Business banking gives strong boost to ICICI Bank's domestic retail book

At a time when total advances of ICICI Bank were a tad lower than estimates, business banking did the major heavy lifting for the second-largest private sector lender’s loan growth in January-March period.

 

The business banking book grew the fastest among domestic retail loans by registering a 33.7 per cent rise on a year-on-year (Y-o-Y) basis. Though margins improved sharply in the fourth quarter of 2024-25 (Q4FY25), yet they are likely to come under pressure going forward, according to analysts.

 

“Balance sheet growth was healthy in the context of the peer set, with business banking doing the heavy lifting,” Yes Securities said in a report.

 

 

Business banking has scaled well on the back of long-term investments in distribution, underwriting, and digital. The portfolio is granular, diversified, and customer-centric, with focus on high-quality lending, according to analysts. Credit costs are in line with the corporate book, while yields are modestly better. Business banking is 19.2 per cent of total advances. It involves borrowers with turnover of up to ₹750 crore.

 

Overall, the bank delivered a strong performance aided by stable loan and a healthy deposit growth, robust asset quality, and industry-leading return ratios. On the other hand, net interest margin (NIM) could likely face some near-term pressure amid repo rate cuts, said Nuvama in its report. However, the bank is well-positioned, hence the pressure on NIM would be limited, the report added.

 

According to Nuvama, the bank’s overall loan growth was a tad lower than expectations as the overseas loan book fell both on a Y-o-Y and on a quarterly (Q-o-Q) basis. Within retail loans, steady sequential growth was seen in the secured portfolio, which includes home and vehicle loans. The management had been taking a cautious approach on unsecured loans, which led to a 1 per cent Q-o-Q growth both in personal loans and credit card categories.

 

Of the total domestic loans, interest rates on about 53 per cent of them are linked to the repo rate, 15 per cent to marginal cost of funds-based lending rate (MCLR) and other older benchmarks, and 1 per cent to other external benchmarks. The balance 31 per cent of loans have fixed interest rates. The management in a call with analysts said there is no specific incremental caution on the credit side, and they remain comfortable with the current underwriting practices. However, they acknowledged that earlier tightening in personal loans and credit cards is now reflected in the moderation of volumes and loan growth over the past few quarters. Growth in personal loans and credit card has now bottomed out.

 

According to analysts, the sharp increase in NIM was driven primarily by a rise in yield on advances. Yield on advances was 9.86 per cent for Q4FY25, up 21 basis points (bps). Yes Securities in its report said that is because of the higher number of days in the quarter, and lower slippages on Kisan Credit Card (KSS), leading to lower interest reversal, on a sequential basis.

 

Elara Capital said the bank is making choices in favour of profitability over growth, hence FY26 could have transitionary dislocation. “Transition from high teen core pre-provision operating profit growth to lower teen may render narrative dislocation, but it will eventually get adjusted as we believe the bank has the levers to sustain an overall earnings delivery with a ROA (return on asset) of 2 per cent and a ROE (return on equity) of 15 per cent in FY26,” said Elara Capital.

 

Deposit growth was 14 per cent Y-o-Y and 5.9 per cent Q-o-Q, with average deposits growing at 11.4 per cent Y-o-Y and 1.9 per cent Q-o-Q. Average CASA (current account savings account) deposits grew by 10 per cent Y-o-Y. Average liquidity coverage ratio (LCR) for the bank stood at 126 per cent against 123 per cent in the previous quarter. Management said in a call with analysts and investors that challenges for CASA are behind it, given improvement in system liquidity, rate cut cycle, and capital markets.