ICICI BANK LIMITED
Fitch Ratings has affirmed
The Outlook is Stable. Fitch has also affirmed the bank's Government Support Rating (GSR) at 'bb+' and Viability Rating (VR) at 'bb'.
Key Rating Drivers
Government Support-Driven IDR: ICICI's IDR is driven by its GSR, which is a notch below
Systemically Important: The GSR reflects Fitch's view of a moderate probability of extraordinary state support for the bank, if required, due to its private ownership, despite the bank's large size and systemic importance. ICICI's systemic importance is underpinned by a large market share of about 7% of system loans and 6% of deposits at the end of the financial year to
Supportive Operating Environment: The operating environment(OE) score of 'bb+' is higher than Fitch's implied 'b' category score after taking into account Fitch's view of
Large Domestic Franchise: ICICI's business profile score of 'bb+' reflects its strong retail-focused domestic franchise as
Sustained Loan Growth: ICICI's risk profile score of 'bb' reflects its above-average loan growth and risk appetite and is linked to its asset-quality performance, since credit risk is predominant. Fitch expects continued growth momentum across all loan segments under
Improving Asset Quality: Fitch maintains a positive outlook on ICICI's asset-quality score, as it expects the bank to demonstrate a longer record of maintaining a steady impaired loan ratio before raising the score, given the rapid growth in lending to riskier segments. The ratio fell to 2.3% in FY24, from 2.9% in FY23, reflecting loan growth and steady recoveries as well as write-offs, which offset fresh impaired loans. Credit costs should remain manageable, despite inching up moderately from cyclical lows. This should help the bank maintain its specific loan loss cover of about 81% in FY24.
Profitability to Remain Elevated: Fitch maintains its positive outlook on ICICI's earnings and profitability score, as Fitch expects profitability to remain elevated relative to prior years. That said, headwinds, including some margin contraction, could weigh on the bank being able to sustain its four-year average core ratio at the top end of the 'bb' category. The operating profit/risk-weighted asset ratio was stable, at around 4.0% in FY24, as lower credit costs and above-average loan growth offset the increase in risk-weighted assets due to regulatory measures.
Above-Average Capitalisation: Fitch expects the common equity Tier 1 (CET1) ratio to remain at around 16% till FY26, based on steady internal capital generation. The ratio dropped to 15.6% in FY24, from 17.1% in FY23, on higher risk density, driven by regulatory changes and loan growth. Fitch's capitalisation assessment also factors in above-peer capitalisation on an un-risk weighted basis, improved equity headroom to absorb risks, as evident from a net impaired loan/CET1 ratio of 2.5% in FY24, and ICICI's higher capital flexibility, including from its stake in profitable subsidiaries.
Stable Funding: Fitch expects the loan/deposit ratio to rise moderately till FY26, but to remain below pre Covid-19 pandemic levels (FY17: 101%) on an expanding deposit franchise, despite high loan growth. The ratio is above the sector average, despite falling to 87% in FY24, from 89% in FY23, and the bank's funding and liquidity is supported by its strong deposit franchise and high holdings of Indian government bonds - similar to peers.
Retail deposits form the majority of deposits, while the low-cost deposit ratio is about 42%. Liquidity is also supported by a liquidity coverage ratio of 120.7% and net stable funding ratio of 125.9%.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDRs and GSR
Fitch would downgrade the GSR and, in turn, the IDR if the agency believed that the sovereign's ability or propensity to support ICICI had weakened. This could be reflected in negative rating action on
The Short-Term IDR is mapped to the bank's Long-Term IDR, in line with Fitch's criteria. Negative rating action would be possible if the Long-Term IDR were to be downgraded by multiple notches to below the 'B' category, which is unlikely.
VR
Increased VR headroom limits the prospect of negative rating action. Nevertheless, the VR could be downgraded if Fitch believes that the risk profile has deteriorated to a point where it can pose risk in a less benign OE and become a more binding constraint on the bank's financial profile and loss-absorption buffers.
This could manifest through a significant weakening in all the following three key financial metrics:
a reversal in the asset-quality trend, with the four-year average impaired-loan ratio approaching 5.0% (FY24: 3.6%);
the four-year average operating profit/risk-weighted asset ratio of below 3.0% for a sustained period(FY24: 3.4%); and
a drop in the CET1 ratio closer to 10% without a credible plan to restore it to prior levels.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDRs AND GSR
A sovereign rating upgrade, which appears unlikely in the near term, could lead to an upgrade in the GSR and, in turn, the IDR, if it coincides with a strengthening of the sovereign's ability and, more importantly, propensity to support its banks.
The Short-Term IDR may be upgraded if the bank's Long-Term IDR is upgraded. However, Fitch does not foresee this possibility in the medium term.
VR
The VR could be upgraded if an improvement in the risk and financial profiles appears sustainable in less-benign operating conditions, potentially manifesting through any one or a combination of the following three key financial metrics:
the four-year average impaired-loan ratio being sustained well below 2%;
the four-year average operating profit/risk-weighted asset ratio being sustained closer to 4%;
a steady CET 1 ratio.
A higher VR is also possible if Fitch revises the OE score to 'bbb-', from 'bb+', although Fitch does not think this is likely in the near term. A higher business profile score could also lead to an upgrade of the VR, but it will likely have to be supported by better key financial metrics.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The Long-Term IDR (xgs) is driven by the VR, while the Short-Term IDR (xgs) is in accordance with the Long-Term IDR (xgs) and the short-term rating mapping outlined in Fitch's criteria.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The Long-Term IDR (xgs) will move in tandem with the VR. The Short-Term IDR (xgs) is sensitive to changes in the Long-Term IDR (xgs) and would be mapped as per Fitch's criteria.
VR ADJUSTMENTS
The OE score of 'bb+' is above the implied category score of 'b' for the following adjustment reasons: economic performance (positive) and size and structure of the economy (positive).
The business profile score of 'bb+' has been assigned below the implied category score of 'bbb' for the following adjustment reason(s): business model (negative).
The funding and liquidity score of 'bbb-' is above the implied category score of 'bb' for the following reason: deposit structure (positive).
Sources of Information
The principal sources of information used in the analysis are described in the applicable criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
ICICI's IDR and the Outlook are linked to
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores
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