ICICI Bank reported 20% loan growth and a 4.36% net interest margin in Q1 FY27, outperforming HDFC Bank's 16% growth and 3.4% margin. HDFC Bank continues to face post-merger integration hurdles and high borrowing costs, which have pressured its profitability and return on assets compared to its competitor.
ICICI Bank has reported a strong start to the new financial year, outpacing its larger peer HDFC Bank across several key banking metrics in the first quarter of fiscal year 2027. The bank’s loan book grew by nearly 20% year-on-year to reach ₹16.3 trillion, exceeding the general industry credit growth of 18.6%. In comparison, HDFC Bank reported a 16% expansion, with its loan book at ₹30.4 trillion.
Profitability at ICICI Bank saw a positive trend, with the net interest margin (NIM)—a measure of the difference between interest earned and interest paid—rising 4 basis points sequentially to reach 4.36%. The bank’s net profit increased by 16% to ₹14,800 crore, while its return on assets (ROA) improved to 2.5%.
HDFC Bank Faces Integration and Margin Pressure
HDFC Bank is still managing the transition following its merger with HDFC Ltd. in 2023. While the bank managed to grow its deposits by 15%, a high loan-to-deposit ratio of 96% has limited its ability to expand its credit book as aggressively as ICICI Bank. This ratio indicates that a larger portion of its deposits is already lent out, leaving less room for immediate, rapid credit expansion without sourcing more deposits.
Additionally, HDFC Bank has been dealing with high-cost borrowings inherited from the merger. This has weighed on its net interest margin, which declined to 3.4% during the quarter. The bank also reported a CASA (Current Account Savings Account) ratio of 32%, which is lower than ICICI Bank’s near 40% levels. A lower CASA ratio generally means the bank has to rely on more expensive forms of funding, which puts pressure on overall profit margins.
Asset Quality and Future Outlook
Asset quality remains relatively stable for both institutions. HDFC Bank reported a gross non-performing asset (NPA) ratio of 1.2%, which is slightly better than ICICI Bank’s 1.4%. However, market sentiment has been affected by HDFC Bank's post-merger integration challenges. Over the past year, HDFC Bank shares have seen a decline of nearly 22%, whereas ICICI Bank’s stock has remained relatively stable.
To address its challenges, HDFC Bank has outlined plans to replace high-cost borrowings with retail term deposits, which it estimates could lower its cost of funds by over 100 basis points in the next two years. The bank is also focusing on increasing the share of its high-yielding retail loan portfolio to 60%. Investors will be tracking these execution efforts, as well as the stability brought by the new non-executive chairman, Rajiv Kumar, and future updates regarding management leadership, to see if the bank can narrow its valuation gap with ICICI Bank.