ICICI Bank reported a mixed performance in the third quarter of FY26, with earnings impacted by a surprise increase in credit costs, even as the broader growth outlook remains favourable, according to analysts.
For the quarter, net interest income (NII) was broadly in line with estimates, while pre-provision operating profit (PPOP) and profit after tax (PAT) missed expectations. Following the results, earnings estimates for FY26 and FY27 have been marginally revised down, largely reflecting the higher provisioning impact seen in Q3.
Regulatory-driven provisioning hit
The key negative surprise came from higher credit costs after the Reserve Bank of India (RBI), following its annual inspection, directed the bank to create an additional provision of ₹12.83 billion. This relates to a portion of the bank’s agricultural loan portfolio of around ₹200–250 billion, which had earlier been classified as priority sector lending (PSL).
The regulator noted that certain technical requirements for PSL classification were not fully met. Importantly, the bank has maintained that the underlying loans continue to perform normally, with no deterioration in asset quality, no change in borrower repayment behaviour, and no alteration in loan terms. ICICI Bank has been originating this portfolio for several years and has indicated that it will now align the portfolio fully with regulatory guidelines.
Growth momentum improving
Despite the provisioning impact, growth trends showed improvement during the quarter. The overall loan book grew by 4% quarter-on-quarter, supported by better momentum in mortgages, rural lending and corporate loans. Business banking and select corporate segments led the recovery, while unsecured portfolios showed gradual signs of revival.
Management expects growth to remain healthy into the fourth quarter, while continuing to follow a risk-calibrated approach. The sequential decline in the credit card portfolio was attributed largely to technical factors, including higher festive spending in Q2 and elevated repayments in Q3. The bank has indicated that credit card growth should improve in the coming quarters.
Within the corporate book, lending remains price-sensitive, with the bank participating selectively in transactions that offer strong relationship or franchise value.
Margins to stay stable
Net interest margins (NIMs) remained flat at 4.3% quarter-on-quarter. Benefits from deposit repricing and a reduction in the cash reserve ratio were offset by repo rate and MCLR-linked loan repricing, as well as higher seasonal slippages in agricultural Kisan Credit Card loans. Management expects margins to remain range-bound in the near term, with analysts forecasting NIMs of 4.3–4.4% over FY26–28.
Outlook and valuation
Analysts remain positive on the sector and on ICICI Bank’s medium-term prospects, citing stable asset quality, adequate capital and liquidity buffers, and a balanced growth profile. The extension of CEO Sandeep Bakshi’s term until October 2028 is also seen as providing continuity in strategy execution.
The stock continues to carry a ‘Buy’ recommendation, with a revised target price of ₹1,700 per share, valuing the bank at 2.7 times its estimated September 2027 adjusted book value.
