Fundamental Analysis of ICICI Bank

Welcome back to Traders Ideology, In this article, we will be discussing the fundamentals analysis of ICICI Bank. In this article, we will discuss the company overview, its operating segments, industry overview, financials, strengths & weaknesses, the way ahead.

Disclaimer: This article is only for educational purposes. I do not recommend buying or selling so please consult your advisor and do your own research before investing.

Also, Read: Fundamental Analysis of IRCTC & Fundamental Analysis of DMART

Introduction

• ICICI Bank Ltd. is a leading private sector bank in India. ICICI Bank was originally promoted in 1994 by ICICI Limited. 
• ICICI was formed in 1955 at the initiative of the World Bank, the Government of India, and representatives of Indian industry.
• The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses.
• Until the late 1980s, ICICI primarily focused its activities on project finance, providing long-term funds to a variety of industrial projects.
• With the liberalization of the financial sector in India in the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services provider that, along with its subsidiaries and other group companies, offered a wide variety of products and services.
• As India’s economy became more market-oriented and integrated with the world economy, ICICI capitalized on the new opportunities to provide a wider range of financial products and services to a broader spectrum of clients.

Fundamental Analysis of ICICI Bank

Fundamental Analysis of ICICI Bank are as follows:

Company Overview

• ICICI Bank was formed in 1994 by the Industrial Credit and Investment Corporation of India (ICICI) in Vadodara.
• To provide project financing to Indian industries, the parent institution ICICI was formed as a joint venture between World Bank, Indian public sector banks, and public-sector insurance companies.
• The bank now operates in several spaces including core banking products and services as well as other financial sector offerings like investment banking, life, non-life insurance, venture capital, and asset management.
• It has banking subsidiaries in the UK and Canada.
• As well as branches in the United States, Singapore, Bahrain, Hong Kong, Qatar, Oman, Dubai International Finance Centre, China, and South Africa.
• The company was also the first Non-Japanese Asian bank to get listed on the NYSE in 1999.
• ICICI bank has played a pivotal role in the finance sector in India over the years.
• It was involved in the creation of many Indian institutions such as:

NSE or National Stock Exchange CRISIL

NCDEX or National Commodities and Derivatives Exchange Entrepreneurship Development Institute of India (EDII)

Eastern Development Finance Corporation (NEDFI) Asset Reconstruction Company India Limited (ARCIL)

Credit Information Bureau of India Limited (CIBIL)

It is also credited with introducing many banking sector innovations to India like India’s first mobile banking app iMobile by ICICI Bank.

Today the bank has a network of over 5200 branches including 3200+ retail branches, 1700+ rural branches, 200+ transaction banking branches, 80+ captive branches, 39 international branches 20+ Manufacturing plant branches.

Operating Segments

• Now let’s talk about the company’s Operating Segments.
• ICICI Bank has many operating segments and subsidiaries.
• The main revenue-generating segments of the bank are Retail Banking, Wholesale Banking, Treasury, Other Banking Services.
• It also has many subsidiaries in other financial product segments including:
• ICICI Prudential Life Insurance, ICICI Lombard General Insurance, ICICI Prudential Asset Management ICICI Securities, ICICI Bank Canada, ICICI Bank UK, ICICI Ventures ICICI Home Finance.
• Out of total revenue in FY21, the company accounted for 31% from Retail Banking, 27% from Treasury, 18% from Life insurance, 15% from Wholesale Banking, 5% from General Insurance, 1% from Other banking services, and 3% from other sources.

Retail Banking

• First, let’s talk about Retail Banking.
• This is the biggest operating segment for the company and its core business.
• It accounted for 31% of total revenues for the company in FY21
• Under this segment, the company provides retail banking services and products like
• Different kinds of savings accounts and fixed deposit products Forex services
• Credit, debit, and EMI cards All kinds of retail loans like personal, car, home loans, etc
• Microfinance and other rural-focused loans Commercial vehicle and equipment loans
• Retail loans accounted for 62.1% of total advances for the company in Q2FY22.
• The company is focused on building new tech-enabled DIY journeys in this segment
• It is also looking to build its super app to cover all aspects of a retail customer’s needs like investments and insurance.
• The new universal app iMobile Pay can also be used by customers of other banks
• The company has already seen over 4.5 million activations from non-ICICI customers in YTD 2021 so far.

Wholesale Banking

• Next, we will talk about Wholesale Banking.
• The wholesale banking segment accounted for 15% of total revenues in FY21 for ICICI Bank.
• The company has a large variety of customers in this segment including:
• Corporates, Capital Markets, Government Financial Institutions, SMEs, International Businesses
• In this segment, the company mainly focuses on parameterized and program-based lending for SMEs.
• It also operates an app called InstaBIZ which is targeted towards SME customers with over 250+ business banking services.
• This app saw over 1 million active users as of Sep 2021.
• For corporate customers in wholesale banking, the company provides a large variety of services
• that are bundled into the ICICI Stack where clients can get digital banking solutions on a single platform and even some sector-specific solutions.

