ICICI Bank is going strong, but proposed LCR norms pose risk for sector

livemint.com:

MUMBAI : ICICI Bank’s core operating profit grew by 11% year-on-year in the June quarter (Q1FY25) to ₹15,412 crore. But it should be noted that a good part of this growth was aided by almost tripling of the dividend income from group companies to ₹894 crore. Excluding dividend income, core operating profit increased by 7%.

The bank is valued on a sum-of-the-parts (SoTP) basis, ascribing different values to the dividend paying group companies such as ICICI Securities. Thus, it is imperative to look at normalized earnings to avoid the risk of double counting. Sure, earnings in the case of price-to-earnings based valuation can also be normalized by deducting the dividend income from group companies.

While consolidated financials solve the problem of double counting, it makes little sense in the case of ICICI Bank as some of its subsidiaries are engaged in diverse businesses such as insurance that have their unique accounting with revenue and costs. Nevertheless, ICICI Bank’s Q1FY25 performance continues to be a notch above the other large private banks on most parameters. The annualized RoA of 2.36% is impressive, but what is more important is that it has been achieved by taking lower risk versus other banks.

For instance, the high-risk portfolio comprising personal and credit card loans for ICICI Bank contributes 14% of the total loan portfolio as against 18% for Axis Bank. But ICICI Bank’s net interest margin (NIM) 4.36% is still higher than the latter at 4.05%. In Q1, ICICI Bank’s advances growth was 15.9% year-on-year.

Importantly, the deposit growth rate is at a similar level, at a time when most banks are struggling to keep pace. The average low-cost funds in the form of CASA deposits grew by 9.7% year-on-year. The