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2026.10.01 | TB | Financials | ICICI Bank Retail Drivers & FY27 Outlook

原标题：ICICI Bank – Retail Segment Drivers & FY27 Performance Outlook

#financials

Third Bridge · 2026-10-01

Analyst-led • 12 Sep 2026

Companies: ICICIBANK IN, HDFCBANK IN, 532215 IN

Ruchir Sharma (RS) SVP & National Head, Consumer Lending at Axis Bank Ltd

Shahid Pathan (SP) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

SP [00:00:05]: Welcome to Third Bridge's Interview entitled ICICI Bank – Retail Segment Drivers & FY27 Performance Outlook. I'm Shahid Pathan, and I'll be facilitating today's Interview with Mr Ruchir Sharma, SVP and National Head, Consumer Lending at Axis Bank.

Mr Ruchir, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

RS [00:00:35]: I agree.

SP [00:00:37]: Could you begin with a brief introduction to your background?

RS [00:00:45]: I've been a career banker. Primarily, my journey has been with Axis Bank, and I've been across various roles into retail banking, strategy, branch banking, retail lending businesses, etc. In my current and the most recent role, I've been working as a National Head for Consumer Lending business and based out of its corporate office of the bank, and closely involved with the entire distribution strategy for consumer lending business, which includes an overview of underwriting, collections, strategy, competitor analysis, etc, and launching of various products, P&L of the entire business is what I manage, and the distribution team of roughly around close to over 500 people spread across the country.

Questions

00:01:44] How is ICICI Bank approaching the growth in the retail segment today, given the recent slowdown, but improving profitability metrics? What factors have enabled this? When do you expect a shift in momentum?

RS [00:02:16]: I have been in my capacity as the head for one of the verticals. I have been closely following competitors, including about ICICI Bank, how their financials are moving and HDFC Bank, etc, mostly ICICI Bank, which happens to be the closest competitor. I also went through the last quarter results of the bank and then, of course, the previous years, etc. I would be cautious about extrapolating the current around 19-20% growth rate for the next 2-3 years, but I do believe ICICI Bank can sustain a high teens growth trajectory for some time. The important point here is that the growth is not dependent only on retail lending, and I recall in the last quarter end, their advances were roughly in the range of INR 16.5 lakh crore kind with retail growing around 12%, business banking grew around 28%. Rural lending grew around 35% and the domestic corporate portfolio was growing around 18-18.5% kind. That gives ICICI Bank a much diversified growth engine than a bank relying predominantly on one segment. From a product perspective, the retail engine is being driven by home loans, mortgage loans, personal loans, vehicle finance, commercial vehicle, equipment finance, etc. Credit cards is one of the important segments and other consumer lending products. In the business banking segment, the product ecosystem is broader and includes working capital overdrafts, term loans, current accounts, etc, merchant banking solutions, collections, payments, etc, trade finance and foreign exchange services.

ICICI Bank's merchant stack, I would say, for example, it links current accounts, point-of-sale transactions, collections, digital credit, etc, which is exactly the type of ecosystem that can generate both lending and fee income. Hence, the biggest structural advantage is, therefore, not simply pricing. It is the ability to acquire a customer through one product and deepen the relationship through multiple products. I would say, like, for example, an entrepreneur who starts with a current account can subsequently take working capital, term loan, trade finance, payment solutions, employee banking, etc, insurance. That is how. My base case would be, I still feel that it would be in some high teens kind of overall loan growth rather than a sustained 19-20%. As the balance sheet becomes larger, the absolute incremental loan requirement becomes substantial and deposit mobilisation becomes a key constraint, which is predominant right now a constraint for all the major large banks of the country. I would be comfortable with roughly in the range of anywhere between 17% to 19% growth in FY27, probably moderating towards the mid-to-high teens thereafter.

SP [00:05:46]: ICICI Bank is very good at capturing a higher wallet share of the customers that it has onboarded.

RS [00:06:00]: Yes, absolutely. They actually more work on the entire ecosystem of banking bouquet that they can offer to a customer rather than relying predominantly on one or two products, etc. That is where the ICICI is having a clear advantage as compared to Axis, is particularly HDFC, ICICI are primarily on the same trajectory as far as product per customer is concerned.

SP [00:06:30]: I think, the same products are mostly offered, but at present, ICICI Bank has been performing a little better than the rest of the companies, maintaining the NIMs [net interest margin] and keeping its asset quality trends really low – especially when it comes to the retail segment.

00:06:30] How do you see ICICI Bank's retail loan growth evolving across verticals such as mortgage, LAP [loan against property], auto and personal loans over the medium term? Which products do you think can sustain the growth that we just talked about?

