ICICI Bank business approach gets Street thumbs-up; stock at all-time high

Digital capabilities are expected to improve growth at a lower cost following the bank's focus on 'One Bank One RoE'

The stock of ICICI Bank hit an all-time high of Rs 531.35 in intra-day trading on Wednesday, before ending the day with 4 per cent gains over previous close at Rs 529.35. This was a day after the lender presented its business perspective to analysts. 

Among the key highlights of the analysts’ day event were ICICI Bank’s digital and technical initiatives, which should help it accelerate growth across all business verticals. The bank said it would focus on opportunities in the entire ecosystem, besides calibrating risk to propel operating profit through its approach of ‘One Bank One RoE’. A profitability indicator, RoE stands for return on equity. 

Analysts expect these efforts to provide the bank’s earnings a strong support and help increase its RoE, estimated to be under 10 per cent for FY20, to more than 15 per cent in two years.

For example, the use of technology to garner new quality business will help the bank not only in reducing its overall operating cost but also its credit cost (bad loan provisioning as a proportion of average loan book). 

Even as technology and digitisation have always been a focus area for it, the bank has been grappling with asset-quality and management issues for over a year. “With asset-quality issues getting sorted, ICICI Bank appears firmly positioned to deliver healthy sustainable growth, led by continued investments in technology and further expansion in digital offerings,” analysts at Motilal Oswal said in a report.

Further, a holistic approach to corporate lending — for instance, giving loans mostly to corporate borrowers with an A- or better credit rating (indicating high credit quality), and focusing on capital return rather than pricing, are likely to improve the bank’s wholesales business performance.

Overall, analysts see ICICI Bank’s efforts as being in the right direction. Many of them now expect a further re-rating potential for the bank’s stock, despite a rise of rise of 12.5 per cent in the past month, vis-a-vis Nifty Bank’s around 5 per cent rise. “We perceive a further re-rating potential as the market gains confidence in earnings sustainability,” said analysts at Edelweiss Securities.

After Tuesday’s event, many analysts have also raised their target price for the ICICI Bank stock by as much as 19 per cent to Rs 567, show Bloomberg data.