ICICI Bank Pivots To Margin Defence And Selective Lending

ICICI Bank’s March quarter results point to a deliberate recalibration. With the rate cycle now easing and credit demand uneven, the bank is shifting focus from aggressive lending to margin protection and targeted growth.

Net profit rose 18% year-on-year to ₹126.3 billion, supported by an 11% increase in net interest income and a 16 basis point sequential expansion in net interest margin to 4.41%. However, the quarter was marked less by headline growth and more by its composition.

Overall credit expansion remained muted at 2.1% sequentially and 13.3% from a year ago. Growth was modest across most retail categories, particularly unsecured loans and auto credit, where the bank cited soft demand and pricing caution. This was not an accident of the quarter but the result of regulatory lag and conscious underwriting restraint.

The one bright spot was business banking, which posted a 6.2% quarterly rise and 33.7% year-on-year growth. Management attributed this to earlier investments in branch expansion, underwriting models, and transaction banking capabilities. Fee income tied to this segment also improved, providing a diversified revenue offset to slower retail lending.

Deposit mobilisation was strong, rising 6% sequentially and 14% annually, with CASA deposits growing 9.4% quarter-on-quarter. This pushed the CASA ratio to 41.8%, while the credit-deposit ratio improved to 83.3%, down more than 300 basis points. These shifts strengthen ICICI’s funding base at a time when margins may face pressure from falling lending rates.

With two repo rate cuts already delivered and more likely, the transmission to loan yields is expected to be faster than the repricing of deposits. Management acknowledged this asymmetry, noting that margin impact from rate cuts may be more acute than initially expected.

Operating metrics remained steady. The cost-to-income ratio declined to 37.9%, and opex-to-assets remained broadly stable at 2.09%. Technology expenses accounted for 10.7% of operating costs during the year, underlining the bank’s focus on platform efficiency rather than physical scale.

Asset quality improved meaningfully. Gross NPAs declined to 1.67%, aided by lower slippages and a significant increase in portfolio sales during the quarter. Credit costs fell to 27 basis points, while the provisioning coverage ratio remained high at 76.2%. Retail and rural stress ratios also eased, reinforcing confidence in recent loan vintages.

The unsecured retail portfolio, which had been under scrutiny following RBI-led tightening, appears to be stabilising. Portfolios originated after the revised credit filters 18 months ago are performing better, and while the bank is not ramping up disbursements yet, it expects recovery to be gradual.

One area to watch is capital intensity. Risk-weighted assets rose 17% year-on-year, outpacing loan growth. The bank indicated this was due to increased market risk from treasury positions taken in a more favourable rate environment, but it underscores the importance of managing capital productivity as growth slows.

What emerges is a shift in ICICI Bank’s posture. The bank is not pulling back—it is repositioning. Business banking and deposit granularity are becoming the new growth engines, while riskier retail segments remain tightly managed. Margin preservation, rather than credit acceleration, is the near-term priority.

This is not a break from strategy, but a transition into a more selective phase. The bank is keeping dry powder as the rate environment evolves—patient in deployment, but prepared for shifts in opportunity.