Initiating Coverage

ICICI BUY TP Rs460 Key Stock Data CMP Rs392 Bloomberg / Reuters ICICIBC IN/ICBK.BO Better prepared to pass through storm Potential upside / downside +17% Sector Banking Shares o/s (mn) 6,896 Summary V/s Consensus Market cap. (Rs mn) 2,706,199 ICICI Bank (ICICIB) is well prepared among its peers to weather the COVID-19 storm with a) EPS (Rs) FY21E FY22E Market cap. (US$ mn) 39,073 highest PCR (at 75%), b) highest Covid-19 provisions (1.3% of advances), and c) higher home IDBI Capital 15.9 22.4 3-m daily average value (Rs mn) 4,415.1 loan portfolio (31% of advances). Strong liability franchise and higher Tier I capital ratio will Consensus 18.4 25.3 52-week high / low Rs552/269 advantage bank when the economy growth recovers. We expect credit growth for the bank % difference (13.5) (11.3) Sensex / Nifty 39,113 / 11,559 to remain higher than the banking industry led by market share gain. We expect loan growth and margin to improve, thus resulting into 50bps YoY improvement in ROA over FY20- FY22E to 1.3%. Initiate on ICICB with a BUY rating and a target price of Rs.460, valuing parent business at Shareholding Pattern (%) Relative to Sensex (%) Rs.343 (1.55X P/ABV FY22E) and rest for the subsidiaries. While the uncertainty over the impact of Promoters 0.0 140.0 130.0 COVID-19 would weigh on the valuation in the near term but we expect ICICIB to emerge stronger FII 43.0 120.0 given strength in its business model. DII 43.2 110.0 Public 13.8 100.0 Key Highlights and Investment Rationale 90.0  Strategy to focus on retail growth supported higher loan growth than industry: ICICIB 80.0 70.0 loan book growth impacted post GFC 2008, leading to sharp increase in delinquencies in Price Performance (%) 60.0

unsecured book. This resulted in lower credit growth as compared to banking industry -1m -3m -12m

Jul-19 Jul-20

Jan-20

Jun-19 Jun-20

Oct-19

Apr-20

Sep-19 Feb-20

over FY11-FY13. However, strategy change with focus on retail portfolio and secured Dec-19

Aug-19 Aug-20

Nov-19

Mar-20 May-20 Absolute 2.8 34.1 (4.7) May-19 lending, FY14 onwards bank has reported credit growth above banking industry averages. Rel to Sensex 0.2 6.4 (9.1) ICICI Bank Ltd. Sensex  Provision coverage one of the highest among peers; High Covid-19 related provisions provide comfort: ICICIB conservatively focused on improving the PCR to safeguard the Financial snapshot (Rs mn) balance sheet risk in uncertain environment which resulted in increase in the PCR (excl. Year FY2018 FY2019 FY2020 FY2021E FY2022E technical w/offs) from low of 40% in FY17 to 75.6% FY20. It has one of the highest PCR NII 230,258 270,148 332,670 365,276 401,692 among its peer . Also, on prudent basis, bank has made Covid-19 related provisions of Net Profit 67,773 33,634 79,308 109,687 154,244 Rs27.25bn in Q4FY20 and Rs.55.5bn in Q1FY21 (total Covid-19 provisions at 1.3% of advances) EPS (Rs) 10.5 5.2 12.3 15.9 22.4 which should cushion the balance sheet from the slippages post moratorium phase 2 ends in ABV (Rs) 120.3 147.2 164.6 193.1 221.4 Aug’20. PER (x) 36.9 74.6 31.8 24.5 17.4  Asset quality improved in last 2 years; stressed sector corporate NPAs declined: After P/ABV (x) 3.2 2.6 2.4 2.0 1.8 witnessing deterioration in asset quality during FY16-18 due to delinquencies from ROE (%) 6.6 3.2 7.1 8.3 9.8 corporate book exposure to sectors such as Infrastructure (Power), Mining, Metal and ROA (%) 0.8 0.4 0.8 1.0 1.3 Metal products, Construction etc. ICICIB has reduced corporate exposure % share by GNPA (%) 9.9 7.4 6.0 6.8 6.4 FY20. GNPA declined in last 2 years from the highs of 9.9% in FY18 to 6.1% in FY20 led by NNPA (%) 5.4 2.3 1.5 2.0 1.9 lower slippages ratio and better recovery (including upgrades). As few large accounts CAR 18.4 16.9 16.1 18.5 18.2 (Essar Steel, Bhushan Steel) under IBC got resolved during the year. Source: Company; IDBI Capital Research August 27, 2020 ICICI Bank | Initiating Coverage

 Strategy to focus on retail growth has supported higher loan growth than industry ICICIB loan book growth was impacted post global meltdown (2008) due to sharp increase in delinquencies in unsecured book which resulted in lower credit growth as compared to banking industry. However, strategy has changed post 2008 crises, with focus on retail portfolio and secured. This helped ICICIB, to report strong credit growth above banking industry average post FY14. Banking industry credit grew by 8.9% CAGR (FY14-20) while bank reported credit growth at 11.3% CAGR, led by strong retail portfolio growth. Retail portfolio grew at 20.7% CAGR (FY14-20) and this led to increase in its percentage (of xx) share from 39% in FY14 to 63% FY20. Given the Covid-19 impact on the economy, credit growth to slowdown in FY21 to single digit; however economy bounce back is expected in FY22 (IMF GDP growth forecast at +6% in CY2021). This should support strong credit growth for the bank and gain in its market share, as ICICIB has strong liability franchise and capital adequacy ratio.

