ICICI bank: ICICI Bank new darling of Dalal Street as HDFC Bank falters

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NEW DELHI: Growth in the banking business is seen as a proxy for any country’s economic growth. But like Orwellian novels, not all banks are getting equal treatment from investors, some are more equal than others.

And, if there is one bank that analysts believe will trump all others in the current leg of economic growth, it is

. This stock has been outperforming some of the biggest names in the sector for a while now – in terms of business as well as stock price.

The outperformance is expected to be continued. Analysts tracking the banking sector believe ICICI Bank shares can jump up to 40 per cent from here on in the next 12 months. The stock has already gained 28 per cent this year compared with flat performance of HDFC Bank.

In the June quarter, ICICI Bank reported 23 per cent year-in-year (YoY) strong core pre-provision operating profit (PPoP) growth on healthy credit growth of 17 per cent YoY, which was better than HDFC Bank’s 14 per cent. Net interest margins were strong too, up 20 bps YoY to 3.9 per cent.

Annualised slippage ratio for Q1FY22 was elevated at 3.9 per cent, but management flagged a decline for Q2FY22 and significant decline for H2FY22. NIM stood at 3.89 per cent, up 5 bps QoQ, benefiting marginally from liquidity drawdown as well as higher yield on surplus liquidity.

Shivaji Thapliyal of Yes Securities said elevated slippages are largely a single quarter phenomenon. He has a ‘buy’ rating on ICICI Bank with a revised target price of Rs 859. The stock traded near Rs 675 on Monday.

The bank management has cited two risks on the yield side: competitive pressure and risk of RBI lagging in rate hikes vis-à-vis a rise in cost of deposits. However, they also stated the net impact will be minimal over the rate cycle.

“ICICI Bank’s better growth performance in Q1 and healthier outlook reflect its increasing confidence in portfolio quality and a hunger to gain market share without compromising quality/pricing. Strong capital/provisioning should help the bank withstand any shocks,” said Anand Dama of

who has a target of Rs 825 on the scrip.

For the banking sector, the most imminent risk is higher defaults due to the second wave of the pandemic. The lender holds Covid-19 related provisions of Rs 6,425 crore (~0.9 per cent of loans), despite utilising provisions of Rs 1,050 crore in Q1FY22. It remains confident that its provision buffer is sufficient to manage potential provisioning requirements.

“Restructured loans remain under control at 0.7 per cent of loans. Provision coverage remains best in the industry and additional Covid-19 provision buffer provides comfort on normalization in credit cost. We expect RoA/RoE to improve to 1.8 per cent/15.3 per cent for FY23,” said Nitin Aggarwal of Motilal Oswal.

Among the global brokerages, CLSA is most bullish with a price target at Rs 940. Morgan Stanley pegs 12 month target at Rs 900 while Jefferies sees it at Rs 830 in the same period.

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