India’s ICICI Bank to maintain healthy earnings in the near term

Credit growth is expected to remain strong, at between 17% to 20%.

India’s ICICI bank is expected to maintain healthy earnings in 2024 with a forecasted return of assets of 2%, thanks to its robust loan growth and low credit costs.

Credit growth is expected to remain strong at 17% to 20%, according to S&P Global Ratings.

“We do not expect a material decline in the growth of unsecured retail loans from higher risk weights being applied by the regulator,” the ratings agency said in its latest commentary report on ICICI bank.

The pricing for unsecured retail loans has increased by 20 basis points (bps) to 30 bps and is unlikely to dent the bank’s “rapid” credit growth, S&P added.

ICICI bank has reportedly seen a 35% to 40% year-on-year increase in its personal loans and credit cards portfolio, and S&P expects the strong growth momentum to continue.

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However, net interest margins (NIMs) are likely to decline further by an estimated 10 bps in Q1, with the cost of deposits likely to rise further. 

“The rise stems from the delayed repricing of deposits, shift from low yielding current and savings accounts to higher-interest-bearing term deposits, and heightened deposit competition in India's banking sector to meet the credit demands of a rapidly expanding economy,” S&P said.

ICICI Bank’s NIM has already contracted by 10bps in Q4 2023 because of the bulk of new deposits were higher yielding term deposits.

Wholesale deposit rates have also risen amidst tight liquidity, S&P noted.

Provisioning costs are sighted to stay low at 60bps to 80bps of loans, thanks to the improved operating environment. 

“ICICI Bank's asset quality remains stable, keeping provisioning requirements contained. Risks in unsecured retail loans are relatively well managed, given the majority of these loans are to existing customers,” S&P noted.

Over 8 in 10 (85%) of personal loans and credit card loans of ICICI are to salaried individuals; 3 in 4 (75%) of these are employed in highly rated corporations, multinational corporations, and government entities, S&P added.

“In our view, management has the skills and capabilities to manage asset quality amid the bank's high credit growth. The bank's better customer profile and underwriting than those of many Indian banking peers should also limit losses,” the ratings agency said.