Exhibit 1: Advances % of retail

63.2% 7,000 60.1% 70.0% 56.6% 6,000 51.8% 60.0% 46.6% 5,000 42.4% 50.0% 39.0% 4,000 40.0% 3,000 30.0% 2,000 20.0% 1,000 10.0% 3,387 3,875 4,353 4,642 5,124 5,866 6,453 - 0.0% FY14 FY15 FY16 FY17 FY18 FY19 FY20 Advances (in bn) Retail (%) Source: Company; IDBI Capital Research

Exhibit 2: Loan growth significantly outperformed industry since FY14 (YoY, %)

20.0% 18.1%17.3% 15.9% 16.7% 14.4% 14.5% 14.4% 14.5% 15.0% 12.3% 11.0% 9.7% 10.4% 10.0% 10.0% 6.9% 7.8% 6.7% 5.9% 5.0% 2.8%

0.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Banking industry ICICI Bank Source: RBI, Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

ICICIB loan growth CAGR lower than its peers; however Domestic book growth CAGR in line with its peers Bank’s loan book growth has underperformed its peer banks as focus to reduce the overseas book (International) resulted in decline. Since March 2016, the overseas branches loan portfolio has reduced by about 50% in absolute US dollar terms and its share in the total loan portfolio has decreased from its peak of 24% in 2014-15 to about 8% at March 31, 2020. If adjusted for international book, Domestic book grew at 15% CAGR (FY16-20) which is in-line with its peer banks.

Exhibit 3: ICICI bank Loan growth CAGR (FY16-20) for domestic book at ~15%

25.0% 23.7% 20.9%

20.0% 16.7% 14.0% 15.0% 10.3%

10.0%

5.0%

0.0% HDFC Bank ICICI Bank KMB IIB Advance growth CAGR FY16-20 Source: Company, IDBI Capital Research;

 Home loans remains a major contrbution to Retail portfolio ICICIB retail credit book was skewed towards unsecured products like personal loans and credit cards in FY09 (18% of retail portfolio) and this has resulted in higher delinquencies during global financial crisis. But with the change in strategy towards secured portfolio, loan mix has undergone significant realignment resulted in unsecured product’s % share declining to 6% in FY14. However, mortgage loan (54% at FY14) continues to remain major contributor of retail portfolio. Home loan comprise about 70% of the total mortgage portfolio (49% FY20) and the balance is predominantly loans against property. It is geographically well diversified and has been built on fundamental premises of cash flow assessment of underlying borrower as well as meeting the legal and technical standards of the Bank for the property being mortgaged. Mortgage portfolio grew at 19% CAGR (FY14-20) with average loan-to-value ratio of the home loan portfolio is at about 65%. With risk management filters in place and focus on cross sell through its existing customers, unsecured portfolio grew at low base from FY14 onwards. Personal cards and portfolio grew at 50% and 30% CAGR (FY14-20) respectively

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ICICI Bank | Initiating Coverage resulted into % share of unsecured portfolio under retail segment increased from 6% in FY14 to 15% in FY20. Multiple credit filters are used to assess the customer’s overall credit behavior which includes models to identify and exclude customers who can potentially overleverage. Portfolio largely comprises of salaried customers. Others majorly comprises of Rural portfolio which grew at 22% CAGR (FY14-20) led by large network as bank’s half of branches (5228) are in rural and semi urban. Rural areas are supported by a network of branches, on-field staff and business correspondents which provides last-mile access in remote areas. We expect retail loan portfolio continue to drive the credit growth with mortgage portfolio to have majority of share; also SME book although at low base should continue to grow with support from credit guarantee scheme.