RS [00:07:11]: I would describe ICICI retail loan strategy as balanced growth rather than maximum growth. Retail loans has grown roughly around in the range of 10-12% YoY in Q1 FY27, and which represented like around close to 50% of the funded loan portfolio. This is actually a healthy outcome considering the size of the existing franchise of the bank. The bank does not need to push every retail product at 20% growth because it has business banking and rural lending growth much faster, so within retail, I would look at the portfolio vertically, home loans, mortgage loans still remain the anchor because they provide a large, relatively stable secured asset base for the bank, and it also creates long duration customer relationship. Personal loans, on the other hand, is providing higher yields, attractive cross-sell potential, but it requires more disciplined underwriting, etc. Vehicle finance, including car loans and commercial vehicle, equipment finance, etc, it's just providing another secured lending opportunity to the bank, and credit cards is providing high yield and fee potential, but cards have higher credit cost volatility, so the bank appears to be deliberately more selective as of now in the credit card segment.

The key advantage I feel for ICICI Bank is that these products, as of now, they do not operate independently as we just discussed right now. Mortgage customer is having salary credit, savings accounts, etc. I think that is where the economics become more attractive because the bank is looking at customer lifetime value rather than the spread on one individual loan. I would, therefore, characterise the retail strategy as quality-led, relationship-led and increasingly data-led. That is where it is also maximising its unsecured loan growth also. In terms of products, I would say mortgage loans is, yes, of course, they are particularly important in contributing to the overall growth of the retail segments because they form the foundation of ICICI Bank's retail lending franchise, so this mortgage business is giving the bank a large secured asset base, which is relatively predictable credit performance and an opportunity to establish a relationship with the customer for many years. Mortgage is one, definitely. Then we have savings accounts, salary accounts, personal loans, credit cards, insurance, investments, wealth management products, etc, which forms the entire ecosystem around the customer and its family.

From a competitive standpoint, I don't think ICICI Bank wins mortgage purely by offering the lowest interest rate, so the competitive advantage is increasingly around… They have a very speed of underwriting, digital processing processes, etc. They have a large existing customer relationship and the ability to use transaction and behavioural information for underwriting, etc. I would expect mortgage growth to remain in the low to mid-teens, rather than expecting very aggressive growth, and that is how it is. Similarly, for personal loans also, of course, I look at personal loans, it is actually distinguished between healthy growth and aggressive growth. Personal loans is growing around 13%, which is among all the banks, even Axis and probably HDFC, it is one of the highest in Q1, which I would regard as a good number for the bank, given the bank's size in the industry, increased focus on unsecured credit quality. The economics of personal loans are still attractive because the yield is substantially higher than mortgage lending, and it is primarily they are using it for salaried customers, and pre-approved loans for existing customers and other digitally originated consumer credit products. Hence, it is also contributing economically to the growth of the retail segment.

00:12:00] Given the stress that the personal loan segment saw over the past two years, it's now in a recovery phase where banks are very selective – only cross-selling personal loans to customers that are account holders with them, such as salary account holders – and have probably revised the underwriting factors as well. How do you see ICICI Bank's secured and unsecured mix evolving within the retail segment? Do you think the bank is deliberately prioritising secured growth today, given the relative economics and stress in unsecured lending?

RS [00:12:47]: That's a very conscious decision on part of most of the banks, because we have seen in the past, some of the banks which have pursued unsecured lending just to grow the volumes, they have had some stress in the overall balance sheets, etc. Hence, obviously, ICICI Bank, I would expect to see, this is my fair analysis and expectation to remain predominantly secured in its retail portfolio. I don't see the bank materially changing that philosophy in FY27 also, and the current strategy of the bank appears to be grow secured products such as home loans, mortgage loans, vehicle finance, commercial vehicle and equipment finance steadily while keeping unsecured products like personal loans, credit cards, very selective and relationship-based. This is important. Why? Because ICICI Bank has a very large retail balance sheet, and there is no need for it to take disproportionate unsecured risk simply to achieve growth. Within retail, I would expect the secured component to continue doing the bulk of the balance sheet heavy lifting, which includes, of course, home loans, mortgage loans should remain the large component, followed by vehicle finance, including car loans, commercial vehicle, equipment finance, etc. These products are giving the bank relatively predictable cash flows and collateral support and lower loss severity. Hence, they would continue to be remained, but I would not actually interpret this as ICICI Bank becoming conservative on unsecured lending.

Personal loans remain strategically important because they carry high yields and can generate very attractive risk-adjusted returns when sourced from existing customers, so the difference is that the bank can be selective about who it lends to. That is very important, an existing ICICI Bank customer with a salary account, or a home loan, or a credit card or probably an investment relationship and a strong transaction history is very different from a new-to-bank customer acquired purely through an external digital channel. My expectation would be that the secured share remains broadly dominant, and could even increase marginally as ICICI Bank prioritises quality of growth, but I would be comfortable with unsecured lending growing in probably low-to-mid teens, but definitely not expect personal loans and credit cards to grow at 20-25% simply to support the overall loan growth target. Hence, the incremental growth should increasingly come from a combination of mortgage, vehicle finance, business banking, rural lending, etc, with personal loans probably being used selectively to deepen existing customer relationships.

