For ICICI Bank, it’s over to execution

The management has not shared any solid financial guidance but said it would focus on growing its core operating profit across segments in a risk-calibrated manner while keeping asset quality in check.

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With the bank now evolving from a product-focused to a customer-centric franchise, expectations are that growth would be driven by superior customer experience. In fact, according to Motilal Oswal Financial Services Ltd, ICICI Bank appears to be several notches above its peers when it comes to business transformation led by technology initiatives. The brokerage said that these digital capabilities would enable the bank to deliver superior growth over the years.

For instance, under its go-to-market strategy, the bank is re-aligning its distribution to tap into opportunities in various markets. Also, the bank’s new micro market strategy should lead to the effective deployment of targeted product initiatives and aid cross-selling. The management has also emphasized increasing existing customer wallet share to generate a higher return on equity and use the partnership mode to boost its market share.

In recent months, the ICICI Bank stock has hogged the limelight due to its stellar earnings performance. A key highlight is its net interest margin (NIM) expansion of 31 basis points sequentially to a multi-quarter high of 4.45% in the September quarter (Q2FY23). ICICI Bank’s NIM expansion was higher than close competitor HDFC Bank Ltd in Q2.

Of course, the sector’s credit cost is rising, and the race for deposits will likely intensify amid a robust loan growth outlook. But for now, investors in the stock are happy. The shares are hovering near their 52-week high of ₹958.20 seen on 30 November. So far in CY22, ICICI Bank’s shares have rallied by 26%, outperforming sector index Nifty Bank’s 22% returns.

“Among the analyst meets that banks have held lately, what differentiated ICICI Bank was that the philosophy of doing business comes out very strongly,” said Abhinesh Vijayaraj, director of equity research, Spark Capital Advisors (India). He further added that the key focus of the meeting was doing what was right for the customer and for the bank rather than giving growth numbers and outlook.

“This should help the bank to continue to deliver robust numbers over the medium term,” he said.

Given this, a meaningful outperformance in the stock would depend on how this strategy plays out. Of course, trends in NIM, deposits and credit cost are also important, but a solid execution of this plan could give ICICI Bank an increased edge over competitors going ahead.

“Changes made in the employee remuneration/KRAs three years back are showing good results. However, with low-hanging fruits plucked, it will be interesting to see how it pans out in ensuing years,” said analysts at IIFL Securities Ltd. So, IIFL is of the view that continued execution of strategy remains a key to further gaining profitable market share.

Also, note that ICICI Bank currently has technology spending of around 9% of its total operating expenses versus 6% in FY20. This number is in line with global standards among banks and is likely to remain elevated at around these levels. Against this backdrop, the third iteration of the bank’s application iMobile remains the key project to watch out for in 2023.