Despite a 4% profit decline, three leading brokerages see 20-24% upside—unpacking the fundamentals that drove their conviction
When ICICI Bank reported a 4% drop in quarterly profit two days ago, the initial reaction might have seemed concerning. But dig deeper into the numbers, and a different story emerges – one that investors tracking India’s banking sector should pay close attention to.
The country’s second-largest private sector bank posted a net profit of Rs11,320 crore for Q3FY26, down from Rs11,792 crore a year ago. The culprit? A one-time provision of Rs1,283 crore mandated by the Reserve Bank of India on certain agricultural loans that didn’t fully comply with priority sector lending norms.
The Real Story Behind the Numbers
Strip away that regulatory provision, and the picture brightens considerably. “Excluding the one-off provision, PBT would have grown 6.2% YoY and PAT would have grown 4.1% YoY,” notes the Nirmal Bang report, adding that “RoA/RoE would have been approximately 2.3%/15.5%” without this adjustment.
The bank’s core operating performance remained robust. Net interest income grew 7.7% to Rs21,932 crore, margins held steady at 4.3%, and perhaps most importantly, loan growth actually accelerated – a trend that had moderated in recent quarters.
Growth Momentum Picks Up
After a few quarters of calibrated expansion, ICICI Bank’s credit engine is firing again. Advances grew 11.5% year-on-year to Rs14.73 lakh crore, picking up pace from the 10.3% growth seen in the previous quarter.
What’s particularly noteworthy is where this growth is coming from. The wholesale book – which had been growing slowly – showed renewed momentum, with exposure to investment-grade (BBB and above) borrowers rising to 28%, the highest in two years. Retail loans grew a measured 7.2%, mortgages expanded 11.1%, and business banking surged 22.8%.
“The management expects this growth to sustain in Q4FY26,” according to Centrum Broking, which re-initiated coverage on the stock this week with a target price of Rs1,760.
The Agricultural PSL Issue: Context Matters
The Rs1,283 crore provision relates to a portfolio of Rs20,000-25,000 crore in agricultural priority sector loans where certain terms didn’t fully align with regulatory classification requirements. Importantly, there’s been no change in asset classification, borrower terms, or repayment behavior.
“This additional standard asset provision will continue until the loans are repaid or renewed in conformity with the PSL classification guidelines,” the bank clarified. It’s worth noting that Axis Bank faced a similar issue in Q2FY26, suggesting this is a sector-wide regulatory recalibration rather than a bank-specific problem.
The Anand Rathi report emphasizes: “There is no change in asset classification or in terms and conditions applicable to borrowers or in the repayment behaviour of borrowers as per these terms.”
Liability Franchise Provides Margin Defense
While loan growth grabbed headlines, the deposit story deserves equal attention. Total deposits grew 9.2% to Rs16.60 lakh crore, with the CASA (current and savings account) ratio holding at a healthy 40.2%.
More significantly, the cost of deposits declined to 4.55% from 4.64% last quarter and 4.91% a year ago. This declining funding cost provides a natural margin buffer as lending rates face pressure in a potentially easing rate environment.
Management guided that margins should “remain range-bound” going forward, with loan repricing and deposit repricing broadly offsetting each other. The bank’s liquidity coverage ratio averaged 126% during the quarter, comfortably above regulatory requirements.
Asset Quality Trajectory Stays Positive
ICICI Bank’s asset quality metrics improved despite Q3 typically being a seasonally weak quarter, particularly for agricultural loan portfolios.
Gross NPAs fell to 1.53% from 1.58% last quarter and 1.96% a year ago. Net NPAs stood at just 0.37%, while the provision coverage ratio remained robust at 75.9%. The bank also maintains contingency provisions of Rs22,660 crore – roughly 0.9% of the loan book.
Anand Rathi’s analysis notes that “credit quality is improved in the credit card segment, while with marginal uptick, personal loan segment continued to remain strong in Q3FY26.”
The credit card book, which declined 3.5% year-on-year to Rs54,900 crore due to festive-season repayments, is expected to resume growth from Q4 onwards.
Leadership Continuity Provides Strategic Stability
Beyond the quarterly numbers, the board’s decision to extend CEO Sandeep Bakhshi’s term until October 2028 provides strategic clarity.
“Mr Bakhshi’s extension reinforces leadership continuity at ICICI Bank, supporting stable strategic execution and stakeholder confidence,” Centrum Broking noted in its report.
Bakhshi has overseen the bank’s transformation over the past several years, focusing on risk-calibrated profitable growth, balance sheet strength, and operational efficiency. The extension ensures continuity of this strategic approach through the rest of the decade.
Operational Metrics: Managing the Cost Base
Operating expenses grew 13.2% year-on-year, driven by branch expansion, technology investments, and a Rs145 crore provision for new labour codes. The cost-to-income ratio stood at 40.8% versus 38.5% a year ago.
However, management indicated that operating expense growth should moderate going forward, with the labour code provisioning being a one-time adjustment. Technology expenses stood at around 11% of total operating expenses for the nine-month period.
The bank’s capital position remains comfortable with a capital adequacy ratio of 17.34% (including nine-month FY26 profits) and Common Equity Tier-1 ratio at 16.46%, providing adequate headroom for future growth.
Analyst Perspectives: Consensus Remains Positive
Despite the quarterly profit decline, research houses maintain constructive views. All three major brokerages that updated their analysis post-results maintain ‘buy’ ratings:
Nirmal Bang maintains its target of Rs1,705, valuing the standalone bank at 2.7x December 2027E adjusted book value plus Rs252 per share for subsidiaries.
Anand Rathi sets a target of Rs1,713, stating the bank is “relatively better placed to deal with growth margin trade-off and hence, maintaining RoE delta over HDFC Bank.”
Centrum Broking projects Rs1,760, noting that “the bank’s strong capital position, improving return ratios, and consistent execution continue to reinforce its status as a high-quality compounder in the Indian banking space.”
The Forward View
Looking ahead, several factors merit attention. First, whether loan growth acceleration sustains beyond the March quarter. Second, how margins behave if the RBI begins its rate-cutting cycle. Third, the trajectory of operating expenses as branch expansion continues.
The management’s commentary suggests confidence on all three fronts – expecting continued growth momentum, range-bound margins with natural hedges in place, and moderating cost growth.
As Nirmal Bang’s report projects: “We have estimated a loan/earnings CAGR of 12.3%/9.1% over FY25-FY28E, which will lead to RoA/RoE of 2.3%/15.5% in FY28E.”
