MOFSL reiterates 'Buy' on ICICI Bank; what's driving its bullish outlook?

ICICI Bank has sustained healthy loan growth of ~15 per cent CAGR over FY23-25, outpacing system growth, driven primarily by retail and business banking.

MOFSL on ICICI Bank: Domestic brokerage firm Motilal Oswal Financial Services (MOFSL) has reiterated its ‘Buy’ rating on private lender ICICI Bank, citing resilient performance, strong technology adoption and steady growth across retail and business segments. 

 

The brokerage has maintained a target price of ₹1,670, valuing the ICICI Bank stock at 2.7x FY27E adjusted book value (ABV) plus a sum of the parts (SoTP) of ₹270, and expects the bank to deliver return on assets/return on equity (RoA/RoE) of 2.3 per cent/16.7 per cent by FY27E.

 

“ICICI Bank has consistently delivered stellar performance over the past few years despite sectoral challenges such as unsecured asset quality issues, systemic growth moderation, liability accretion or NIM headwinds,” MOFSL said in a note dated September 2, highlighting its ability to navigate industry headwinds better than peers.

 

Loan growth remains robust

 

The bank has sustained healthy loan growth of ~15 per cent CAGR over FY23-25, outpacing system growth, driven primarily by retail and business banking. The brokerage projects a ~16 per cent CAGR over FY26-28E, even as unsecured loan growth stabilises at 12.8 per cent of the loan book. Vehicle finance has been subdued due to demand softness, though recovery is expected in H2FY26 on the back of easing borrowing costs and lower taxes.

Business Banking leads the charge

 

Business Banking has emerged as a key growth engine, recording 34 per cent Y-o-Y growth in FY25 (~30 per cent in Q1FY26) and now contributing ~20 per cent of total loans. The segment is supported by investments in distribution, underwriting and digital capabilities. The portfolio remains granular and well-diversified, with low credit costs. Retail and rural loans grew more modestly at 6.1 per cent Y-o-Y in Q1FY26, but continue to make up the largest share of the book at 58.5 per cent.  ALSO READ | HDFC Securities initiates 'Buy' on Aditya Birla Lifestyle; sees 28% upside

Strong deposit franchise; CASA moderation limited

 

Deposits grew ~13 per cent Y-o-Y in Q1FY26, aided by ICICI Bank’s wide branch network, digital strength and focus on low-cost deposits. CASA ratio moderated to 41.2 per cent but remains ahead of peers, with strong traction in current accounts (+23 per cent Y-o-Y). MOFSL expects deposits to grow at ~15 per cent CAGR over FY26-28E, supported by a likely revival in savings deposits as rates ease. The bank maintains a comfortable credit-deposit ratio (CD ratio) of 84.8 per cent.

NIMs and profitability outlook

 

Net interest margins (NIMs) contracted slightly, down 7bps Q-o-Q to 4.34 per cent in Q1FY26, reflecting loan repricing pressures. However, reduced reliance on high-cost deposits and the phased 100bps cash reserve ratio (CRR) cut are expected to support liquidity and offset margin compression. MOFSL forecasts 17 per cent CAGR in NII over FY26-28E, with margins stabilising from H2FY26 onward.

Efficiency gains through technology

 

The bank’s cost-to-income ratio improved to 37.8 per cent in Q1FY26, despite continued investments in expansion and technology. Core fee income rose ~15 per cent in FY25, led by retail, business banking, transaction banking, FX and derivatives. Opex growth is projected at ~11 per cent Y-o-Y over FY25–27E, with cost-to-income (C/I ratio) expected to moderate further to ~36 per cent by FY28E.

 

Digital adoption remains a cornerstone as ~95 per cent of individual financial transactions are conducted online. Platforms such as iMobile Pay (10m+ users) and InstaBIZ (3m+ SMEs) are scaling rapidly, alongside innovations like API Banking 2.0 and upgraded remittance systems.

Asset quality and capital position remain solid

 

ICICI Bank maintains strong asset quality, with PCR at 76 per cent and contingent provisions of ₹13,100 crore (~1 per cent of loans). Gross non performing asset/net non performing asset (GNPA/NNPA) are expected to remain steady at 1.6 per cent/0.4 per cent by FY27. Credit costs could inch up as recoveries moderate, but robust buffers provide cushion.

 

Capitalisation is comfortable, with Tier-1 at 15.7 per cent and CAR at 16.3 per cent. The bank’s segmental performance is balanced – Retail PBT grew 15 per cent Y-o-Y in FY25 (35 per cent of total profits), Treasury PBT jumped 26 per cent Y-o-Y, while Corporate PBT rose 8 per cent Y-o-Y amid subdued demand.

 

That said, analysts at MOFSL believe ICICI Bank is well-positioned to sustain its profitability trajectory. “The continued improvement in asset mix, limited NIM compression, and healthy growth in Business Banking and select retail segments position the bank to deliver robust performance,” the brokerage noted.