ICICI Bank reported a nearly 20% year-on-year loan growth for the June quarter (Q1FY27), surpassing HDFC Bank's 16% growth, according to the company's earnings release. ICICI's total loan portfolio reached ₹16.3 trillion, outpacing the industry's overall credit growth of 18.6% as of June 30.
Financial Performance
ICICI Bank's net interest margin (NIM) increased by 4 basis points sequentially to 4.36%, driven primarily by higher interest on tax refunds. The bank's net profit grew 16% year-on-year to ₹14,800 crore, while return on assets (ROA) improved to 2.5% from 2.4% in the previous quarter. In contrast, HDFC Bank's net profit rose only 5% to ₹19,060 crore, with its ROA declining to 1.9%. HDFC's NIM fell by about 10 basis points to 3.4%, impacted by high-cost borrowings from its merger with HDFC Ltd.
HDFC Bank's loan-to-deposit ratio (LDR) stood at 96%, limiting its credit growth, while ICICI's LDR was 89%. HDFC also experienced faster deposit growth of 15% compared to ICICI's 14%. However, HDFC's liquidity coverage ratio (LCR) of 115% remained lower than ICICI's 122% and Kotak Mahindra Bank's 144%.
Challenges Ahead
HDFC Bank continues to face challenges from high-cost borrowings, which are expected to decrease by ₹40,000-50,000 crore over the next couple of years as they mature. Analysts from JM Financial Institutional Securities noted that these factors, combined with HDFC's lowest-ever CASA ratio of 32%, will likely constrain its retail-led growth.
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The divergence in performance between ICICI and HDFC could influence investor sentiment towards the banking sector, particularly affecting shares of both banks. Investors may react to the contrasting growth trajectories and profitability metrics, particularly in light of HDFC's ongoing integration challenges. Watch for HDFC's progress in managing its high-cost borrowings and improving its margins in the upcoming quarters.