Analyst Corner: Maintain ‘Buy/SO’ on ICICI Bank; CASA remains strong

By Edelweiss Securities

Key takeaway from ICICI Bank’s (ICICIB) Analyst Day 2020 was of an organisation that has achieved near-term goals of stabilisation and is now looking to build further. The event was not just some low-resolution promise of higher aggregate growth, but a blow-by-blow enunciation of its favoured approach to deepening the moats of its existing business lines through dual levers of analytics and digitisation.

Hard knocks from the past form the sub-text of this plan, revealed only in its finer texture (eco-system approach to tracking risk/opportunity in rural & business banking, early warning analytics, etc.). ICICIB continues as our top ‘BUY’.

ICICIB’s retail focus was in ample evidence. Management made it clear that hyper- personalised and targeted meeting of customer needs, both within and beyond banking, christened ‘Customer 360’, remains the credo of its digital initiative. A level of service made possible only through deep embedding of technology and alignment of on-ground business capabilities with data-driven individualised insights. This becomes especially relevant in the domain of retail loans when it moves past mere efficiency improvements like video KYC or pre-approved lending to the domain of individual risk assessment and pricing. Management is confident of the bank’s proprietary credit filters and scorecards, communicating that its 100-parameter scorecards were ~80% accurate in predicting defaults.

We’ve always vouched for ICICIB as one of the CASA champions of Indian banking. This and the balance sheet comforts of high provisioning/capitalisation has undeniably played a role in our selection of it as our sector top pick, rendered further attractive by valuation-driven (1.4x FY22E core BVPS) margin of safety. On the asset front, however, we have not assumed much beyond low cost of funds driven benefits of positive rate selection and wide reach backed broad credit market prominence. The latest strategy promises the leap from “Good to Great”. We take note of its vast wealth of data and deep franchise moats on liabilities to surmise that, if indeed, execution can happen on the lines articulated in the bank’s presentation, success & therefore re-rating to sector leadership valuations is possible.

However, we cannot take the leap of faith that it is already probable. The best part of any re-rating to our core multiple will await hard evidence of execution. We maintain ‘BUY/SO’.