Exhibit 4: Change in loan composition in favour of Personal Loans/Rural

100.0% 14.1% 15.5% 15.6% 16.9% 17.0% 16.1% 15.2% 2.5% 80.0% 3.0% 2.4% 2.7% 3.1% 3.2% 3.5% 3.8% 6.0% 4.2% 5.0% 5.9% 7.2% 5.7% 5.3% 4.0% 8.8% 11.1% 4.7% 5.3% 6.5% 60.0% 20.9% 18.0% 17.4% 16.9% 16.1% 15.8% 14.3% 40.0% 53.5% 54.2% 54.0% 53.2% 51.8% 50.5% 49.1% 20.0%

0.0% FY14 FY15 FY16 FY17 FY18 FY19 FY20 Mortgage loans Vehicle loans Business banking Personal loans Credit cards Others Source: Company; IDBI Capital Research

Exhibit 5: Strategy to focus more on retail book; while decline in % of overseas book

120.0% 100.0% 16.1% 12.6% 10.7% 8.4% 26.5% 24.3% 21.6% 80.0%

60.0% 56.6% 60.1% 63.2% 39.0% 42.5% 46.6% 51.8% 40.0% 4.4% 4.4% 4.3% 4.8% 5.0% 3.1% 3.5% 20.0% 30.1% 28.8% 27.5% 27.3% 25.8% 26.1% 24.9% 0.0% FY14 FY15 FY16 FY17 FY18 FY19 FY20

Domestic Corporate SME Retail Overseas book Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

Strategy behind different portfolio segments  Retail Banking- Bank approach to retail credit is based on assessment of risk across customer segments and profiles. Different segment of retail banking are-

 Home loan: The portfolio comprising of mortgages and loan against property, accounts for about 50% of retail portfolio and 31% of overall loan portfolio respectively. The home loan portfolio is granular in nature with average ticket size of about Rs3.0mn . In this Bank monitor the risk of construction delays in properties and also monitor builders across various micro-markets while the credit filters are re-calibrated regularly based on the results of the exercise. The loan-against-property portfolio is granular, with conservative loan-to-value and lending is based on cash flows of business/individuals with limited reliance on the value of collateral.

 Vehicle loans: Auto loans and commercial business loans, which include commercial vehicle financing, account for 5% and 4% of the overall portfolio respectively. The commercial vehicle portfolio has seen an increase in delinquencies even before the outbreak of Covid-19 and we expect the situation is likely to deteriorate further due to lockdown across the country while the growth in the auto loan portfolio has declined over the last few quarters due to decline in passenger car sales.

 Rural loans: The rural portfolio accounts for about 8% of the overall loan portfolio. Within this, gold loans comprise about 2% of the total portfolio and kisan credit cards comprise about 3% of the total loan portfolio. In rural business, strategy involves a comprehensive approach to cater to the needs of semi-urban and rural areas. Bank reach in rural areas is supported by a network of branches, on-field staff and business correspondents providing the last-mile access in remote areas.

 Business banking: This segment primarily comprises of secured small ticket lending. With the introduction of the Goods & Services Tax, this segment has high potential for growth; given bank historically has lower presence in this segment. Bank is expanding its digital offerings for small business customers.

 Personal loans and credit cards: This segment is about 8% of overall portfolio. Bank has grown this portfolio from a low base as new business is coming by cross-sell through existing customer. The portfolio largely comprises of salaried customers. Bank use multiple credit filters to assess the customer’s overall credit behavior while the credit quality of the personal loan and credit card book continues to remain stable.

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ICICI Bank | Initiating Coverage

 Small and medium enterprise: This segment is relatively small and there is a scope to increase penetration, covering credit ,deposits and transaction banking. The focus is on granular and collateralized lending and have been recently reorganized as a SME business – a) with the retail business group focusing on enterprises having a turnover of less than Rs 2.5 bn , b) the mid-market group focusing on enterprises with turnover of Rs 2.5 to 7.5 bn and c) enterprises with turnover greater than Rs 7.5 bn being aligned with the corporate banking group.  Wholesale banking: In this segment focus is on lending to higher rated corporates and maintaining limits on concentration risk. Bank continues to grow credit portfolio with focus on granularity, transaction banking and improvement in the credit rating profile. Focus is to capture the business opportunity across corporate ecosystems for that bank has dedicated team of key account managers to cross-sell retail products to employees of corporate borrowers.  International Business: The portfolio in this segment is well-rated and the customers focus include a) Indian corporates and their subsidiaries and joint ventures, b) non- companies with Indian or India-linked operations and activities, c) companies owned by NRIs/PIOs and non-Indian companies. Since March 2016, Bank has been reducing the overseas branches loan portfolio by about 50% in absolute US dollar terms. Its share in the total loan portfolio has decreased from its peak of 24% in 2014-15 to about 8% at March 31, 2020. Bank have redefined international strategy from FY2019 onwards to focus on:

 Non-resident Indians for deposits and remittances businesses, with digital and process decongestion as a key enabler;

 Deepening relationships with well-rated Indian corporates in international markets, subject to its risk management framework;

 Deepening relationships with MNCs and funds for maximizing the India-linked trade, fund flow, transaction banking and lending opportunities, with strict limits on exposures, including reduction in current exposure where required; and

 Progressively exiting exposures that are not linked to India, in a planned manner

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ICICI Bank | Initiating Coverage

 Strong liability franchise ICICIB domestic credit growth at 15.5% CAGR (FY14-20) has been well supported by strong liability franchise as deposits grew at 15.1% CAGR (FY14-20). Deposit growth has been lower than industry in FY12-15; however FY16 onwards deposit growth has outpaced the industry growth by more than 500bps each year led by digital initiatives along with branch expansion and focus on retail term deposits. CASA deposit grew by 16.1% CAGR (FY14-20) while term deposits grew by 14.1% CAGR (FY14-20).

