This Major Bank’s Loan Book Just Grew at the Fastest Pace in Fourteen Quarters

Business banking surging, rural loans accelerating on gold demand, asset quality pristine, margins resilient 

There are banks that report strong quarters. And then there are banks that report strong quarters while simultaneously telling you something important about the direction of the entire business. ICICI Bank’s Q1FY27 results did both.

Advances grew 19.6% year-on-year — the fastest pace in fourteen quarters — driven by segments that are not only growing fast but growing profitably. PAT grew 15.9% year-on-year to Rs 148 billion, beating brokerage’s estimates.

The Engine Behind the Loan Growth

The 19.6% year-on-year advance growth is not a single-segment story — and that broad base is precisely what makes it compelling. Business banking reached Rs 3,502 billion, growing 28.2% year-on-year and now representing 21.4% of the total loan book. Rural lending grew 35.4%, driven by gold loan demand — a segment that is high-yield, well-collateralised and resilient across economic cycles.

Domestic corporate grew 18.5%, though Centrum is careful to note that management attributed this to a shift away from bond markets and higher working capital utilisation rather than fresh capex — a distinction that limits how far the corporate pace can extrapolate.

The overseas book grew 52.5%, though off a small base of 3.1% of the total book, aided by trade financing and FCNR-linked deployment. Retail remained the laggard at 12% growth, though mortgages improved to 14.6% — the one brightening line within retail. The loan-to-deposit ratio rose to 89% from 86.6% in March, prompting Centrum to lift its FY27 deposit growth estimate to 15.5% to fund the accelerating book.

Funding Costs Falling

Cost of deposits eased to 4.41% — down from 4.85% a year ago and marginally lower than the prior quarter. The direction of travel on funding costs is clearly favourable, with term deposits continuing to reprice through FY27. The loan mix is simultaneously turning supportive: business banking and rural loans — both higher-yielding than mortgages — are growing well ahead of the book, offsetting dilution from lower-yield corporate and overseas exposures.

On the asset side, 57% of domestic loans are linked to repo and external benchmarks, 30% are fixed rate and 13% are MCLR-linked — a composition that limits the pace of asset-side repricing but also provides stability. Management reiterated range-bound NIM guidance while flagging potential dilution from FCNR-B deposits expanding the international balance sheet.

Centrum estimates FY27 and FY28 NIMs at 4.17% and 4.24% respectively — modest expansion as the funding cost tailwind plays through. Fee income grew 23.5%, though management noted this partly reflects a soft Q1FY26 base.

Asset Quality 

GNPA improved 2 basis points sequentially to 1.38%. NNPA edged up marginally to 0.35%. Provision coverage ratio moderated to 74.7% — still healthy. Gross slippages of Rs 55.5 billion included Rs 7.1 billion from the Kisan Credit Card portfolio, which management confirmed recurs in Q1 and Q3 as a seasonal agricultural pattern rather than structural stress. Net slippage additions of Rs 27.1 billion compared favourably with Rs 30.3 billion a year ago — a year-on-year improvement in the underlying stress formation trend.

Provisions came in at Rs 12.6 billion — translating to 32 basis points, well below the normalised 50 basis points that management guides for — aided by an NCLT-linked recovery on an asset previously sold to NARCL. Centrum builds FY27 and FY28 credit costs of approximately 46 and 44 basis points respectively — conservative enough to absorb the seasonal KCC slippages and any normalisation from current lows. Capital remains comfortable with CET1 at 16.19% and CAR at 16.84% — no equity dilution risk on the horizon.

The Earnings Upgrade 

Centrum has revised its PAT estimates upward by 4.5% for FY27 and 5.3% for FY28 — reflecting the stronger loan growth trajectory, better NII performance and lower-than-expected provisions in Q1. NII estimates for FY27 and FY28 have been raised by 1.5% and 2.5% respectively. The cumulative effect is an earnings trajectory that now points to PAT of Rs 586 billion in FY27 and Rs 693 billion in FY28 — mid-teens compounding that is the foundation of the investment case.

“We expect the bank to deliver sustainable mid-teens earnings compounding, supported by approximately 16% loan growth, stable-to-improving margins and contained credit costs over FY27-29E,” Centrum states. The roll-forward of the valuation base to first half FY29 ABV — combined with the earnings upgrade — is what mechanically drives the target price increase from Rs 1,810 to Rs 1,900.

Scorecard

ICICI Bank has spent the better part of a decade rebuilding itself from a franchise associated with aggressive growth and asset quality problems into one associated with disciplined underwriting, consistent profitability and best-in-class returns. Q1FY27 is another data point in that journey — loan growth at a fourteen-quarter high, asset quality still pristine, margins stable, and earnings beating estimates with room to upgrade. At 32% upside to Centrum’s target and trading at 2.9x FY27 adjusted book value, the stock offers the rare combination of a high-quality franchise.