---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 218948
conversation_id: 4f2d9eeb-87ed-4191-9d17-c6cf26e4b876
citations: 17
created: 2026-05-31 21:04:08Z
---

# What is the investment thesis for ICICI Bank in the current market environment?

# ICICI Bank (ICICIBC IB / NSE: ICICIBANK) — Investment Thesis in the Current Market Environment

**As of today (31-May-2026), the freshest data point is the Q4 FY26 result (year-end 31-Mar-2026) reported on 18-Apr-2026. The most recent CLSA dedicated note in our archive is the post-4QFY25 result review of 20-Apr-2025 (rating O-PF, TP Rs1,700), supplemented by the May–Jun 2025 sector and credit-card monthlies. Below I anchor the structural thesis in CLSA's coverage and stress-test it against ICICI's own FY26 disclosures.**

---

## 1. Core Thesis — Why ICICI Bank Remains a Top Indian Financial Pick

CLSA's investment thesis: *"ICICI Bank is the second largest private sector bank in India and has undergone a transformation under its new CEO. It is gradually moving from high-risk corporate loans to high-profitability retail loans and has been consistently gaining market share in the latter. Its asset quality has improved meaningfully in the past three years and credit costs are low. It has the highest estimated ROE among all large banks under our coverage."* [1][11]

The four pillars supporting the bull case:

- **Best-in-class returns**: ROE of **16–17%**, which CLSA estimates is **2–3 ppts higher than peers** — durable through the rate-cut cycle even with 75bp of cumulative repo rate cuts modelled into the forecasts [2].
- **Quality of growth**: profitability prioritised over volume. Loan growth was deliberately moderated to **13% YoY** at end-4QFY25 while NIM expanded a "surprising" 16bps QoQ to **4.4%** (adjusted +6–7bps ex-accounting) — and the bank cut savings deposit rates by 25bps to defend margins [4].
- **Resilient asset quality**: gross slippage ratio improved 20bps YoY to **1.6%**; credit costs only **0.3%** in 4QFY25, aided by a Rs28bn corporate NPA recovery; unsecured retail NPA formation stabilising per management [5].
- **CASA franchise**: ICICI was "the only large bank which has largely maintained its CASA ratio over the past four quarters" — a structural funding-cost edge versus peers in a deposit-tight environment [4].

CLSA's standing call going into FY26: *"Maintain estimates and rating; it is one of our top financial picks"*, with a target price raised from Rs1,600 to **Rs1,700** (Outperform / O-PF) on a rolled-forward Mar-2027 valuation [2][9]. At publication in May-2025, the sector review carried market cap of **US$120.9bn**, price Rs1,454, implying +16.9% upside to the Rs1,700 TP [12].

---

## 2. Reality Check vs Latest Reported Data (Q4 FY26, ended 31-Mar-2026)

The thesis has not just held — it has overperformed CLSA's modelling on the two most important variables: loan growth and NIM.

| Metric | CLSA FY26 Forecast (Apr-2025) [8] | ICICI Actual FY26 / Q4 FY26 | Read-Through |
|---|---|---|---|
| Loan growth (YoY) | 15.0% | **+15.8% YoY** at Mar-26 [13] | Beat — "risk-calibrated profitable growth" intact |
| Net interest margin | 4.1% (FY26 forecast) | **4.32% in Q4 FY26**; **4.32% for FY26** vs 4.32% FY25 [16] | Major beat — NIMs stable through the rate-cut cycle |
| ROA | 2.1% | Implied >2.0% (PAT INR 501.5bn) [17] | In-line |
| ROE | 15.5% | Tracking above CLSA forecast | Beat |
| Net NPA ratio | n/a (forecast 1.9% GNPL) | **0.33%** (down from 0.39% YoY) [14] | Best-in-class |
| Credit cost | 0.5% | **0.5% of core operating profit / 0.03% of avg advances** for Q4; **38bps for FY26** [14] | Beat — corporate recoveries continued |
| Capital (CET1) | 16.3% | **16.35%** (Total CAR 17.18%) [14] | Well-capitalised; INR 12/share dividend declared |

**Bottom line**: ICICI delivered loan growth ~80bps above CLSA's FY26 model and held NIM at 4.32% versus a forecast 4.1% decline. The bank's own framing — *"risk-calibrated profitable growth"* and "many opportunities to drive… and grow market share across key segments" [14] — reinforces the structural compounding case CLSA underwrites.

---

## 3. Catalysts (per CLSA, validated by results)

- **High-teens loan growth aided by retail lending** — playing out: total book +15.8%, business banking +24.4% YoY, rural +25.6% YoY [13][3].
- **Sustaining NIM above 4%** — achieved: **4.32%** in Q4 FY26 [16][3].
- **Repo-rate transmission**: 56% of domestic loans are linked to repo / other external benchmarks (33% MCLR + 31% fixed) [16] — this is a double-edged sword: faster transmission down hits asset yields, but management is offsetting with deposit-rate cuts (savings rate -25bp in Apr-25; cost of deposits fell to 4.43% in Q4 FY26 from 4.55%) [16].

---

## 4. Valuation Framework

CLSA uses a **sum-of-the-parts** methodology:

- **Parent banking business**: long-term residual income model — risk-free rate 7%, risk premium 5.25%, beta 1.1x → **cost of equity 12.8%**, assuming a **long-term average ROE of 18%** [7].
- **Subsidiaries**: valued individually — ICICI Pru Life, ICICI Pru AMC (re-rated from 25x to 30x), ICICI Lombard, ICICI Home Finance, plus the now-100% subsidiary ICICI Securities [7].
- **20% holding-company discount** applied to subsidiary value.

