ICICI Bank Ltd Q2 FY2025 Concall Summary

Key Takeaways

• NIM compresses, stability promised: NIM fell to 4.27% from 4.36% QoQ, partly on a higher day count that reverses in Q4; management expects near-term stability until a shallow rate-cut cycle begins.
• Unsecured stress is plateauing, not reversing: Personal loan growth has halved from ~40% to 17% YoY, and while credit card and PL delinquencies have risen for 3-4 quarters, management says sequential slippages did not increase further this quarter.
• Asset quality is a tale of two books: Net NPA improved to 0.42%, the BB-and-below corporate pool shrank, and corporate net NPA additions were near zero; retail and rural drove ₹4,300 cr of the quarter's ₹5,073 cr in gross additions.
• The bank is not giving guidance: Management declined to break out NPA additions by product, forecast credit costs, or call a growth target, repeatedly framing its 7% deposit market share as proof it can grow without making macro calls.
• What to watch next quarter: Whether the unsecured slippage plateau holds through the seasonally heavy Q3, the pace of the personal loan portfolio's further deceleration, and any deposit-rate relief if liquidity eases.

Margin Trajectory & Rate Sensitivity

• NIM walk: The 9 bps QoQ drop to 4.27% includes a mathematical drag from the quarter's higher day count, which should seasonally reverse in Q4. Cost of deposits ticked up from 4.84% to 4.88%.
• Stability until cuts: Management expects margins to be broadly stable in H2 relative to H1, with floating-rate loans repricing faster than fixed-rate deposits. When the rate-cut cycle starts, that lead-lag relationship reverses, but the general expectation is of a relatively shallow cycle.
• Deposit rates peaking: The big increase in retail deposit rates largely happened between H2 FY23 and H2 FY24; management does not expect retail rates to go up much further. Wholesale rates remain somewhat higher than expected, though improved liquidity and moderating credit growth should ease pressure.
• Yield discipline: In market lending, competitive intensity is high and the bank is trying to remain disciplined. Certain portfolios account interest on a 30/360 basis, so reported yield on advances is mathematically lower in longer quarters, evening out over the year.

Anindya Banerjee: "I already said that we would expect margins to be broadly stable in the near term. And then when the rate cut cycle starts, of course, the lead-lag will play out on the reverse side with loans repricing faster than deposits. The general expectation is of a relatively shallow cycle. So, we will have to manage through that as and when it happens."

Unsecured Retail: Stress & Calibration

• Delinquency trend: Credit card and personal loan delinquencies and NPL formation have risen over the last 3-4 quarters. In the current quarter, however, slippages did not go up further on a sequential basis.
• Growth deliberately slowed: Personal loan YoY growth has come down from ~40% in Sep'23 to 17.3% in Sep'24; credit card growth moderated from 30% to 28%. Disbursals are already down materially from 3-4 quarters ago, and the portfolio growth rate will trend down further over the next couple of quarters as repayments kick in.
• Underwriting actions: The bank has been tightening underwriting and sourcing filters on customer segments, pricing and other parameters throughout the period when delinquencies were rising.
• Cards remain strategic: Credit cards are a core, high-touch product the bank wants to continue growing despite higher delinquencies and credit costs, because the business remains very profitable. A large untapped base exists within the bank's own quality customers who do not yet have a card or use it insufficiently.
• Composition guardrails: Personal loans and credit cards together represent ~14% of total advances. Internal thresholds exist for the unsecured proportion and the bank is currently well within them; strategy will be calibrated based on those limits.

Anindya Banerjee: "I would say that in the current quarter, we have not seen them go up further on a sequential basis, but we will continue to watch."

