Why ICICI Bank is MOFSL's top banking pick; outlook, target price & more

ICICI Bank Ltd is MOFSL's top banking pick, as the domestic brokerage believes the private lender is poised for a superior performance, driven by healthy loan growth, strong asset quality, and industry-leading return ratios. While MOFSL expects ICICI Bank's margins to remain in pressure in the near term due to a potential rate cut and rising costs of funds, the bank's operating leverage is emerging as a key driver of earnings growth, it said.

"We estimate ICICI Bank to achieve a CAGR of 15 per cent in PPoP and 12 per cent in PAT over FY25-27E, leading to RoA of 2.1 per cent and RoE of 16.7 per cent in FY27. ICICI Bank remains our top buy in the sector and we reiterate our Buy rating with a target price of Rs 1,550, based on 2.7 times Sep’26E ABV," MOFSL said.

With robust deposit inflows and a favorable CD ratio—the lowest among large private banks, ICICI Bank is well-positioned for profitable growth, the brokerage said adding that the bank's asset quality outlook remains steady, supported by robust underwriting standards, strong PCR, and a high contingency buffer of 1 per cent of loans.

ICICI Bank shares are up 33 per cent in 2024 so far. MOFSL's target price suggests 16.71 per cent potential upside on the counter.

MOFSL met with ICICI Bank's Executive Director for Retail, Corporate Banking and Small Enterprises, Rakesh Jha, and Head of Investor Relations Abhinek Bhargava to discuss the bank’s business outlook and other key focus areas.
Post the meeting, MOFSL said the bank expects margins to remain broadly stable in the near term; however, a turn in the rate cycle will dent margins as 51 per cent of the loan book is linked to repo (16 per cent linked to MCLR and 32 per cent is fixed rate book), which will get repriced promptly.

"We thus estimate margins to moderate further by 20 bps during FY26E to 4.2 per cent from 4.4 per cent in FY25 and remain watchful given the possibility of a 75-100 bpd cut in the repo rate in 2025 against our earlier view of a 50 bps cut," it said.

MOFSL expects ICICI Bank's C/I ratio to remain steady at 39 per cent by FY27, factoring in 14 per cent CAGR in operating expenses over FY25-27. It noted that the bank is focusing on leveraging technology
to increase volumes in the Retail/Business Banking segments with an aim of improving business productivity.

It expects estimate gross NPA ratio to remain stable at 1.8 per cent and net NPA at 0.4 per cent by FY27, with credit cost averaging at 50 bps over FY26-27.