Treasury

• Now let’s talk about Treasury.
• ICICI Bank manages one of the largest treasuries in India.
• The Treasury segment accounted for 27% of FY21 revenues.
• Under this segment, the bank offers customer-specific products and services
• It provides risk hedging solutions to corporate clients to meet funding, trade, and service-related requirements in the G10 and other currencies.
• These solutions include forex services, currency swaps, currency options, interest rate swaps, other derivatives, and structured products.

Life Insurance

• Now let’s talk about Life Insurance.
• Life Insurance business comes under the company’s listed subsidiary ICICI Prudential Life Insurance.
• ICICI Prudential life insurance was formed as a JV between ICICI Bank and Prudential Corporation of the UK.
• ICICI Prudential Life is the 3rd largest private life insurance company in India after HDFC Life and SBI Life.
• The company has a market cap of Rs 79994 Cr. ICICI Bank owns 51.37% of ICICI Prudential.
• The company derived 18% of its consolidated revenues from the Life Insurance segment in FY21.

General Insurance

• Next is General Insurance.
• The general insurance business comes under ICICI Lombard General Insurance.
• ICICI Lombard was formed in 2001 as a JV between ICICI Bank and Fairfax Financial Holdings of Canada
• which is owned by Indian Canadian Businessman Prem Watsa.
• ICICI Lombard is the largest private general insurance company in India
• It enjoyed a market share of 7.9% in H1FY22 in the Indian General Insurance market.
• The company also acquired Bharti AXA General Insurance in 2020 which significantly increased its market reach.
• ICICI Bank owns 51.88% of ICICI Lombard as of March 2021.
• ICICI bank derived 5% of consolidated revenues from the general insurance segment in FY21.
• Now let’s talk about Other Subsidiaries like ICICI Securities, the largest listed pureplay stock broker in India with over 5 million customers.
• 2nd is ICICI Prudential AMC, 3rd largest AMC in India with a 12.41% Monthly Average AUM market share as of June 2021.
• 3rd is ICICI Home Finance, an affordable housing finance company with an AUM of Rs 16973 Cr as of March 2021.
• 4th is ICICI Ventures, a venture capital company with investments in over 100 companies since 2002 with its AUM reaching over $5 billion in 2019.

International Business Units of the company

• Now let’s talk about the 2 International Business Units of the company.
• The bank has 2 foreign banking subsidiaries which are ICICI bank Canada and ICICI Bank UK.
• ICICI Bank Canada has 9 branches currently.
• ICICI Bank UK has a total asset base of $2.96 billion as of March 2021 and it has 7 branches in the UK and 1 branch in Germany.
• Now let’s talk about the Industry Overview.
• The Banking sector looks to have a long growth runway driven by several industry drivers such as:
• Rising income and young demographic profile
• Rapid growth in the Fintech space, which is expected to grow to $83.48 trillion by 2025 according to IBEF.
• Rising mobile internet and online payment usage.
• Digital lending space is expected to more than double FY20 levels in FY23.
• Rising credit in housing finance space.
• Govt initiatives like
• Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Jan Dhan Yojana & Pradhan Mantri Awas Yojana.
• Growing penetration in all financial segments like Insurance, investments, SME lending, etc.

Company Financials

Strengths and Limitations

Strengths and Limitations are as follows:

Strengths

• The bank’s biggest strength is its long brand history and association with the Indian financial sector
• This makes it one of the top leaders in every financial segment that the company has operations in.
• Another big strength of the bank is its focus on technological innovation.
• This focus is easily evident from the fact that ICICI Bank was the 1st in India to introduce mobile banking
• Now has developed a universal banking app that even customers of other banks can use.
• This not only enhances the company’s tech profile but also expands its potential cross-sell market beyond its own custom set.
• Another major strength of the bank is to leverage the reach and network of its core banking segment to help distribute its other financial products like insurance, mutual funds, and others.
• This is a strength that only 2 other banks in India SBI and HDFC Bank possess.

Weaknesses

• The company has faced a lot of controversies like alleged money laundering, debt recovery, and others that have hurt its brand image and made it less trustable than HDFC Bank.
• It also had GNPA and NNPA of 4.82% and 1% Q2FY22 which are a lot higher than its prime competitor HDFC Bank which had GNPA of 1.35% and NNPA of 0.4% in the same period.
• This suggests that ICICI Bank’s underwriting quality may not be as high as HDFC Bank which is not a good sign for ICICI Bank.
• The competition in the universal banking and retail lending space is very high with all kinds of competitors from other banks like HDFC Bank, NBFCs like Bajaj Finance, and even new age competitors like Navi Technologies and others.
• They are all aiming for the massive pie that is the Indian Financial Services market.
• Thus the legacy players at the top like ICICI Bank have to maintain strong growth and technological momentum or else others will overtake.

Shareholding pattern

Future Growth Prospects

• Now let’s talk about the future journey of ICICI bank.
• The way ahead for ICICI Bank is full of potential.
• It is mainly driven by the company’s relentless focus on expanding and transforming its services portfolio using technology.
• The company may be lagging a bit behind the market leader HDFC Bank in terms of underwriting and asset quality.
• It can outperform by capturing the market faster than anyone else in the still under-penetrated market segments particularly microfinance, rural banking, and SME Banking where tech-driven solutions can drive rapid market capture for ICICI Bank.

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