00:15:51] Where do you think the largest opportunity lies out of all the retail segments that we just talked about? Where can banks more deeply penetrate their existing customer base and capture a higher market share, which is a secured market for them at the same time? Do you believe banks might focus more on any such retail segment, or is it going to be a mix?

RS [00:16:28]: Mortgages, I still feel, higher value loans, particularly, and of course, big-ticket loan LAP structurally, it is an opportunity for ICICI Bank in retail, so mortgage already constitute around, I think, 60-65% of bank's retail loan book, which is at currently at over INR 5tn. The portfolio has been growing YoY. I think what is particularly interesting here to note is that ICICI Bank does not need to pursue aggressive pricing to gain share in the market, and it is actually leveraging its existing accounts relationship, etc. The bigger opportunity within mortgage, in my view, is not simply new home loans. It is cross-selling around the mortgage relationships, top-up loans, loan against property, home improvement financing, investment products, etc. The bank has approximately 7%, I think 7% was, if I recall where its mortgage book is being used in top-up loans to existing home loan customers, and approximately, 17-18% in loan against property. Mortgage would provide the best combination of market size, secured risk, customer lifetime value and cross-sell opportunity.

Personal loan, of course, will provide the biggest incremental growth opportunity, but not necessarily the biggest market share opportunity. Personal loan, I would not recommend ICICI Bank materially increasing its risk appetite simply to gain personal loan market share. Having said that, personal, I said then vehicle loan, primarily commercial vehicle, equipment finance, credit cards, they offer a very attractive relationship opportunity, but obviously not the immediate balance sheet growth opportunity. Structurally, if you would ask me 4-5 products that I would rate is, of course, mortgages, home loans, they would be number one in terms of gaining the market share, and this is not only for ICICI Bank. Internally, we also follow more or less similar strategy. Then, we have top-up loans, loan against property, personal loans, commercial vehicle, auto finance, credit cards, then LAS, etc, which is coming up very significantly. The biggest opportunity would, of course, be a mix of secured, unsecured retail liability business, etc, so that will continue to be driven for most of the banks right now.

SP [00:19:26]: I think that paints a picture of where the retail segment is heading, not only for ICICI Bank but also for other banks.

RS [00:19:38]: Mostly in large commercial banks, I'm speaking. It is because we study HDFC also, SBI also at times, Bank of Baroda, PNB. Not necessarily we are in the same league, but overall strategy for large banks remains the same, unless the only difference is they have a lot of financial inclusion and rural segment-focused priority lending, etc, because of government push, the three large banks operate materially on the same principles, ICICI, HDFC and Axis.

00:20:14] How much growth do you think is being driven by working capital, secured MSME [micro, small and medium enterprises] LAP and other products in business banking? Is the rapid expansion primarily the incremental market share, or the migration that ICICI Bank is carrying out from the large and mid-corporate franchise to smaller loans today?

RS [00:21:02]: I would say not necessarily because within business banking, ICICI Bank's business banking portfolio, I recall, was growing around 28% or 30% YoY, and 6-7% sequentially in the last quarter is what I remember. Business banking, their primary focus remains on working capital and overdraft facilities, so this is probably the most important lending product in their overall scheme because small or medium business typically needs a combination of current account, banking, collections, payments and working capital, etc. ICICI Bank is extensively using the transaction flows to the current account, payment collections, merchant transactions, etc, to understand overall customers' cash flow. Hence, working capital loans, overdrafts and secured working capital facilities is one of their important predominant portfolios in the overall business banking.

Then, I remember the bank's InstaBIZ proposition, which is it specifically offers instant overdraft and business loan options, it's one of the very hit products in the industry. Second is, I think the merchant acquiring and transaction banking is growing strategically, and overall, in the entire business banking bouquet, so their merchant stack brings together current accounts, digital collections, unified payment interface, UPI, or QR, POS, payment gateways, GST payments and lending, etc. The important point is that the bank gets visibility here in the entire merchant's actual business flow, so they are extensively using this merchant acquiring platform also for lending.

Third is trade finance, of course, and foreign exchange, where it is more sophisticated business banking customer is what we call in our banking parlance. As the businesses become larger, the relationships move from simple current accounts and working capital facility into import finance, export finance, BGs, LCs, etc, foreign exchange inward, outward remittances, cash management. ICICI Bank's Trade Online proposition is again specifically designed around these digital trade and foreign exchange requirements. Third is, of course, trade finance and foreign exchange is what they are using under overall business banking.

