ICICI Bank Q3 Call: Core Strength, One-Off Drag

Icici Bank ((IBN)) has held its Q3 earnings call. Read on for the main highlights of the call.

ICICI Bank Signals Resilience Despite One-Off Provision Hit in Q3 Call

Management at ICICI Bank struck a broadly positive tone on the earnings call, emphasizing resilient core profitability, strong capital and liquidity, and steady growth in both loans and deposits. While reported profit dipped year-on-year due to an RBI-directed provision on an agricultural PSL portfolio and a small treasury loss, executives repeatedly highlighted that underlying earnings, margins and asset quality remain robust. They acknowledged near-term headwinds from higher operating costs, subsidiary softness and specific stressed pockets, but framed these as manageable against the backdrop of healthy core trends and a strong balance sheet.

Core Operating Profit Growth Holds Up

Core operating profit climbed 6% year-on-year and 2.5% sequentially to INR 175.13 billion in Q3 FY2026, underlining the strength of the bank’s core franchise despite regulatory provisioning and market-related treasury volatility. Management stressed that this growth reflects disciplined pricing, steady business volumes and continued operating leverage, even as the bank invests in branch expansion and technology. The improvement in core earnings was presented as evidence that the bank can absorb episodic shocks while still delivering solid profitability.

Net Interest Income Rises with Stable Margins

Net interest income (NII) increased 7.7% year-on-year to INR 219.32 billion, supported by loan growth and stable spreads. The net interest margin (NIM) stayed firm at 4.3%, flat versus the previous quarter and slightly higher than the 4.25% level a year earlier. Management underlined that repricing in the loan book, particularly tied to repo and MCLR rates, and selective deposit repricing are balancing each other, allowing the bank to sustain healthy margins even in a competitive funding environment.

Broad-Based Loan Growth Across Segments

ICICI Bank reported a broadly diversified loan expansion, with the domestic portfolio rising 11.5% year-on-year and 4.0% sequentially. Retail loans grew 7.2% year-on-year, with mortgages up a robust 11.1%, signalling continued demand for home finance. Business banking loans surged 22.8%, while domestic corporate loans grew 5.6%, illustrating balanced growth across consumer and wholesale segments. Management framed this as disciplined, risk-calibrated expansion rather than pursuit of growth at any cost.

Deposit Growth and CASA Trends Support Funding Base

Average deposits rose 8.7% year-on-year and 1.8% quarter-on-quarter, while total deposits grew 9.2% year-on-year and 2.9% sequentially as of December 31, 2025. Average CASA balances (current and savings accounts) were up 8.9% year-on-year and 1.5% quarter-on-quarter, helping to keep funding costs in check. Management acknowledged some drag from lower institutional and government-linked savings balances, but emphasized that the overall deposit franchise remains healthy and well-diversified.

Capital, Liquidity and Provision Buffers Remain Strong

The bank underscored its robust safety cushions, with a CET1 ratio of 16.46% and total capital adequacy of 17.34%, including profits for the first nine months. The average liquidity coverage ratio stood at around 126%, signaling a comfortable liquidity position. Provision coverage on NPAs was a solid 75.4%, and the bank carried contingency provisions of INR 131 billion, equivalent to about 0.9% of advances. Management positioned these buffers as key protections against macro or credit shocks.

Non-Interest Income and Fee Franchise Show Resilience

Non-interest income excluding treasury operations grew 12.4% year-on-year to INR 75.25 billion, highlighting the strength of the bank’s diversified income streams. Fee income rose 6.3% year-on-year to INR 65.72 billion, with about 78% of fees generated from retail, rural and business banking customers. This tilt towards granular, client-focused fees was presented as a structural advantage that supports earnings stability when market-dependent treasury income is volatile.

Adjusted Earnings Paint a Healthier Profit Picture

Management encouraged investors to look at earnings excluding the RBI-directed standard asset provision of INR 12.83 billion on an agricultural PSL portfolio. On this adjusted basis, profit before tax (excluding treasury) would have grown 6.2% year-on-year to INR 162.40 billion, and profit after tax would have risen 4.1% year-on-year to INR 122.80 billion. Adjusted return metrics were strong, with an implied ROA of 2.3% and ROE of 15.5%, underscoring the underlying profitability of the franchise once one-off items are stripped out.

Branch Expansion and Technology Spend Signal Long-Term Focus

The bank continued to invest in physical and digital reach, adding 402 branches over the last nine months to reach a total network of 7,385 branches. Technology expenses accounted for about 11% of operating costs over the same period, reflecting sustained spending on digital platforms, analytics and delivery capabilities. Management argued that these investments should drive customer acquisition, deepen engagement and improve productivity over time, even if they temporarily keep cost growth elevated.