Exhibit 6: ICICI Bank deposit growth outpaced industry growth by 600-900bps in last 4 years (YoY, %)

20.0% 18.1% 16.6% 16.3% 16.4% 14.9% 15.1%14.5% 14.9% 14.5% 15.0% 13.3% 13.4% 10.6% 10.1% 9.3% 10.0% 8.9% 8.6% 7.0% 6.1% 5.0%

0.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Banking industry ICICI Bank

Source: RBI, Company, IDBI Capital Research

Exhibit 7: Deposit growth CAGR lower than its peers (FY16-20)

25.0% 20.4% 21.4%

20.0% 16.3% 17.3% 15.6%

15.0%

10.0%

5.0%

0.0% HDFC Bank ICICI Bank KMB Axis Bank IIB Deposit growth CAGR FY16-20 Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

 CASA ratio declined in last 2 years CASA ratio have constantly improved from low of 43% in FY14 to 52% in FY18 however in last 2 years focus has shifted towards retail term deposits which resulted in CASA share declining to 45% as of FY20.

Exhibit 8: CASA ratio declined in last 2 years led by strong term deposit growth (%)

60.0% 50.0% 35.1% 35.8% 34.9% 40.0% 29.6% 31.8% 31.9% 31.9% 29.8% 29.3% 29.9% 30.0% 20.0% 10.0% 15.9% 15.4% 13.7% 12.6% 13.0% 13.7% 14.0% 15.3% 14.7% 13.3% 0.0% FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Current (%) Savings (%)

Source: Company; IDBI Capital Research

Still CASA ratio remains higher than its peers (except KMB) Although CASA share % declined in last 2 years for the bank, it remains higher than its peers (except KMB).

Exhibit 9: CASA ratio higher than its peers (Q1FY21, %) Exhibit 10: CASA growth 16% (FY16-20)

35.0% 60.0 56.7 29.3% 30.0% 50.0 25.7% 42.5 40.1 40.9 40.0 25.0% 40.0 19.7% 20.0% 15.8% 30.0 11.7% 15.0% 20.0 10.0%

10.0 5.0%

0.0 0.0% HDFC ICICI KMB Axis IIB HDFC ICICI KMB Axis IIB CASA to total deposits CASA growth CAGR FY16-20 Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

 NIMs improved in last 2 years; still lower than its peers Improvement in the CASA ratio has resulted in decline in cost of funds over last 5 years, to one of the lowest cost in the industry (5%). NIMs improved by ~50bps over the past two years to 3.7% in FY20. More importantly, NIMs have improved despite realignment of its loan book towards secured retail segment. Improvement in NIMs is attributable to higher composition of retail deposits, stable CASA, better balance sheet management, higher credit-deposit ratio and improvement in asset quality. Overseas portfolio (NIMs of around 0.3-0.4% has declined in % share in advances from the peak of 24% in FY15 to 8% in FY20 (this has supported the overall NIMs). Further, decline in exposure going forward should favorably support overall NIMs for the bank. During Q1FY21, NIMs decline is led by higher liquidity in the balance sheet. We expect NIMs to remain subdued in H1 FY21 due to higher liquidity on the balance sheet; while H2FY21 could see some impact on margins due to stress arising post moratorium period ends. However, capital of about Rs.150bn raised during Q2FY21 should restrict the decline in margins upto certain extent. We estimate decline in NIMs in FY21 and improvement in FY22 with improvement in credit growth.

Exhibit 11:NIMs improved led by lower interest reversal; but is expected to decline in FY21E

3.8 1.2 3.7 1.0 3.6 3.5 0.8 3.4 0.6 3.3 3.2 0.4 3.1 0.2 3.0 3.5 3.5 3.3 3.2 3.4 3.7 3.6 3.7 2.9 0.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E NIMs Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

NIMs are one of the lowest among peers, which is attributable to lower lending yields. Its focus on mortgage segment with exposure to salaried segment and presence in overseas business has resulted in lower NIMs.