Fourth is term lending and asset-backed business finance, which includes business loans, equipment finance and other secured facilities. This is, of course, also very important where the bank can combine lending with the customer's current account payments, collections, insurance and other financial requirement. To answer to your first question, so current account payments, collection, transaction data, working capital, overdraft, term loan, trade, foreign exchange, insurance investments and other financials, these are important, all constitute under business banking model. This is also a very valuable looking at the entire loan product proposition in the entire business banking segment. From corporate to banking, corporate, ICICI Bank defines business banking around borrowers with turnover of up to, I think, INR 750 crore. There is a very large population of businesses sitting below the traditional large corporate segment that can be served through a more standardised and granular and digitally enabled model.

The migration is actually corporate customers moving to retail is not probably the overall philosophy, so a large corporate will have their own requirements primarily around big current accounts, working capital, term loans, BG, trade finance, etc. Migration is actually, I would not say corporate banking is a very strong segment in ICICI Bank, but retail, which is driving, and retail segments, by virtue of their definition internally, business banking, etc, is a very large product portfolio suite of products, the entire ecosystem, so retail is driving this.

Institutionally, they are moving their focus from corporate. Corporate works independently, and of course, they have a very unique and a very beautiful system. They discuss where the opportunity lies in corporate book, etc, so we will not say it is independent, or they are actually moving. It's rather an ecosystem which is driving the trajectory primarily for retail, of course, because the bank may or may not choose that corporate customer depending upon, because corporate is a very risky segment also at times, especially for large lending, etc, unlike retail, where we have predominantly small-ticket loans, etc, which are maybe INR 2 crore-3 crore of average ticket size, etc. Business banking, I would say the structural growth rate of business banking can be higher because the addressable customer universe is much larger and more fragmented than large corporate banking, so there is also a formalisation and digitisation opportunity among small and medium enterprises, where banks like ICICI, Axis, HDFC are increasingly underwriting these customers using transaction flows, tax information, digital payments and account behaviour rather than relying entirely on traditional financial statements and collateral.

00:28:15] How much of the growth in ICICI Bank's business banking segment do you think is driven by distribution expansion vs higher productivity of its existing network? How is growth being approached or undertaken?

RS [00:28:36]: The growth in business banking, my estimate would be around 60-70% would be from higher productivity or deepening existing relationships, and maybe around 30-40% from distribution expansion and new customer acquisition, but the reason I lean towards productivity is quite compelling and I'm very confident that ICICI Bank is also having similar outlook. ICICI Bank's business banking portfolio is growing around 28-30% YoY, but the branch network, if you look at, is increasing only around 95 or 100 branches, they grew during the quarter. The bank, the total network would be around 7,600 kind of branches. The physical network has certainly been expanding, but the 28% or 30% growth rate is substantially higher than what you expect from branch additions alone.

There is also a very good comparison where business banking was already growing 29-30% YoY in Q1 of FY26, where the branch network was INR 7,000 crore. Then it grew to around 24% in Q2 and likewise, but that clearly indicates that it's a multi-quarter franchise build rather than simply the result of adding branches, so productivity is becoming more important as we speak in most of the large banks like ICICI, HDFC, Axis, etc, because as we were discussing earlier, same customer merchant stack, collections, payment, transaction history, working capital, etc. Once the customer is onboarded, it can contribute substantially more to advances, fee income without requiring a proportionate increase in branches, and they are using this product called InstaBIZ, which is very important in ICICI Bank's overall business banking portfolio, which supports payments, UPI interface and then QR transactions, GST payments, banking services, business management, etc, functionality. This is important.

The other important evidence you would look at their fee income. ICICI Bank's fee income is growing around 22% or 24%, if I recall, YoY in retail and rural and business banking customers together contributing roughly around 70-75% of total fee income, which clearly indicates that the business banking franchise is increasingly monetising customers beyond simply putting loans on the balance sheet. Having said that, I feel distribution is also important because I would not underplay distribution for large banks like ICICI and Axis, because the additional branches are particularly useful for customer acquisition in the smaller cities and towns where business owners still have physical relationship coverage. A branch can acquire the current account merchant relationship and initial working capital relationship, after which digital channels can handle a significant portion of servicing and transactions. To sum up, I would say distribution expansion creates the customer base, digital platforms increases productivity, and transaction banking would create data and data would, hence, therefore, improve credit conversion, credit and transaction products will increase the wallet share. That is how it is. Productivity gains definitely would matter more and then followed by distribution strategy.

SP [00:32:44]: I think distribution expansion is also happening in a way in which, given that embedded finance has picked up a lot, digital partnerships are going up for supply chain finance loans.

RS [00:33:06]: One I would add to this is ICICI Bank's strategy as a distribution-led acquisition they have for the last many years, but productivity-led is scaling, I would say, so the branch expansion is giving the bank reach, etc, particularly outside the major metropolitan markets, but digital platforms and transaction-led underwriting is allowing the bank to extract substantially more value from each relationship. That is why I think business banking can sustain growth materially above the overall loan book without requiring a similar rate of physical expansion.

SP [00:33:39]: Is that because the bank already has such a huge network in place.

RS [00:33:44]: Absolutely.