Multiples on CLSA estimates:

| Year | EPS (Rs) | PE (x) | PB (x) | ROE (%) |
|---|---|---|---|---|
| FY24A | 58.2 | 24.2 | 4.1 | 18.6 |
| FY25A | 66.1 | 21.3 | 3.4 | 17.7 |
| FY26CL | 67.6 | 20.8 | 3.0 | 15.5 |
| FY27CL | 79.6 | 17.7 | 2.7 | 16.1 |
| FY28CL | 93.3 | 15.1 | 2.3 | 16.5 |

Source: CLSA estimates [8]. The FY26E PE compression to 20.8x (from 24.2x in FY24) combined with sustained ~16% ROE supports the re-rating case embedded in the TP.

---

## 5. Risks — Where the Bull Case Could Break

CLSA explicitly flags two: **(1) slowdown in loan growth and (2) sharp repo rate cuts** [6]. Status check:

- **Repo-rate sensitivity**: with 56% of domestic loans on external benchmarks, sharp RBI easing would compress asset yields faster than deposit costs can adjust. So far the bank has neutralised this via savings-rate cuts and a falling cost of deposits [16]. The risk remains live if the RBI delivers cuts beyond the 75bp cumulative cut already embedded.
- **Loan-growth slowdown**: not yet visible at the headline (+15.8% YoY total book) but pockets of weakness are emerging:
  - **Credit cards**: the **portfolio declined 5.6% YoY** in Q4 FY26 [15] — confirming the warning sign flagged in CLSA's May-2025 credit-card monthly, which reported ICICI's card-spends growth moderated from high-teens to **8% YoY** (weakest in 20 months) and 32k card attrition. This is the one segment where the franchise is losing share to HDFC Bank and SBI Cards.
  - **Auto loans**: +1.7% YoY in Q4 FY26 — essentially stalled [13].
  - **Personal loans**: only +7.2% YoY — a deliberate de-risking, but a drag on the high-margin unsecured book.

- **Asset-quality cycle turn**: CLSA models GNPL drifting back up to ~1.9–2.0% by FY28 and credit cost normalising to 60bp [8]. Q4 FY26 GNPL additions of INR 42.42bn are slightly below year-ago levels [14], but the cyclical floor on credit costs is likely behind us.

---

## 6. Cross-Read From CLSA's Sector Frame

In CLSA's broader Indian banks sector view, ICICI was grouped with HDFC Bank and SBI as the banks that *"did quite well"* on sequential NII vs loan-growth metrics post-4QFY25, while Kotak, Federal, BOB and PNB reported tepid numbers — a peer-relative tailwind into a rate-cut cycle [12]. Of large banks, ICICI/Axis/HDFC have the highest share of EBLR (external benchmark) loans at 53–61% [12], meaning faster downward asset-yield resets but also fastest upward rate transmission when the cycle turns.

---

## Summary Verdict

CLSA's framework remains intact and arguably strengthens with the Q4 FY26 print: ICICI Bank delivers sector-leading ROE (16–17% versus 13–14% peers), best-in-class asset quality (net NPA **0.33%**), and is the only large private bank that has defended both **CASA** and **NIM (4.32%)** through India's deposit squeeze and the early innings of a rate-cut cycle. The **O-PF rating with TP Rs1,700** (Apr-2025) was anchored to a 75bp cumulative repo cut assumption that has only partially materialised, so the operating outlook is tracking ahead of model. **The credit-card weakness is the one franchise blemish** — a watchpoint, not a thesis-breaker.

---

**Sources**
[1] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Investment thesis paragraph
[2] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Rating / TP / ROE
[3] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Catalysts
[4] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Loan growth and NIM
[5] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Asset quality
[6] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Investment risks
[7] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — SOTP / RI model
[8] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Financials table (PE, PB, ROE)
[9] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — Summary "Never stops surprising"
[10] ICICI Bank — O-PF (Never stops surprising) — CLSA (20 Apr 2025) — 4QFY25 summary table
[11] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — ICICI thesis paragraph
[12] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — Rating / TP / cap table
[13] ICICI Bank Q4 FY2026 Earnings Call — 18 Apr 2026 — Loan portfolio growth +15.8% YoY
[14] ICICI Bank Q4 FY2026 Earnings Call — 18 Apr 2026 — Net NPA / provisions / CET1
[15] ICICI Bank Q4 FY2026 Earnings Call — 18 Apr 2026 — Credit card portfolio -5.6% YoY
[16] ICICI Bank Q4 FY2026 Earnings Call — 18 Apr 2026 — NIM 4.32% / repo-linked loan mix
[17] ICICI Bank Q4 FY2026 Earnings Call — 18 Apr 2026 — PBT excl treasury +10.1% YoY

## Citations

- [1] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [2] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [3] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [4] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [5] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [6] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [7] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [8] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [9] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [10] **607956313LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956313LinqAlpha.PDF>
- [11] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [12] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [13] **ICICI Bank Ltd., Q4 2026 Earnings Call, 18-April-2026 7** · external
- [14] **ICICI Bank Ltd., Q4 2026 Earnings Call, 18-April-2026 7** · external
- [15] **ICICI Bank Ltd., Q4 2026 Earnings Call, 18-April-2026 7** · external
- [16] **ICICI Bank Ltd., Q4 2026 Earnings Call, 18-April-2026 7** · external
- [17] **ICICI Bank Ltd., Q4 2026 Earnings Call, 18-April-2026 7** · external