Exhibit 12: NIMs lower as compared to its peers although cost of funds lower (%)

5 4.3 4.4 4.3 3.7 3.4 4

3

2

1

0 HDFC Bank ICICI Bank KMB Axis Bank IIB

NIM (%) Source: Company, IDBI Capital Research

Exhibit 13: Yield of Asset expected to decline in FY21 (%)

9.5 9.0 9.0 8.7 8.4 8.5 8.1 8.0 7.9 8.0 8.0 7.7 7.5

7.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Yield on asset (%) Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

Exhibit 14: Cost of funds expected to decline in FY21

7.0 6.2 5.9 5.5 6.0 5.0 5.1 5.1 4.7 5.0 4.6 4.0 3.0 2.0 1.0 0.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Cost of fund (%) Source: Company, IDBI Capital Research

Exhibit 15: Yield on advances lower as higher % portfolio Exhibit 16: Cost of deposits lowest of home loans

14.0 7.0 11.9 5.7 12.0 6.0 4.7 9.6 9.3 8.9 4.5 4.4 10.0 9.4 5.0 4.6

8.0 4.0

6.0 3.0

4.0 2.0

2.0 1.0

0.0 0.0 HDFC Bank ICICI Bank KMB Axis Bank IIB HDFC Bank ICICI Bank KMB Axis Bank IIB Yield on advance (%) Cost of deposit (%) Source: Company; IDBI Capital Research; Note: Number is calculated for HDFC Source: Company; IDBI Capital Research; Note: HDFC Bank, Kotak Bank number Bank, Axis Bank, Kotak Bank is for FY20

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ICICI Bank | Initiating Coverage

Exhibit 17: Yield on asset lower for ICICIB due to higher Exhibit 18: Cost of Funds lower % portfolio of home loan 10.0 6.0

5.0 8.0

4.0 6.0 3.0 4.0 2.0

2.0 1.0 8.7 7.9 7.7 9.0 9.4 4.3 4.6 4.2 4.9 5.1 0.0 0.0 HDFC Bank ICICI Bank KMB Axis Bank IIB HDFC Bank ICICI Bank KMB Axis Bank IIB Yield on asset (%) Cost of funds (%) Source: Company; IDBI Capital Research; Note: Number is calculated for HDFC Source: Company; IDBI Capital Research; Note: Number is calculated for HDFC Bank, Axis Bank, Kotak Bank Bank and Kotak Bank

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ICICI Bank | Initiating Coverage

 Asset quality improved in last 2 years; Stressed sector corporate NPAs declined After witnessing deterioration in asset quality during FY16-18 due to delinquencies from corporate book exposure to sectors such as Infrastructure (Power), Mining, Metal and Metal products, Construction etc ICICIB reduced corporate exposure % share by FY20. GNPA declined in last 2 years from high of 9.9% FY18 to 6.1% FY20 led by lower slippages ratio and better recovery (including upgrades) as few large accounts (Essar Steel, Bhushan Steel) under IBC resolved during the year. Exhibit 31 shows asset quality in corporate stressed sectors improved with GNPA as high as 59% in FY18 to 15.6% Q1FY21 in Mining exposure. As banking sector was close to clean up the books from stressed assets post RBI Asset Quality Review (AQR), the crisis in infra institution Il&FS hit hard. Few more accounts like Jet Airways, DHFL etc impacted the asset quality of the banking sector. However, ICICIB with lower exposures to these stressed accounts didn’t have much impact on the asset quality. Strategy post 2016 was to focus on lending to higher rated corporates, reduces the concentration risk and led to better managed NBFCs /HFCs. Thus, Bank had managed to avoid large exposures to many stressed corporates over FY17-20. We estimate slippage ratio to be around 3-3.6% for FY21/22E as compared to 3.5% during FY10 post global financial crisis.

Exhibit 19: ICICI Bank’s Corporate sector NPAs declined resulted improvement in asset quality

160.0% 140.0% 120.0% 58.9% 100.0% 80.0% 51.1% 60.0% 24.0% 16.2% 20.8% 15.6% 18.4% 40.0% 16.2% 6.5% 6.0% 14.0% 8.7% 17.4% 18.0% 20.0% 7.7% 7.8% 22.2% 19.5% 0.0% 13.7% 13.4% FY18 FY19 FY20 Q1FY21

Power Services – non-finance Construction Iron and steel (including iron and steel products) Mining Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

Exhibit 20: GNPA % reduces as slippage ratio declined

12.0 100.0

10.0 76.8 75.6 68.6 70.6 80.0 9.9 58.6 8.0 8.8 50.6 47.7 60.0 6.0 40.2 7.4 5.8 6.1 40.0 4.0 3.8 2.0 3.2 3.0 20.0 0.8 1.0 1.6 3.0 5.4 5.4 2.3 1.6 - - FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 GNPA NNPA PCR (%) Source: Company, IDBI Capital Research

Exhibit 21: Slippages as well as credit cost are contained

8.0 3.5 3.6 4.0 3.4 7.0 3.5 2.8 6.0 3.0 2.3 5.0 2.5 4.0 2.0 3.0 1.1 1.5 0.8 2.0 0.7 1.0 1.0 0.5 1.2 1.3 2.1 3.8 7.2 5.6 1.8 2.1 0.0 0.0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Slippage (%) Credit-cost (%) Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