SP [00:33:46]: Just optimising that network, and which I think has been the policy for the bank, is to improve the metrics around not chasing growth right now.

RS [00:33:56]: We have yet to monetise so many of the relationships they are actually having. In fact, having productivity gains also would actually materially impact because when we do some overall review of the products, the top 30-40 products on the retail side, including retail loans, rural banking, business banking, liability relationships, wealth management, etc, we see that in most of the banks, HDFC is slightly way above ICICI and Axis, but Axis and ICICI, we see on MoM in most of the products, for example, a gold loan product, or, for example, a vehicle finance product, probably 30-40% of the branches actually remain inactive in the entire month. Hence, there's a lot of potential to scale up the existing branch network and existing distribution franchise.

00:34:54] With rural advances growing 35% YoY, what do you think is driving the momentum across farmer finance, gold loans and other rural products? How much of this growth today do you believe is structural vs cyclical?

RS [00:35:16]: That's a very good question. Some of it is definitely, I would say, is cyclical, in entire rural advances per se depends on a lot of factors. To answer, what is driving is, of course, because see ICICI Bank's rural portfolio is around INR 1,000bn, which is again growing at over 35% YoY. The top products, of course, they have pharma finance, which is around 34-35%, and they have gold loans, which is again 47-48%, and then others some small-ticket loans, etc. Farmer finance, I would say, the traditional farmer finance products like Kisan Credit Cards, crop finance and working capital funding is growing because they have, of course, launched some very innovative products like Kisan Vriddhi, the farm development loans, agricultural term loans, etc. They have Kisan Samriddhi overdrafts also, animal husbandry and fisheries finance, nursery finance, etc, agreed. This is also growing. The ICICI Bank is describing or using its entire farmer ecosystem as extending beyond farmers to seed producers also, agricultural input dealers, warehouse operators and agricultural equipment dealers, etc, commodity traders. Hence, the farmer finance is actually is growing at a very substantial rate because it is not restricting itself only to farmers, but the entire ecosystem of the farming.

Then farm mechanisation and productive assets like farm equipment, dairy, livestock, irrigation, other productive asset finance is increasingly important here because this is actually less seasonal than pure crop finance, because the loan is linked to a productive asset and repayment capacity of the lender, so it gives the bank an opportunity to finance the dealer ecosystem around that asset. Third would be the gold-backed agricultural liquidity, where this is quite different from farmer finance, and because a farmer, you see, may need to pay maybe around INR 5 lakh-10 lakh quickly for seeds or fertilisers, working capital or medical expenses, etc, or maybe education. Invariably, the gold is effectively a liquidity product within the rural customer ecosystem, even though economically, it is different from crop finance. I would not say that 35% kind of growth is sustainable underlying rural growth. I think a meaningful portion is likely being driven by the acceleration in gold loans here, and gold loans themselves have benefited from several favourable factors in the recent past. ICICI Bank's management, I read somewhere and that we had some statement coming from ICICI Bank senior management, where I think they told that a substantial part of the rural portfolio being gold loans. I think they have also explained in the recent past – ICICI Bank senior management – that the sharp increase in rural loans was partly driven by higher demand for gold loans and the bank having geared up its distribution machinery.

Structurally, I would break this 35% into a structural component, which is largely deeper rural branch penetration, farmer finance relationships, Kisan Credit Card, farm equipment finance, agricultural ecosystem financing, which we deliberated, then self-employed and micro-entrepreneur finance, and, of course, better cross-sell and distribution aspects around cyclical, and which are more market-driven component, I think it is elevated gold prices, which is again cyclical. It may go up, it may go down, then greater borrowing capacity against the same quantity of gold, customer preference for quick secured liquidity, then we have refinancing and balance transfers, etc. These are all mostly cyclical and increased gold loan distribution capacity and potentially temporary substitution from other forms of unsecured or informal borrowing.

The important point is that the gold loan growth can be very strong without there being an equivalent increase in the underlying number of rural borrowers or rural economic activity. Hence, while gold loans, of course, they are contributing, but purely, it is not cyclical, I would say purely to give the overall book of gold loan being cyclical, I think that's not correct. Structurally, it is very attractive for most of the banks because they are secured by physical gold, and they have relatively shorter tenures and are relatively simple to underwrite and can be originated quickly. Hence, it is. My estimate, I still feel that the rural portfolio growth in the end of financial year should be somewhere around 20-25%, with probably gold loans with a higher potential of growth depending on gold prices and competitive intensity, of course. Then farmer finance roughly probably mid-to-high teens, I would say. Then, followed by farm equipment and other rural businesses, again, in the same range, maybe around mid-15-20% growth. I think gold prices would remain very strong and ICICI Bank would continue expanding gold loan distribution. This is what I feel for this projection for this business.

00:42:10] With NIMs [net interest margins] increased to 4.36% in Q1 FY27 despite the changing portfolio mix for FY27, how do you think about the sustainable NIM range as ICICI Bank grows faster in the business banking and rural advances segments?

