ICICI Financial institution Inventory: Gaining Traction (NYSE:IBN)


Views of slums on the shores of mumbai, India against the backdrop of skyscrapers under construction

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Good banking is produced not by good legal guidelines, however by good bankers. – Hartley Withers

Tweet from Michael A. Gayed, CFA


For those who’re a subscriber to The Lead-Lag Report, you’d be aware that I have been highlighting sure engaging pockets inside the rising market house, an area that had a troublesome 2021 and presently affords appreciable worth. On this article, I will be seeking to cowl a notable firm inside the quickest rising EM on the earth – India. The corporate in query is ICICI Financial institution (NYSE:IBN).

IBN taking share, at the same time as industry-wide credit score market circumstances pickup

India is anticipated to ship spectacular GDP progress of 9% this yr, greater than 2x that of the anticipated world GDP and effectively forward of the EM progress estimate of 4.8%. With the economic system rising at 9%, you’d suppose that it will be time for banking sector credit score circulate to play its half as effectively, significantly after a slightly underwhelming two years the place credit score progress has hovered across the mid single-digit ranges (final yr’s second wave performed an important half in stopping this metric from increasing considerably). Between 2018-2020, credit score progress was averaging round double-digit ranges. Nevertheless, it is heartening to notice that 2022 has gotten off to a strong begin, with credit score progress exhibiting sequential progress and buying and selling nearer to 9% ranges.

India Bank Loans

Buying and selling Economics

In gentle of those promising circumstances, one thing like an IBN seems well-poised to flourish because it has a really diversified mortgage ebook throughout retail banking, enterprise banking, SME-based enterprise and company loans.

Granular Look

IBN December quarter outcomes presentation

Actually, you’d have an interest to know that when {industry} credit score progress within the December quarter was within the single-digit ranges, IBN really grew its complete home mortgage ebook by a powerful 18% with a number of levers throughout totally different product segments!

High quality of property

It is one factor to develop your ebook aggressively, however are you able to pursue high quality progress as effectively? I would prefer to suppose that IBN seems well-placed right here as they comply with slightly stringent credit score underwriting requirements and have just lately taken fewer dangers within the retail and SME segments. Be aware how the financial institution’s gross and internet NPAs have been sliding over current quarters at the same time as the availability protection ratio stays at a powerful degree of near 80%. Additionally, be aware that the financial institution continues to exhibit ample prudence by sustaining COVID-19 associated provisions to the tune of INR65bn, the identical because the September quarter.

NPA Trends

IBN December quarter outcomes presentation

Payment earnings prowess

IBN’s resilient fee-income portfolio is one other facet to admire. Within the just lately concluded quarter, the corporate noticed its fee-based providers develop by a powerful 19%, in the meantime, one thing like an HDFC Financial institution (HDB), which is perceived to be one thing of a bellwether, solely witnessed 9% progress in charges. A lot of IBN’s fee-based providers come from the retail, enterprise banking, and SME prospects.




As talked about in The Lead-Lag Report, the period of ultra-loose financial insurance policies throughout the globe seems prefer it’s on its approach out. Not like its neighbors similar to Pakistan and Sri Lanka, India is but to get began with its charge hike endeavors, however I might anticipate this to kick off by Q1. The market expectation is for a rise of 100bps within the coverage charge this yr. One thing like an IBN seems effectively set to learn from this because it has the next charge of floating charge loans in its mortgage combine relative to its friends.

Indian followers of The Lead-Lag Report will little question again me once I say that ICICI Financial institution alongside HDFC Financial institution has been the 2 mainstays of the Indian personal banking panorama. Having stated that, historically, HDFC Financial institution has been perceived to be the gold customary of Indian banking, significantly underneath the erstwhile stewardship of Aditya Puri (who retired in Oct 2020). Actually, for these of you who’re , you may think about going by means of my outdated piece on HDFC Financial institution the place I’ve juxtaposed its qualities in opposition to among the prime banks internationally.

I believe it is honest to say that the post-Puri interval has been one thing of a disappointment (for example its historically sturdy retail market share has dropped from 53-54% a few years in the past to 47% presently), at the same time as ICICI Financial institution underneath the stewardship of Sandeep Bakshi (who took over in late 2018) has gained additional credibility. It is slightly evident that the market likes what it sees underneath Bakshi and this has been mirrored in a strong growth in ICICI Financial institution’s value to ebook valuation a number of. Since Bakshi has taken over, IBN’s value to ebook worth has expanded by 71%, in the meantime, HDB’s corresponding a number of has solely grown by a miserly 7%!

HDFC Bank vs. ICICI Bank in price to book value % change


All in all, you may presently decide up the fast-improving IBN inventory at a value to ebook worth a number of of three.2x; this represents a 25% low cost to HDB’s a number of of 4.3x. Over time, I might anticipate the hole in these multiples to erode even additional.

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