 Provision coverage one of the highest among peers; High Covid-19 related provisions provide comfort ICICIB conservatively focused on improving the PCR to safeguard the balance sheet risk in uncertain environment which resulted in PCR (excl. technical w/offs) from low of 40% in FY17 to 75.6% FY20 and is one of the highest PCR among its peer banks. Also, on prudent basis, bank has made Covid-19 related provisions of Rs27.25bn in Q4FY20 and Rs.55.5bn in Q1FY21 (total Covid-19 provisions at 1.3% of advances) which should cushion the balance sheet from the slippages post moratorium phase 2 ends in Aug’20. The COVID-19 posed lockdown across the country from the month of March. This has led to a massive economic disruption affecting domestic demand and cash flows of various business/individuals. Consequently, the RBI came out with moratorium period of 6months (1 Mar’20 to 31 Aug ’20) which resulted in asset quality standstill for all categories of lenders. Bank’s Moratorium book declined from 30% in phase 1 as of April20 data to 17.5% in phase 2 as of June’20 data. It’s spread across categories with higher moratorium % in certain segments like CVs, Builder portfolio.

Exhibit 22: PCR highest among the peer banks

80.0 78.6 76.2 75.0

75.0

70.0 68.4 67.0

65.0

60.0 HDFC ICICI KMB Axis IIB PCR (%) Source: Company, IDBI Capital Research

Exhibit 23: Covid -19 provisions (as % of advances) higher than its peers provides cushion

1.3% 1.4% 1.2% 1.2% 1.0% 0.8% 0.6% 0.5% 0.6% 0.6% 0.4% 0.2% 0.0% HDFC Bank ICICI Bank Axis Bank Kotak Bank Indusind Bank

% Covid provision Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

 BB & below book continues to decline; Higher Home loan % of advances than its peers Low investment grade (BB& below) portfolio provides the risk of downgrade to NPA as economy or environmental conditions deteriorate for the business. ICICIB reported continuous decline in % of BB& below book due to net reductions as either downgraded to NPA or upgraded with the recovery; also lower downgrade to this book supported the reduction of the % share. However, need to watch out for 3 stressed accounts more than 6bn exposures with respect to telecom, power and construction sector. Under Covid-19 impact, moratorium book for housing loans (16%) seen to be the lower as compared to SME, CV, MFI, Developer portfolio (50-90%). Asset quality for housing loans has been the best with GNPA under 2%. As the moratorium ends in August 2020, Home loan portfolio expected to be the best placed to counter stress that could arise since home loans have the highest payment priority, as per CIBIL. Compared to its peers, ICICB has the highest home loan portfolio % at 31% which should see the lowest NPA pressures as moratorium period ends.

Exhibit 24: BB & below book continue to decline

60.0% 0.7% 50.0% 3.0% 0.5% 5.4% 0.6% 40.0% 0.2% 16.6% 9.2% 5.4% 0.3% 30.0% 4.0% 2.3% 1.5% 2.2% 1.4% 20.0%

10.0% 27.8% 28.7% 27.5% 28.2% 26.6% 0.0% FY16 FY17 FY18 FY19 FY20 BBB+, BBB, BBB BB and below Non performing Loans Unrated

Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

Exhibit 25: Home loans portfolio % higher than its peers; HL NPA expected to be lower post moratorium

35.0% 31.9% 30.0% 23.9% 25.0% 23.1% 20.0% 15.0%

10.0% 6.2% 4.8% 5.0% 0.0% HDFC Bank ICICI Bank KMB Axis Bank IIB

Home loan portfolio (% of total advance) Source: Company, IDBI Capital Research

Exhibit 26: Moratorium % higher than its peers however definition defers with respect to phase 2

20.0% 17.5% 16.0% 15.0%

9.0% 9.7% 9.7% 10.0%

5.0%

0.0% HDFC Bank ICICI Bank Axis Bank Kotak Bank Indusind Bank

Moratorium (%) Source: Company, IDBI Capital Research; Note: Note: % as per moratorium 2.0

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ICICI Bank | Initiating Coverage

 Granularity of business bodes well for uncertain times ICICIB has been focusing on increasing the granularity of its business, both on the asset and liability side. Higher granularity will support in offsetting risk under current circumstances. Over last 5 years, the composition of Top 20 loans eased to 12.1% from 16.5% earlier. Similarly, the composition of Top 20 deposits also eased to 5.7% from 7.4% earlier.