Asset Quality: Diverging Books

• Headline improvement: Net NPA ratio improved to 0.42% from 0.43% QoQ. Provisions were ₹1,233 cr vs ₹583 cr in Q2 FY24, when the prior year benefited from very healthy corporate recoveries and upgrades.
• Retail and rural drove additions: Of the ₹5,073 cr in gross NPA additions, ₹4,300 cr came from retail and rural, with higher additions seasonally typical from the kisan credit card portfolio in Q1 and Q3.
• Corporate book near-flat: Corporate and business banking net additions to gross NPAs were only ₹5 cr, compared to a net deletion of ₹48 cr in the prior quarter. The BB-and-below performing corporate portfolio shrank to ₹3,386 cr from ₹4,164 cr at June 30, 2024, and even including the carved-out SME portion it would have declined.
• Resolution pool shrinking: Total fund-based outstanding under resolution declined to ₹2,546 cr (0.2% of advances) from ₹2,735 cr, with provisions of ₹812 cr held against it.
• Write-offs were technical: Higher write-offs this quarter were all 100% provided loans, largely fully provided corporate NPAs from past years. Retail write-offs follow a days-past-due policy; corporate and SME are case-by-case. Recovery efforts continue on written-off accounts.
• Credit cost normalization: The increase in unsecured delinquencies has contributed to the path toward normalization of credit costs, which remain in the 40-50 bps range. Management says nothing today is alarming, but credit costs could inch up over time.

Sandeep Batra: "Our overall provision is just 0.4% of our average advances. So, I think it's important to keep that in mind."

Deposit & Liquidity Strategy

• Growth in tandem: Management expects deposit and credit growth to move together and is comfortable meeting advances requirements from deposit growth. Deposit market share is only about 7%, leaving a long runway.
• Money-in-bank philosophy: The bank does not push specific deposit products. The approach is to be the primary banker with a good share of the customer's total wallet across retail, business banking and corporate, letting the customer choose the form. This focus on total wallet and quality customer acquisition has helped CASA.
• Structural savings view: Even if savers become investors, the money remains within the banking system; the character and tenor of deposits may change but the system retains the funds. The bank sees itself as a supporting cast to the economy, tracking cash flows.
• LCR watch: The bank will monitor overall LCR guidelines, deposit cost and loan growth in relation to monetary policy.

Sandeep Batra: "Even if a person invests in markets, which is from an overall growth perspective is natural, the money remains with the banking system. It could move from one person to the other. The character of the deposit may move, the tenor of the deposit may change... But the money remains with the banking system."

Business Banking & Portfolio Recast

• Portfolio redefined: The loan presentation was revised to show a consolidated business banking portfolio comprising all borrowers with turnover up to ₹750 cr, previously split across SME, rural, dealer funding and mid-corporates. Comparable prior-period data is provided on slide 67.
• Rating disclosure cleaned up: The BB-and-below disclosure now covers only the corporate side (above ₹750 cr turnover), with SME carved out. Both the corporate and SME BB-and-below pools declined in the quarter.
• Growth runway intact: ICICI was not a large player in business banking 8-9 years ago. Growth has been driven by investment in credit underwriting models, equipping virtually the entire branch network to serve the segment, and digital offerings coinciding with greater digital adoption. Market share is not saturated; the segment itself is growing with new manufacturing units and service businesses.
• Profitability model: Business banking is a competitive segment and not a high-yield business by any stretch, but it is profitable because of the full customer relationship spanning credit, transaction banking, deposits and FX.

Anindya Banerjee: "I don't want to talk about sequential growth numbers. But fundamentally, I don't think that our market share is saturated at all. I think we have a long way to go in terms of entities, we can tap and cover and reach."

Operating Levers & Investments

• Opex moderating: The 20%+ opex growth rate of prior years has moderated because the cost base is now fairly large and there are opportunities to optimize within it. Q2 YoY growth was 6.6%; H1 was about 8.5%. H2 could be slightly higher given festive season-related spends and planned technology spends, but broadly around the current level.
• Technology spend: Technology expenses were about 10% of operating expenses in H1. The bank will continue to invest in technology, people, distribution and brand, with strong emphasis on operational resilience.
• Branch expansion: Branch count increased by 90 in H1 to 6,613. Openings have slowed but this is not a conscious decision; it is a bottom-up organic process. The number will be materially higher in H2, though there is no particular target.
• Fee income: Management does not manage to fee-to-assets or fee-to-income metrics; focus is on overall PPOP and credit cost. Scope exists for lift in fees, particularly in transaction banking, FX and cards.
• Treasury gains: Treasury gains of ₹680 cr in Q2 vs a loss of ₹85 cr in Q2 last year, primarily reflecting realised and mark-to-market gains in equities and fixed income securities. A larger part came from trading operations, with some component reflecting incremental mark-to-market on the fair value through P&L portfolio under revised investment guidelines effective April 1.
• I-SEC merger: NCLT Ahmedabad and Mumbai have approved the merger; an appeal has been filed with NCLAT. Dilution from the merger is less than 1%.

Guidance & Commitments

Key Metrics