ICICI Financial institution’s initiatives to de-risk loans have held it in good-stead with affect on asset high quality more likely to be manageable. An under-appreciated facet is that its working revenue grew at 19-20% in FY19-20 & 18% YoY in first half of FY21. It has narrowed the hole with HDFC Financial institution and as retail progress & corporate-ecosystem banking pay-off with regular credit score price, ICICI Financial institution can develop normalised income by 17-20%. Uptick in CASA progress is essential for ICICI Financial institution.

Delivering a wholesome working revenue progress:

It is attention-grabbing to notice that ICICI Financial institution has been in a position to enhance progress in its working revenue (ex-treasury & dividend revenue) to 19%/20% over FY19/20 vs. -11%/+8% over FY17/18. Even in the course of the first half of FY21, working income rose by 18% YoY. This has been aided by wholesome progress in retail loans, higher topline progress (NIMs and charges). The truth is, higher revenue progress has helped it to proceed investing in distribution. In consequence, ICICI Financial institution has additionally bridged the hole on this facet with HDFC Financial institution, which has been constant for for much longer. Going ahead, Jefferies believes that ICICI Financial institution will have the ability to leverage retail lending demand and even deepen relationships with company clients by ecosystem banking initiatives.

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Derisking initiatives to maintain Covid affect manageable:

ICICI Financial institution has elevated the share of A and above rated loans in mortgage combine from 63% in FY18 to 72% now. This was led by an increase in share of retail loans and growing disbursements to A & above rated company. In retail lending, a bigger proportion of loans are to classic/ present clients and salaried revenue teams. Therefore, Jefferies expects the asset high quality pressures to be manageable; after making 1.5% of loans in Covid provisions, administration now expects provisioning prices to normalise. Jefferies expects provisioning to be round 2.5% in FY21 and 1.5% in FY22 – each 20bps change in credit score price would affect FY22E earnings by 6%.

Decide-up in CASA progress is essential:

An space that Jefferies expects ICICI Financial institution to enhance is on the CASA progress the place it has seen moderation to 12% YoY in Sep-20, whereas HDFC Financial institution has improved momentum to 27% YoY. Whereas ICICI Financial institution’s funding price is among the many lowest within the sector, a greater progress in CASA will assist to push-up progress on the lending aspect as properly.


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