Exhibit 27: Concentration of large loans declining Exhibit 28: Concentration of large deposit also declining

20.0 12.0 16.5 9.6 15.4 15.4 15.7 10.0 14.6 14.1 8.3 15.0 13.2 7.3 7.4 7.0 12.1 8.0 6.4 11.0 6.2 5.7 10.0 6.0 4.9 4.0 5.0 2.0 - - FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Top 20 Deposits (%) Top 20 Advances (%) Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research

Similar improvement in granularity is seen in top 20 exposures

Exhibit 29: Concentration of exposures declining Exhibit 30: Concentration of Top 4 NPA’s declining

20.0 3.5 3.2 3.0 15.2 15.9 3.0 14.9 14.9 14.3 15.0 14.0 2.5 12.9 2.5 11.9 12 2.1 2.0 10.0 1.6 1.5 1.5

5.0 1.0 0.4 0.5 0.5 0.3 0.2

- 0.0 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Top 20 Exposures (%) Concentration of NPAs (%) Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

 Asset-Liability mismatch correcting Asset-liability mismatch or ALM for less than one year is undergoing a correction over the years, reflecting better balance sheet management. Mortgage forms a dominating share of its loan book, as a result average contracted maturity of its assets is bound to be on higher side. ICICIB has benefitted from the downward interest rate cycle as its liability re-pricing was faster than its deposit re-pricing. The bank could target to balance its ALM before the interest rate cycle shifts upwards.

Exhibit 31: Asset Liability gap for less than 1 year reducing

20.0% 17.7% 15.7% 15.0% 13.3% 12.9% 12.7% 11.5% 12.5% 11.8% 11.0% 10.6% 10.4% 11.1% 10.8% 11.1% 9.3% 10.0% 8.7% 8.4% 6.7%

5.0%

0.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 less than 1 yr loans less than 1 yr deposit

Source: Company, IDBI Capital Research

18

ICICI Bank | Initiating Coverage

 Branch expansion restarted in FY20; majority in metro and rural areas Bank has added ~450 branches in FY20 as against merely 24 branches in last 2 years (FY18 & FY19) with majority of branches is added in metro (147) and rural areas (134). Also they have significantly added headcounts with focus on sales. Bank intends to prioritize improving efficiency of recently added branches, before adding more branches. Bank has well diversified branch network across the country; Of the current branch network, 30% is in metro, 20% in urban, 29% in semi-urban and balance 21% in rural.

Exhibit 32: Branch expansion highest in FY20 (number)

6,000 5,324 5,329 5,339 4,850 4,867 4,874 5,000 4,450 4,050 4,000 3,000 2,000 1,000 - FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Branch Source: Company, IDBI Capital Research

There is significant scope for improvement in productivity especially in business per employee.

Exhibit 33: Business per branch is comparable (Rs) Exhibit 34: Scope to improve business per employee (Rs)

4,500 4,117 200.0 189.3 160.4 4,000 148.2 3,500 2,691 2,910 2,627 150.0 135.0 3,000 112.2 2,500 2,142 100.0 2,000 1,500 1,000 50.0 500 - 0.0 HDFC Bank ICICI Bank KMB Axis Bank IIB HDFC Bank ICICI Bank KMB Axis Bank IIB Business Per branch Business per employee Source: Company; IDBI Capital Research; Note: Number is calculated Source: Company; IDBI Capital Research; Note: Number is calculated and Axis bank, Kotak Bank employee count is for FY20

19

ICICI Bank | Initiating Coverage

IStack: In March 2020, ICICIB launched a comprehensive digital banking platform called ICICI STACK which offers nearly 500 services to ensure uninterrupted banking experience to in retail, business banking, SME and corporate customers. Many of these services are first-in-the industry and are available instantly on the Bank’s mobile banking platforms such as iMobile and InstaBIZ or the internet banking platform. These include digital account opening, instant loans, payment solutions, investments and health and term insurance. Small business customers can use the APIs from the recently launched API Banking Portal to integrate various payment and product solutions. Bank observes increased utilization of digital channels and platforms by customers and has ensured that IT infrastructure is equipped-maintained to handle any surge in digital transactions which should bode well under current environment. Cost to income ratio should improve post pick up in economy in FY22E.

Exhibit 35: Cost-to-income to ease substantially Exhibit 36: Scope to improve cost-to-income

50.0 44.0 43.6 43.5 41.7 41.7 41.1 42.0 38.8 39.3 40.0 36.8 35.8 34.7 39.4 40.0 37.5 30.0 38.0 35.0 20.0 36.0 34.0 10.0 32.0

0.0 30.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E HDFC Bank ICICI Bank KMB Axis Bank IIB Cost to income (%) Cost to Income (%) Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research

Similarly we have factored improvement in cost-to-assets.

Exhibit 37: Cost-to-assets to ease in FY21 Exhibit 38: Cost-to-assets lower

2.2 3.0 2.1 2.1 2.5 2.5 2.1 1.8 2.0 1.7 2.0 2.0 2.0 2.0 1.6 2.0 1.9 1.9 1.9 1.5 1.9 1.9 1.9 1.9 1.0 1.8 1.8 0.5 1.7 0.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E HDFC ICICI KMB Axis IIB cost to asset (%) Cost to Asset (%) Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research; Note: Number is calculated

20

ICICI Bank | Initiating Coverage

 Return ratio’s to improve by FY22E Higher credit growth led by market share gains, marginal compression in margins, sharp improvement in operating efficiency and contained credit cost will help improvement in return ratios. Large part of the branch expansion is behind; management is aiming to improve productivity of recently opened branches. We have factored ROA to improve by 50bps to 1.3% and ROE to improved ~270bps to 9.8% over FY20-FY22E.

