ICICI Bank Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Steady quarter, cautious optimism: Net profit grew on the back of healthy fee income and controlled credit costs, while management expects the second half to deliver better loan growth driven by fiscal and monetary policy support.
• NIM held up better than expected: Domestic NIM dipped only 3 bps QoQ to 4.37%, aided by systemic liquidity and a decline in cost of deposits; management sees margins as range-bound in the near term.
• Asset quality is a tale of two books: The corporate and business banking book saw net NPA deletions, while the unsecured retail book is showing early signs of improvement after corrective actions taken in prior years.
• Provisions fell sharply, but the low is temporary: Credit cost dropped to an exceptional 0.26% this quarter, primarily due to the absence of semi-annual KCC provisions; management expects a normalisation upwards over the medium term.
• What to watch next quarter: Whether the promised H2 loan growth pickup materialises, the trajectory of NIMs after the full CRR cut benefit and a potential rate cut, and any further improvement in unsecured retail asset quality.

Loan Growth & Demand

• Domestic book grew 10.6% YoY, with business banking the standout at 24.8% YoY, driven by the structural formalisation of the sector via GST and credit bureaus. Retail grew a slower 6.6% YoY, with management attributing the softness to consumers deferring decisions ahead of GST rate cuts that were implemented on September 22.
• Corporate credit growth was muted at 3.5% YoY, but management cautioned against reading this as corporate weakness: large Indian corporates are cash-rich, with high internal accruals and access to buoyant equity and bond markets, so bank credit is not the sole marker of their health.
• Sequential momentum picked up, with loan growth improving from 1% QoQ in Q1 to 3% QoQ in Q2 across all retail portfolios. Business banking momentum continued strong.
• The NBFC/HFC portfolio declined sequentially from ₹87,417 cr to ₹79,433 cr, now representing 4.4% of advances.
• Personal loan disbursements are increasing after corrective actions taken in 2022-2023; post-that origination cohorts are performing well, but book growth takes time due to runoff of the older, slower book.

Batra: "We do expect the second half to be better. There has been a GST rate cut, which all of us are familiar with. And we do hope the second half during the course of the year should reflect a better loan growth."

Margins & NIM Outlook

• NIM was 4.30%, down 4 bps QoQ and up 3 bps YoY. Domestic NIM was 4.37%, down 3 bps QoQ. The sequential decline reflects the repricing of external benchmark-linked loans and investments, partially offset by a reduction in deposit rates and cost of borrowings. Notably, interest on tax refunds contributed 7 bps to Q1 NIM and nil this quarter.
• Cost of deposits fell meaningfully to 4.64% from 4.85% QoQ and 4.88% YoY, providing a tailwind.
• Margins did better than expectations QoQ, aided by systemic liquidity, a healthy funding profile, and consistent pricing discipline over several years.
• The near-term outlook is range-bound. Management sees multiple offsetting levers: the full benefit of the CRR cut will flow through in Q3, but a potential rate cut would have a consequential impact, and competitive intensity persists. Over the next couple of quarters, no major movements either way are expected.
• Beyond two quarters, visibility is low. Management cited too many moving parts (monetary policy, competitive dynamic, loan mix) to take a view on next year.

Banerjee: "From here on, our expectation is that margins should be more or less range-bound. We don't expect any major movements either way."

Asset Quality

• Net NPA ratio improved to 0.39% from 0.41% QoQ. Gross NPA additions were ₹5,034 cr, with recoveries and upgrades of ₹3,648 cr.
• Corporate and business banking saw net NPA deletions of ₹53 cr, compared to net additions of ₹366 cr in the prior quarter. The increase in performing corporate borrowers rated BB and below (to ₹3,661 cr from ₹2,995 cr) was due to the upgrade of certain borrowers from NPA to performing status on non-fund outstanding.
• Retail and rural gross NPA additions fell to ₹4,049 cr from ₹5,193 cr in Q1, with management noting that KCC-related NPA additions are typically higher in Q1 and Q3 of a fiscal year.
• Unsecured retail is turning a corner. Secured retail has been stable to marginally better for the last 8-9 quarters. Unsecured (personal loans, credit cards) had a prior spike, but regulatory and bank actions are now showing benefit, which is why those portfolios are being grown again. Improvement was seen across most other retail segments sequentially.
• Microfinance exposure is less than 0.5% of the total book, with historically decent asset quality and no material issues. Management believes the broader microfinance sector is improving.
• The fund-based resolution portfolio declined to ₹1,624 cr (0.1% of loans) from ₹1,788 cr.

Provisions & Credit Cost

• Total provisions fell sharply to ₹914 cr from ₹1,815 cr in Q1. The primary driver was the absence of semi-annual KCC provisions, which are booked only in Q1 and Q3.
• Annualised credit cost was ~40 bps in H1, but the Q2 standalone figure was an exceptional 0.26%. Management was explicit that this level will not sustain.
• Over the medium term, credit cost is expected to normalise upwards. Even at Q1's 0.53%, credit quality was good; the H1 average of 0.4% was characterised as a decent number.

Batra: "This quarter has been an exceptional quarter. If you look at it, we have had got a provision to core operating profit of just about 5.4% or look at it from an advanced percent, it is just 0.26%. Previous quarter, it was 0.53%. So, it probably would normalise upwards."

Fee Income, Treasury & Opex

• Fee income grew 10.1% YoY and 10.0% sequentially to ₹6,491 cr, with retail, rural and business banking fees constituting ~78% of the total.
• Treasury income collapsed to ₹220 cr from ₹1,241 cr in Q1, reflecting an increase in yields on fixed income securities. Management stressed that it focuses on PBT excluding treasury, as treasury is cyclical and outside the Bank's control.
• Non-employee expenses rose 17.3% YoY and 12.2% sequentially, driven by retail business-related expenses and festive season marketing spends. The Bank opened 263 branches in H1. Management does not expect sequential opex increases of the magnitude seen in Q2 to repeat, though overall opex may not decline as the Bank continues to invest for growth.
• Dividend income from subsidiaries was ₹810 cr vs ₹1,336 cr in Q1; the YoY increase was due to an interim dividend from ICICI Securities and ICICI Venture. Timing depends on AGM schedules.

Subsidiaries & Regulatory Preparedness

• ICICI General's combined ratio worsened to 105.1% from 104.5% YoY; excluding CAT losses, it was 103.8% vs 102.6%. Long-term products are now accounted on a 1/n basis from October 1, 2024, making Q2 not fully comparable.
• ICICI Securities PAT fell to ₹425 cr from ₹529 cr in Q2 last year. ICICI Bank Canada and UK also saw PAT declines.
• On the ECL framework transition, management stated they have been working with the RBI and are quite prepared. Given current provisioning levels, the Bank should be okay at the transition point. Contingency provisions plus accelerated NPL provisioning will be reassessed; no material impact on profit or capital is expected under draft guidelines, though ongoing credit costs under ECL are still being worked out.
• On capital and ECL's CET1 impact, management said it is very difficult to say if the transition could be CET1-accretive, as it depends on the balance sheet at the point of transition.

Banerjee: "On ECL as far as the transition point is concerned, I think given the level of provisioning that we hold on the balance sheet, we should be okay. On what credit costs will look like under an ECL regime on an ongoing basis is something we have to still work out and assess."

Guidance & Commitments

Key Metrics