ICICI Bank’s Q3FY26 earnings came with a regulatory surprise that temporarily disrupted profit momentum but did little to dent the bank’s long-term growth narrative. Axis Securities has reiterated its BUY recommendation with a revised target price of Rs 1,700, citing resilient core profitability, improving loan growth traction, and stable asset quality across secured and corporate portfolios. While near-term earnings were impacted by higher provisions mandated by the RBI, management confidence on margins, capital adequacy, and calibrated growth remains intact. With a sustained RoA profile of over 2% and a structurally strong balance sheet, ICICI Bank continues to stand out among large private lenders.

Regulatory Provisioning Casts a Short-Term Shadow

Unexpected credit costs dominated the quarter, following a regulatory directive from the Reserve Bank of India. After its annual inspection, the RBI instructed ICICI Bank to set aside Rs 12.83 billion as additional provisions on a segment of agricultural loans previously classified under priority sector lending.

The affected portfolio, estimated at Rs 200–250 billion, continues to perform normally, with no deterioration in borrower behavior, repayment patterns, or loan terms. Axis Securities notes that the issue was technical in nature, related to documentation and classification standards rather than credit weakness. Importantly, the bank has originated this portfolio for several years and has already initiated corrective steps to align fully with regulatory guidelines.

Earnings Miss Masks Underlying Operating Stability

Core operating metrics remained broadly stable, even as headline earnings disappointed expectations. Net interest income for Q3FY26 stood at Rs 219.3 billion, marginally below estimates, while pre-provision operating profit declined due to higher-than-expected provisioning.

Net profit fell 4% year-on-year and 8% quarter-on-quarter to Rs 113.2 billion, primarily reflecting elevated credit costs of 71 basis points. Excluding the one-time provision, underlying credit costs would have been closer to 35 basis points, reinforcing the view that the earnings miss was not structural in nature.

Loan Growth Momentum Re-Accelerates Across Key Segments

Credit growth improved sequentially, with the loan book expanding 4% quarter-on-quarter and 12% year-on-year. Growth was led by business banking, rural lending, and selective corporate exposure, while retail growth remained measured.

Business banking advances surged 23% year-on-year, reflecting stronger MSME traction. Corporate lending remained price-sensitive, with ICICI Bank participating selectively where relationship strength and franchise potential justified returns. Management commentary suggests growth will remain risk-calibrated, with a continued focus on profitability rather than aggressive balance sheet expansion.

Unsecured Retail Shows Early Signs of Recovery

The unsecured portfolio is stabilizing, after a period of moderation. Credit card balances declined sequentially during Q3, largely due to technical factors—higher festive spending in Q2 followed by elevated repayments in Q3.

Axis Securities highlights management’s guidance that credit card growth should normalize in the coming quarters. Personal loan growth is expected to resume gradually, supported by improving customer profiles and tighter underwriting standards implemented earlier in the cycle.

Margins Expected to Remain Range-Bound

Net interest margins held steady at 4.3%, despite the impact of repo-linked repricing and higher seasonal agricultural slippages. Benefits from deposit repricing and CRR adjustments largely offset pressure from loan rate resets.

Management has guided for margins to remain range-bound in the near term, with Axis Securities projecting NIMs of 4.3–4.4% over FY26–FY28. The gradual repricing of retail deposits is expected to provide incremental support, even as competitive intensity remains elevated.

Asset Quality Remains One of the Strongest in the Sector

Balance sheet quality continues to be a key strength. Gross NPAs improved marginally to 1.53%, while net NPAs remained contained at 0.37%. Slippages rose seasonally due to agricultural loans, but overall trends remain well within management comfort levels.

Provision coverage stood at 75.9%, underscoring conservative balance sheet management. Axis Securities expects asset quality to remain stable across corporate and secured retail books, with manageable risks in unsecured lending as growth resumes.

Valuation Re-Rating Backed by Superior Return Metrics

Axis Securities values ICICI Bank at 2.7x Sep’27E adjusted book value, arriving at a target price of Rs 1,700 per share, implying 20% upside from the current market price of Rs 1,412.

The brokerage projects RoA of 2.2–2.4% and RoE of 15–17% over FY26–FY28, supported by strong operating leverage and disciplined capital allocation. Earnings are expected to grow at a 19% CAGR, despite near-term estimate revisions.

Key Financial Snapshot

Investment Levels and Strategy

Current Price: Rs 1,412
Target Price: Rs 1,700
Upside Potential: ~20%
Time Horizon: 12–18 months

Axis Securities believes ICICI Bank is well-positioned to compound earnings through the cycle, supported by stable leadership, strong capital buffers, and a balanced loan mix. The extension of CEO Sandeep Bakhshi’s term until October 2028 further strengthens execution continuity.

Key Risks to Monitor

The primary risk remains a slowdown in credit demand, particularly in unsecured retail or corporate lending. Any sustained margin compression or renewed regulatory intervention could also weigh on near-term profitability.

Final Take by Axis Securities

Despite a headline earnings miss, ICICI Bank’s Q3 performance reinforces its status as a high-quality compounder in India’s private banking space. Axis Securities’ continued BUY call reflects confidence in the bank’s ability to absorb short-term shocks while delivering sustainable, superior returns over the medium term.