RS [00:42:34]: I would say the net interest margin of the bank is… Probably, I would say it has got very underlying factors why the NIM has grown. As we were discussing earlier, the mortgage business is growing substantially. The funding cost, I would say, how are the NIMs achieved for a bank? NIMs, of course, because we are lending at a higher cost and the borrowing cost, the difference is what gives us a higher NIM, of course. The funding cost is, of course, the average deposits. The bank has grown like 14% YoY, while the current account and savings accounts were roughly, let's say, growing in the range of 10-12%. The average current account and savings account ratio, CASA ratio is, what we call is around 38% in ICICI Bank. This gives ICICI Bank a relatively strong low-cost liability base against which their ability to fund mortgages, vehicle finance and business banking.

The second is relationship pricing. For example, a mortgage customer may have a savings account, salary. Then, based on the overall potential, the economics of the customer, they build a customer relationship level is what they arrive pricing at. Why it is relevant for ICICI Bank is because around 90% relationship penetration they have in the mortgage customers. Business banking is again one of the biggest margin-supporting growth engine here because business banking is growing again at 28% YoY. Hence, it is an important contributor for the entire loan yield, fees, current account balances, transaction banking, etc. This is one.

Second is, of course, rural books, entire rural book portfolio, which is growing at 35%, including all products, farmer finance, gold loans, which we discussed, the farm equipment finance, etc. Personal loans, we discussed, personal loans is growing at around 12-15% is loan growth, is expected with a very strong credit quality. I would say the credit cost is particularly important for the sustainability question because ICICI Bank did some provisions of around INR 1,200 crore compared with, I think, INR 1,800 crore, which they did the same time last year in the Q1. The bank also continues to hold around, I think, INR 13,000 crore is what I recall, I had read somewhere, in the crore of contingency provisions.

Q1 provision is actually, it will not only conclude that the bank's sustainable credit cost is extremely low. The next quarter will benefit from recoveries, including a significant recovery related to an asset previously sold to this National Asset Reconstruction Company. Therefore, I would normalise credit cost to roughly, I think, 45-55bps for modelling purpose rather than extrapolating the usually low Q1 outcome. Fees is, of course, a very increasingly important component for the overall economics. The fee income is growing substantially at, I think, 20-25% YoY. Retail, rural and business banking customers are contributing significantly over 70% to the total fee income. I think this gives an indication where ICICI Bank is increasingly building a spread-plus-fee model. Mortgage, business banking, rural, etc. if you ask me about the sustainability of 4-4.5% NIM, so I have a strong feeling that this NIM is quite sustainable, anywhere in the range of, let's say, 4.20-4.40% range.

I would actually expect… We have done some analysis, and I've noted it here before coming to the call. The way we measure it for various products. Mortgage growth, I think impact-wise on NIM, I would say, it will have probably a negative impact. Then secured retail would be probably mildly negative. Then business banking growth will have a very positive impact. Rural and gold loans, again, a very positive effect, selective personal loans, of course, as the bank is very selective in personal loans. It will also have a positive impact. Then we have a strong current account and savings account franchise, positive impact, etc. The competition coming on deposit raising may have some negative impact in the short to medium term in the overall NIM. Competitive loan pricing gives some negative effect in the NIM pricing. Then normalised credit cost, of course, it will be a very important factor. I think the net interest margin, my assumption is and my strong calculation says that it would be in the range of 4.20-4.40%, probably with a reasonable sustainable range, etc. It is having the highest loan yield also. I think this is what we compared in my last analysis. I see it as having a very good combination of funding cost, risk-adjusted lending yield and fee income and credit cost. Hence, I think the overall lending economics is quite favourable for the bank and hence, the sustainable NIMs for the bank.

00:49:50] ICICI Bank has been posting strong asset quality numbers, with net NPA [non-performing asset] at 0.35% in Q1 FY27. What is your take on asset quality for the next 4-6 quarters? Are you seeing early delinquency buckets across unsecured retail, rural and MSME to drive up the credit cost and GNPA [gross non-performing asset] numbers going forwards, or do you expect it to be in a similar range?

RS [00:50:18]: My take would be probably positive on asset quality for the next few quarters. I would expect some normalisation from the exceptionally strong current numbers rather than another major improvement, I would put it that way. I would not build the financial year thesis around gross non-performing assets falling materially below what is reported right now. As of June, I think June end, the last quarter, the GNPA was somewhere around 1.38-1.40%, I think which was down from what was reported in the previous quarter. The net performing asset ratio is also probably, it has slightly increased from what it was in the last quarter. I think between March and this June quarter, I think very marginally, it has increased. I would describe the current asset quality position still as strong and controlled. Don't see it being artificially clean the way many of the banks do.

