Leadership continuity positive for ICICI Bank as provisions weigh on profit

Reversal of provisioning is also expected to support the stock going ahead

High provisions in the third quarter of 2025-26 (Q3FY26) results led to a selloff in ICICI Bank stock. However, analysts tracking the stock continue to maintain a positive stance. The leadership question was also resolved with approval for the extension of Managing Director & Chief Executive Officer (MD&CEO) Sandeep Bakshi’s term until October 2028, ensuring continuity.

 

Reported net profit was ₹11,320 crore in Q3, a decline of 4 per cent year-on-year (Y-o-Y), dragged down by additional standard asset provisioning of ₹1,283 crore on the agricultural priority sector lending (PSL) portfolio of around ₹20,000 crore-₹25,000 crore as estimated by the management.

 

This provision will be reversed as and when the non-compliant portfolio conforms to the Reserve Bank of India (RBI) norms. No extra PSL certificate cost was incurred and there is no change in asset classification. The additional provision does not reflect deterioration. Management is confident of resolving the PSL compliance.

 

Assuming a reversal, net profit growth would have been above 4 per cent Y-o-Y with adjusted net profit at ₹12,300 crore. Loan growth improved to 12 per cent Y-o-Y (4 per cent quarter-on-quarter, or Q-o-Q), which led to net interest income (NII) growth of 8 per cent Y-o-Y (2 per cent Q-o-Q) to around ₹21,900 crore.

 

Fee income growth was low and the new labour code led to higher operating expenditure. The bank reported an impact of ₹145 crore from transition to the new labour code. The cost-to-income ratio rose to 40.8 per cent, up 20 basis points (bps) Q-o-Q. The pre-provision operating profit (PPoP) was flat Q-o-Q and up 2.8 per cent Y-o-Y. Credit cost (excluding the additional standard provisions) was a very moderate 35 bps.

 

Loan momentum improved due to a pickup in retail and business banking. Retail loan rose by 7 per cent Y-o-Y and it consisted of 57 per cent of the book. Business banking delivered growth of around 22.7 per cent Y-o-Y. Corporate reported growth of 6.5 per cent Q-o-Q (up 5.6 per cent Y-o-Y).

 

The credit card book declined 4 per cent Y-o-Y due to closing out of festive-led spending by users in Q2FY26. Management expects growth in credit cards to normalise. Deposit growth was up 9.2 per cent Y-o-Y, supported by strong retail savings and term deposits.

 

The provisioning is a one-off. The NII growth was boosted by deposit repricing, although asset-side repricings persisted. NIMs remained flat. The fee base is 78 per cent driven by retail, rural and business banking customers. Operating expenses were elevated due to labour code provisioning — adjusted for this, operating expenditure is almost flat sequentially.

 

Asset quality remains good, notwithstanding the additional provisions. The gross and net non-performing assets (NPAs) are just under 1.6 per cent and 0.4 per cent, respectively, with the provision coverage ratio (PCR) held at 76 per cent. Fresh slippages stood at ₹5,360 crore (up 6.4 per cent Q-o-Q and down 12 per cent Y-o-Y). The contingency buffer is unchanged at ₹13,100 crore, at about 0.9 per cent of the loan book. The credit quality in personal loans and credit cards has improved according to the management, and ICICI Bank is comfortable with the underwriting of unsecured products.

 

Fees were lower due to slow unsecured growth and competitive pressure on fees. ICICI Bank enjoys an excellent core return on assets (RoA), and should deliver 2.2 per cent RoA in FY26, and this RoA may improve by 10 bps over FY27-FY28.

 

The CASA (current account and savings account) ratio was stable at 40.9 per cent and was the same as in Q2. The loan deposit ratio was at 88.3 per cent, with the liquidity coverage ratio held at 126 per cent.

 

The stability of external benchmark rates allowed for stable loan pricing. The NIM is guided to stay range-bound Q-o-Q despite rate cuts. It may trend lower in future due to credit deployment of investments over cash and loan growth being led by the lower yield segments of corporate and mortgages as opposed to lower unsecured loans.

 

The stock consolidated through calendar year 2025 (CY25) and fell on the results. But analysts are positive on leadership continuity and assume the provisioning will be reversed. This could mean a rebound in the share price.