Teji Mandi Explains: Impressive turnaround of ICICI Bank shakes HDFC’s leadership

Teji MandiUpdated:Monday, February 14, 2022, 12:58 PM IST
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The banking space can be tricky to understand, but it’s one of the most reliable sectors in the stock market. After all, it provides liquidity. HDFC Bank continues to be the king of this space, but ICICI Bank’s turnaround is shaking the former’s leadership.

What’s Happening?

Consistent performance can get you anything in life. It’s true. That’s what ICICI Bank is focused on. After the infamous debacle of former ICICI Bank’s chairperson Chanda Kochhar, the bank has somehow regained its strength in the past three years. Analysts have upped their one-year target price due to its excellent delivery. The reason behind this sudden wave of positive change is Sandeep Bakhshi, the MD & CEO of ICICI Bank. Bakshi stays invisible in the eyes of the media lens but he is the backbone of the bank today. Under his leadership, the bank is performing phenomenally well and might even surpass HDFC Bank.

In the December quarter of FY22, it posted a lifetime high net profit of Rs 6,194 crore and a return of assets (RoA) of 1.9%. There was healthy loan growth of 16% YoY, a net interest margin of 4% and a decline in net non-performing assets. ICICI’s focused approach and structural changes coupled with the digitisation of business is leading to its success. Motilal Oswal expects the bank to report a potential upside of 37%.

In comparison with the leader of the pack, HDFC Bank has also shown stability and consistency, but ICICI’s run to catch up has made investors curious. HDFC’s NII CAGR is 17% till 2020-21 for the eight years starting 2013-14 as compared to ICICI’s 11.4%. Deposits for HDFC have also seen a CAGR growth of 18% over eight years as against ICICI’s CAGR of 14% during the same period.

HDFC Bank remains a pioneer in the credit cards business, but ICICI is not very far behind. The promise of ICICI regaining its momentum is daunting for HDFC Bank, and that’s the reason why they both are in neck-to-neck competition.

How Does This Concern You?

It’s healthy to have competition in an industry, as it benefits the customers who receive the best of the services from both the players. The pandemic had stalled the growth of the banking sector but not any more. Private banks have more market share as compared to public sector banks. Investors can continue to bet on the banking names as India is still an underpenetrated market in terms of banking services.

What Lies Ahead?

HDFC Bank is the leading private bank player and also takes a lead in most of the aspects mentioned above. But the absolute growth of ICICI Bank in asset quality and balance sheet makes it a sunrise player. There is still a lot of room left for digital and financial literacy, especially in the rural areas. Therefore, being the top players of the industry, both of them are poised to grow further as the sector expands.

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