operations with new RBI guidelines, with expectations for volume pickup. Regarding margins, they confirmed Q3 moderation but expect recovery in Q4 as FCNR impacts normalize and rates potentially rise.

Q: An analyst asked if the massive FCNR raise signaled a strategic shift prioritizing NII over NIM. / A: Management denied a strategic shift, describing the FCNR opportunity as a unique, one-off event to secure cost-effective funding for long-term growth. They emphasized that the strategy remains focused on sustainable earnings, and the margin impact is transient. They also noted that the fee income boost from FCNR processing was offset by higher operating expenses for wholesale funding.

Q: Concerns were expressed about whether corporate business dilutes ROE compared to retail, given lower RAROC assumptions. / A: Management refuted the idea that corporate business is less profitable, stating that corporate credit losses are structurally lower and include significant ancillary revenue streams like transaction banking. They asserted that corporate returns are not worse than retail when viewed holistically, highlighting healthy current account growth driven by corporate activity.