HDFC Bank Takes the Lead Over ICICI in Q3 Financial Showdown
The banking sector witnessed a clear winner in the December quarter earnings battle. HDFC Bank emerged ahead of ICICI Bank, posting stronger financial results that caught market attention.
Profit Performance Shows Stark Contrast
HDFC Bank delivered impressive numbers with a 12% year-on-year growth in profit-after-tax, reaching ₹18,654 crore. This performance exceeded analyst expectations significantly. Meanwhile, ICICI Bank faced disappointment with a 4% decline in profit-after-tax, which settled at ₹11,318 crore.
The reappointment of Sandeep Bakhshi as ICICI Bank's managing director and CEO until October 2028 provided some positive news for the bank. However, this development couldn't overshadow the weaker profit figures.
One-Time Factors Influence Results
Several one-time elements affected both banks' quarterly performance. Both institutions made additional provisions to comply with RBI regulations concerning agricultural priority sector lending misclassifications. ICICI Bank bore a heavier burden here, setting aside ₹1,300 crore compared to HDFC Bank's ₹500 crore.
HDFC Bank faced its own challenges with ₹800 crore in wage provisions under new labor codes. But the bank offset this with substantial trading gains worth ₹900 crore that surpassed expectations.
ICICI Bank encountered further headwinds from treasury losses amounting to ₹160 crore and additional wage provisions of ₹150 crore.
Core Business Metrics Tell a Nuanced Story
While HDFC Bank gained advantages from exceptional items, the gap in core business performance narrowed between the two banking giants. HDFC Bank's net interest margin improved by eight basis points sequentially to reach 3.35%. ICICI Bank maintained a higher margin at 4.3% but showed little movement from previous levels.
Seasonal agricultural loan slippages particularly impacted ICICI Bank. Interest reversals reduced loan yields by 21 basis points quarter-on-quarter. Higher core credit costs further pressured margins by an additional eight basis points.
HDFC Bank demonstrated better control with credit costs declining nine basis points sequentially to 41 basis points.
Income Growth Favors HDFC Bank
HDFC Bank reported 6% year-on-year growth in net interest income and a stronger 12% increase in fee income. This combination helped the bank achieve 8% growth in core pre-provisioning operating profit, exceeding analyst projections.
ICICI Bank showed slightly better net interest income growth at 8% but lagged in fee income expansion with only 6% growth.
Future Outlook and Analyst Views
Industry conditions appear favorable with improving liquidity and reduced stress levels. Credit growth is expected to reach 12-13% in FY27 across the banking sector. Margins should benefit from ongoing deposit repricing and lower borrowing costs.
HDFC Bank's management expressed confidence in outperforming industry credit growth by 1-3 percentage points, driven by recovery in wholesale credit. The bank also sees potential for margin expansion, having passed approximately two-thirds of recent policy rate cuts to customers.
ICICI Bank's net interest margin is likely to remain range-bound as deposit repricing and MCLR reductions balance each other out.
HDFC Bank addressed concerns about its credit-deposit ratio, which spiked to 98.5% in early January. Management attributed this to seasonal factors and credit opportunities, reaffirming commitment to reduce the ratio to low-90s by FY27.
Nuvama Institutional Equities maintains buy ratings on both stocks but adjusted its outlook. The firm reduced ICICI Bank's target price to ₹1,670 from ₹1,750, representing 2.8 times FY27 estimated book value. HDFC Bank's target price remains unchanged at ₹1,170, equivalent to 2.7 times FY27 estimated book value.
The quarterly results highlight HDFC Bank's current advantage while revealing areas where both banks face similar challenges in a dynamic banking environment.