RBI-Mandated Provision on Agricultural PSL Portfolio

A key talking point was the additional standard asset provision of INR 12.83 billion taken after an RBI supervisory review of an agricultural priority sector lending (PSL) portfolio. The underlying portfolio is estimated at roughly INR 200–250 billion. Management described this as a prudential step and outlined plans to regularize the portfolio and manage any PSL shortfall through a mix of organic actions and instruments such as PSLCs or other mechanisms. They emphasized that asset quality in this book remains standard and that the provision is forward-looking in nature.

Reported Profit Decline and Treasury Loss

Despite solid core performance, reported profit after tax slipped to INR 113.18 billion from INR 117.92 billion a year earlier, a decline of about 3.9%. The quarter also saw a treasury loss of INR 1.57 billion, compared with gains in both the previous quarter and the year-ago period, as adverse market movements weighed on investment income. Management framed these outcomes as cyclical and one-off, pointing investors instead to the stability of core earnings and fee income.

Credit Card Portfolio Sees Temporary Contraction

The credit card book was a soft spot, with outstanding balances down 3.5% year-on-year and 6.7% sequentially. Management attributed the quarter-on-quarter decline mainly to seasonal repayments following strong festive-season billing in the prior quarter. While they expect the credit card portfolio to resume growth, the segment’s performance lagged other retail products in the quarter, adding a note of caution around unsecured consumer lending momentum.

Gross NPA Additions Remain Elevated but Improving

Gross NPA additions reached INR 53.56 billion in the quarter, lower than the INR 60.85 billion added a year ago but still sizable. Retail and rural segments accounted for INR 42.77 billion of these additions. The bank wrote off INR 20.46 billion of gross NPAs and sold NPAs for cash proceeds of INR 1.2 billion. Management stressed that overall credit metrics remain healthy, backed by high provision coverage and low net NPAs, but conceded that keeping retail slippages under control remains an ongoing execution challenge.

Operating Costs Rise Faster, Including Labor-Code Provisions

Operating expenses rose 13.2% year-on-year, with employee expenses up 12.5%, marking a period of above-trend cost growth. The quarter included an estimated INR 1.45 billion provision related to the new labor code, adding to the expense burden. Management linked the higher cost run-rate to wage-related factors, regulatory changes and strategic investments in branches and technology. They indicated a focus on productivity and operating leverage to moderate cost growth over the medium term.

Subsidiary and International Headwinds Drag Consolidated Performance

The performance of certain subsidiaries and overseas operations was softer. ICICI Lombard General Insurance’s combined ratio deteriorated to 104.5% from 102.7% a year earlier, with PAT declining to INR 6.59 billion from INR 7.24 billion. ICICI Securities’ profit slipped to INR 4.75 billion from INR 5.04 billion, while ICICI Bank Canada’s profit fell sharply to CAD 5.4 million from CAD 19.6 million. These pockets of weakness partly offset the strength in the core domestic banking business and remain areas to watch for investors.

Deposit Mix Pressures and Rising PSL Compliance Costs

Management highlighted that a reduction in institutional and government-related savings balances has weighed on overall savings account growth, slightly diluting the deposit mix. At the same time, the cost of meeting priority sector lending requirements via instruments such as PSLCs and other mechanisms has increased, contributing to higher operating costs. The bank plans to refine its deposit acquisition strategy and product mix to support low-cost funding and to manage PSL obligations more efficiently.

Portfolio Concentration and Stressed Pockets Closely Monitored

The bank disclosed that its builder and real estate portfolio stands at INR 680.83 billion, around 4.3% of its loan book, with roughly 1.1% of that portfolio rated BB-and-below or classified as non-performing. Total fund-based outstanding to standard borrowers under resolution was INR 16.66 billion, only about 0.1% of loans. Management pointed to these figures to argue that concentration risks are contained and that the level of stressed exposures is limited and well-provisioned.

Guidance: Steady Margins, Continued Growth and Prudence

Looking ahead, management expects net interest margins to remain in a narrow band around current levels (Q3 NIM of 4.3%), with loan repricing and deposit cost increases offsetting each other. Loan growth momentum is projected to continue into Q4, building on the 11.5% year-on-year growth in both domestic and overall loans, while deposit growth, up 9.2% year-on-year in total, is expected to broadly track credit expansion. The bank plans to regularize the INR 200–250 billion agricultural PSL portfolio while maintaining a conservative provisioning stance, supported by substantial contingency and other provisions totaling about 1.5% of loans. With CET1 at 16.46%, total capital adequacy at 17.34% and an average LCR of around 126%, management reiterated its focus on risk-calibrated, profitable growth and sustainable returns, anchored by strong core operating profit and healthy asset quality metrics.

In summary, ICICI Bank’s earnings call painted a picture of a fundamentally strong franchise navigating regulatory and cost headwinds with substantial capital and provision buffers. While reported profit was pulled down by one-off provisions, treasury losses, higher expenses and weaker subsidiary performance, underlying earnings, margins and loan growth remained solid. For investors, the key takeaways were the resilience of the core domestic banking business, management’s emphasis on prudent risk management, and guidance that points to steady margins and continued growth rather than aggressive expansion at the expense of balance-sheet quality.