The provisioning coverage ratio is also healthy at, I think, around 75%, which is very good. I think ICICI Bank has some contingency provisions of around INR 13,000 crore. The total provisions other than specific provisions on NPA loans were, I think, INR 22,000 crore or INR 23,000 crore, equivalent to about, I think, 1.5% of their loan book. I think for the next 2-3 quarters, if we evaluate, for GNPA, gross non-performing ratios, I think it is expected to remain more or less same. I expect it to be in the range of 1.3% to, let's say, 1.5% range. For net NPA, I expect it to be around anywhere between 0.3% to 0.4%.

The credit cost is, I feel as of now, Q1 numbers show that it is quite unusually low. I think it would be normalised in the range of 45-50bps or 55bps in the next couple of quarters. Asset quality, as of now, seems to be quite strong. I feel that in the short-to-medium term, in the next three quarters' results, I think it will be somewhere stable with probably mild normalisation here and there. I would actually say that gross non-performing assets would remain in a similar range, what I told maybe in the range of 1.3-1.5%. There would not be a sharp decline for sure because the loan book is growing at, if you look at it deeper into, the loan book is already growing at around 19-20%, with business banking around 28%, rural, etc, domestic corporate. At some point, the newer vintages have to season down.

Stress, if you look at, I feel that retail is actually not where I would be more concerned, overall, because the bank is growing retail loans at around 12%. Importantly, it is being selective in personal loans and credit cards. The retail portfolio is also still predominantly secured through home loans, top-up loans, LAP, auto finance, etc. The area we would be monitoring is unsecured personal loans and credit cards, particularly newer vintages. I would, therefore, expect some normalisation in retail credit costs, but not a major deterioration for sure.

On the business banking, we would pay rather more attention because business banking is growing at around 28% YoY, which is extremely strong for a large franchise like ICICI. We would look at structurally, this business banking segment, because it is granular, diversified and relationship-led. Rapid growth may mean the bank is adding a lot of new customers. The way we look at it is are we looking at genuine franchise expansion? Is it the bank is buying growth through weaker underwriting or more aggressive pricing? We would be watching for early delinquencies, restructuring or slippages and the seasoning of newer business banking book, etc.

Rural lending is, again, under, I would say, a watch point, because a substantial part of its portfolio is gold loans. While they are secured, but the concern is, of course, the same for unsecured personal loans, but because 35% rural growth rate itself is unlikely to be completely sustainable in the next quarters. Why? Because gold loan prices as of now supported. Corporate asset quality as of now looks comfortable because the loan and non-fund-based outstanding to performing corporate borrowers, primarily they have been doing in BB and below only rated. I think corporate book seems to be largely stable. I don't see a large hidden corporate asset quality problem emerging in the next few quarters. The bigger issue is, of course, credit cost and some part of not reported GNPAs probably. I would not extrapolate that number because the quarter benefited from recoveries, including a significant recovery relating to an asset that had been previously sold to the NARC. Therefore, I would normalise credit cost to approximately roughly around 45-50bps, 55bps rather than the reported Q1 numbers, the same run rate, etc.

My view for the next few quarters is, you may take it as broadly positive. I would not expect ICICI Bank's asset quality to deteriorate materially, but I also would not extrapolate the current numbers into another significant improvement. The GNPAs, what they reported, the net NPAs and the provisioning PCR that they have reported, and the contingency provisions, etc. The balance sheet is considerably protected, I would say. The base case would be gross NPAs remaining broadly in the range of 1.3-1.5%. That is how I look at it. I expect the asset quality to remain a strength, but financial year '27 should be a story of stable gross NPAs and normalising credit costs rather than continued dramatic improvement for a large franchise like ICICI.

00:58:08] With the El Niño effect in place today and the speculations that microfinance and deep rural segments might face a bit of stress, do you think this will emerge in the rural banking segment?

RS [00:58:27]: As we discussed just now that the rural portfolio typically is a mix of seasonal, cyclical and sustainable, my overall view here is that I would remain comfortable with ICICI Bank's overall asset quality, but there is some element of conservatism into the rural and microfinance outlook, I would say. El Niño, of course, you rightly said, is a potential second order risk to farmer cash flows. While microfinance stress can create a more immediate and credit cost impact, currently, as of now, it does not actually change the overall view. Maybe in the short-to-medium term, it may have some effect on the gross NPAs and should remain… That is why I think while we were arriving at numbers, my estimate, as I told you earlier, was in the range of 1.3-to 1.5%. El Niño is actually a risk, but it would not automatically translate into a large ICICI credit problem because the 2026 monsoon has become a genuine risk factor. India's official forecast indicated that it would be a below normal rainfall. This is what Metrological Department subsequently said that El Niño conditions developed during the monsoon and intensified to moderate levels in July, etc.

