ICICI Bank (IBN) Rides on High Rates & Loans Amid Cost Woes
ICICI Bank Ltd IBN remains well-poised for growth on the back of dependence on domestic loans, higher interest rates and a stable funding base. Further, the rise in mobile banking transactions and digitization of banking operations is expected to support fee income. However, elevated expenses and muted credit quality are key headwinds.
ICICI Bank has been making commendable progress in improving digital banking services for both retail and corporate clients. The increasing adoption of the bank’s mobile banking app — iMobile Pay — is helping garner solid market share, with 10 million activations of iMobile Pay from non-ICICI Bank users till Jun 30, 2023.
The company’s digital platform for businesses, InstaBIZ, along with supply chain platforms, has also witnessed tremendous growth in the past few quarters. These efforts are leading to a rapid increase in end-to-end digital sanctions and disbursements across various products. As of Jun 30, 2023, IBN reported about 2.3 million registrations on the InstaBIZ platform by non-ICICI Bank users.
Moreover, IBN has been successfully leveraging its technological initiatives to augment the contribution of non-interest income toward its top line. In the first quarter of fiscal 2024, almost 36% of the company’s mortgage loan sanctions and 31% of its personal loan disbursements, by volume, were end-to-end digital. Driven by these efforts, non-interest income grew 12% in the first three months of fiscal 2024, following a 13% rise in fiscal 2023.
Though ICICI Bank has wide international loan coverage, domestic loans represent a substantial part of its overall loans (97% as of Jun 30, 2023). As a result, the company is secure with respect to loans and is less likely to be affected by global concerns. The bank has been marketing retail deposits on a large scale, primarily to lower its cost of funds and create a stable funding base. During the first quarter of fiscal 2024, retail loans witnessed a 22% rise and at the end of fiscal 2023, retail loans grew 23%.
Analysts are also optimistic regarding ICICI Bank's earnings growth potential. The Zacks Consensus Estimate for IBN’s 2023 earnings has been revised 8.3% upward over the past 30 days. It currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of the company have gained 2.1% compared with the industry’s rise of 6.6%.
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However, with rising inflation and tighter monetary policy across the globe, ICICI Bank’s asset quality is likely to come under pressure. The company's credit quality worsened in fiscal 2020 and fiscal 2021 due to the global and domestic economic slowdown, the coronavirus-related concerns, and the significant slump in commodity prices. While the bank’s provisions declined in fiscal 2023 and fiscal 2022, the same, along with non-performing assets, have increased significantly over the past several quarters.
Increasing operating expenses are expected to hurt ICICI Bank’s bottom line. Non-interest expenses increased in the first quarter of fiscal 2024. In fiscal 2023 and 2022, operating expenses surged 23% and 24%, respectively. Expenses are likely to remain elevated in the near term, owing to the bank’s ongoing expansion in branch networks and ATMs, as well as technology investments aimed at driving revenues.
Stocks Worth Considering
A couple of foreign bank stocks worth considering are Canadian Imperial Bank of Commerce CM and Credicorp BAP, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Canadian Imperial Bank of Commerce’s current-year earnings has been revised marginally upward over the past seven days. Its shares have gained 2.3% in the past three months.
Earnings estimates for Credicorp for 2023 have been revised marginally upward over the past 60 days. In the past three months, BAP shares have rallied 4.6%.
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