There are several mitigating factors also around it that not all rural lending is crop finance. ICICI rural funding, as we were discussing earlier, includes farmer finance loan against gold, etc, farm equipment finance, other lending products. Second is agricultural borrowers can have multiple income sources. A farmer in household may have dairy livestock, non-farm income, remittances or other household cash flows. Therefore, rainfall does not translate one for one into loan stress. Third is the government's agricultural support mechanisms also and potential loan restructuring measures can also moderate the immediate impact of a weak agricultural season. El Niño may have some effect, but I would view it as a risk to credit cost direction, not as a reason to forecast a material deterioration in ICICI consolidated asset quality.

Microfinance, I would say, microfinance borrowers typically have lower income buffers and their repayment depends heavily on regular inflows from small businesses, self-employment, household economic activity, etc. Therefore, stress can emerge faster in this segment. If there is a combination of, let's say, poor agricultural income, or elevated household leverage or multiple borrowing, etc, or weakened collection efficiencies or probably local employment challenges, excessive lender competition, etc, I feel here the ICICI is… The good news, I would say, is that microfinance is not the dominant component of its overall balance sheet. Therefore, even if microfinance credit costs increase materially, the impact on consolidated ICICI Bank credit costs should be manageable. I think ICICI rural growth is, which was reported like 35% for Q1, This growth, I think, is generally, let's say, if we ask ourselves how much of this growth is generally higher quality farmer and rural banking penetration and how much is coming from products where the bank is increasing exposure rapidly, we see it as rapid growth plus weaker rural income plus microfinance stress is the combination that can create a lagged credit cost problem. I would, therefore, not use 35% rural growth as a sustainable run rate while evaluating.

01:03:00] ICICI Bank's fee income grew almost 24% in Q1 FY27, with retail, rural and business banking contributing about 72% of total fees. How much further can cross-sell and fee monetisation grow as the bank deepens relationships with its existing customers?

RS [01:03:26]: For the fee income, you rightly pointed out the fee income. My assumption is that the fee income can continue to grow strongly in the next quarters also in the entire financial year. I'm still positive about it, but may not be in the same range, may have some dips here and there in the one or two quarters. Business banking is probably the strongest incremental fee opportunity, which is contributing 28% current account, cash management, merchant acquiring collections, payments, etc. Then, retail cross-sell remains a large structural opportunity. The bank is still monetising and there's a large push and focus on monetising its large base through savings accounts, salary. I have many friends in ICICI, so we speak almost daily. I have seen that post Mr Bakhshi's coming, there's been a lot of push on this segment specifically that monetising the existing customers, large franchise through savings accounts, salary accounts, credit cards, insurance, investments, wealth management, home loans, LAP, etc. Credit cards are also especially valuable from a fee perspective, even though credit card balances have declined around 1.5-2% YoY. I would distinguish between credit card and loan growth and payment fee growth.

Rural is also increasingly contributing to fee income. Rural franchise, including farmer finance, Kisan Credit Card, gold loans, etc. Transaction banking is the most sustainable component, I would say. Including these daily payment collections, merchant transaction, etc. I think these all put together can contribute 20%-plus fee. If you ask, is it sustainable? My sense is that it would be in the range of 15-18% rather fee growth for the next couple of quarters, rather than a high range of 23-24%. My sense is it would anywhere be in the range of 15-18%. The upside being, see, approaching 20%, it may approach if business banking and transaction volumes remain very strong. The downside being that it may come to, let's say, anywhere between 13-15%, let's say, if corporate transaction activity slows or competition increases materially the way it is for some of the small finance banks and small private banks. The moderation here is simply because once we have grown 20%-plus, especially for large banks like ICICI, maintaining that range becomes progressively harder.

While I am positive on fee income, because the growth is increasingly coming from granular retail, rural and business banking relationships, rather than being dependent on large corporate transactions, Q1 fee income grew to whatever percent, 23-24%, and retail, rural and business banking already contributing to 70-75% of total fees. I would not extrapolate this for the full year, but I think a reasonable assumption is in the range of 15-18% fee growth in financial year '27 with business banking, particularly being one of the important segments, then followed by retail and rural segment and followed by corporate. The opportunity is not to increase fees per customer aggressively here. It is to increase the number of fee-generating products per customer, which ICICI Bank is, I think, increasingly pushing. This is particularly relevant to ICICI Bank's model because its strongest opportunity is increasingly share of wallet, not simply market share in individual loan products.

SP [01:07:39]: I'll conclude the call now. Before we conclude, I would like to say thank you so much for taking out the time and speaking to us. I think it was a very insightful conversation on what is happening presently at ICICI Bank and why the numbers are looking this way as of Q1 FY27, and how they are expected to evolve. Thank you so much for taking out the time. Hopefully, we can connect again in future to speak on many more such topics.

RS [01:08:26]: It was really wonderful, insightful and really good to share my perspective, because as part of strategic team also of the bank, I get to evaluate other competitor banks, primarily ICICI, HDFC on mostly all segments of their business. In case we have missed out something, I would be happy to help or share my perspectives on the follow-up call if required. Please do let me know.

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