Exhibit 39: RoA lower than its peers Exhibit 40: RoE lower than its peers

2.0 1.8 16.0 15.0 14.0 1.5 1.4 12.0 8.9 1.0 10.0 8.6 1.0 8.0 5.7 5.9 0.5 0.6 6.0 0.5 4.0 2.0 0.0 0.0 HDFC ICICI KMB Axis IIB HDFC ICICI KMB Axis IIB ROA (%) ROE (%) Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research

Exhibit 41: ROA to improve by 50bps

2.0 1.9

1.5 1.4 1.5 1.3

1.0 0.9 1.0 0.8

0.5 0.4

0.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E RoA %

Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

Exhibit 42: ROE improvement lower due to capital raised

16.0 14.3 14.0 12.0 11.3 10.3 9.8 10.0 8.3 8.0 6.6 7.1 6.0 4.0 3.2 2.0 0.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E RoE %

Source: Company, IDBI Capital Research

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ICICI Bank | Initiating Coverage

 Capital raising of Rs.150bn should boost the balance sheet – to capture the market share as growth opportunity improves ICICB is adequately capitalized with Tier‐I of 17% and total CRAR of 18.5%. Bank has completed the capital raising of Rs.150bn which should boost the balance sheet to capture the market share gain. We believe bank can continue its growth endeavor without worrying about raising capital at least for 1.5-2 years.

Exhibit 43: Capital Adequacy at comfortable levels (%)

20.0

5.9 2.5 4.9 4.2 3.0 15.0 3.6 1.8 1.4

10.0 15.9 14.4 15.1 14.7 12.8 12.8 12.8 13.1 5.0

0.0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Tier I Tier II Source: Company, IDBI Capital Research

 Risk 1. Any disruption in retail portfolio resulting in lower balance sheet growth and higher than estimated slippages. 2. With increase in interest rates, pressure on CASA and thereby on NIMs. 3. Vulnerable to corporate slippages in the international book. 4. Inability to improve operating efficiency and return ratio’s. 5. Irrational competition from large banks can lead to erosion in NIMs. 6. Change in management can have a negative bearing on growth prospects of the bank.

23

ICICI Bank | Initiating Coverage

 Du-Pont Analysis Increase in NIM has directly resulted in improvement in return ratios with credit cost continue to remain at fairly lower levels.

Exhibit 44: Du-Pont Analysis FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Interest Income 7.81 7.91 7.72 7.26 6.66 6.88 7.25 7.12 7.21 Interest Expense 4.90 4.84 4.61 4.34 3.87 3.95 4.03 3.89 3.88 Net Interest Income 2.91 3.07 3.11 2.91 2.79 2.93 3.23 3.23 3.32 Fees 1.11 1.13 1.09 1.08 1.06 1.11 1.13 0.94 1.02 Other Income 0.73 0.84 1.15 1.54 1.05 0.46 0.47 0.58 0.43 Net Revenue 4.76 5.03 5.35 5.53 4.90 4.50 4.82 4.75 4.77 Operating Expenses 1.82 1.85 1.86 1.98 1.90 1.96 2.10 1.91 1.93 Employee Expenses 0.75 0.77 0.73 0.77 0.72 0.74 0.80 0.79 0.79 Other Expenses 1.08 1.09 1.12 1.21 1.19 1.22 1.29 1.12 1.14 Operating Profit 2.93 3.18 3.49 3.55 3.00 2.54 2.72 2.83 2.84 Provisions 0.47 0.63 1.71 2.04 2.10 2.13 1.36 1.54 1.16 PBT 2.47 2.55 1.78 1.51 0.90 0.41 1.36 1.30 1.68 Taxes 0.73 0.75 0.36 0.20 0.08 0.04 0.59 0.33 0.42 ROA 1.73 1.80 1.42 1.31 0.82 0.36 0.77 0.97 1.26 Leverage 8.09 8.08 8.03 7.87 8.05 8.63 9.17 8.60 7.80 ROE 14.02 14.55 11.43 10.33 6.61 3.15 7.05 8.33 9.83

Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

Exhibit 45: Du-Pont comparison for peer banks

HDFC Bank ICICI Bank Axis Bank Kotak Bank Indusind Bank

Net Int Income/Assets 4.05 3.23 2.94 4.02 4.12 Fees/Assets 1.54 1.13 1.56 1.12 1.98 Other Income/Asset 0.14 0.47 0.25 0.47 0.40 Net revenue/Assets 5.73 4.82 4.75 5.61 6.50 Op Exp/Assets 2.21 2.10 2.02 2.63 2.82 Op Profit/Assets 3.51 2.72 2.73 2.98 3.68 Provision/Assets 0.88 1.36 2.16 0.47 1.59 PBT/Assets 2.64 1.36 0.57 2.51 2.09 Taxes/Assets 0.75 0.59 0.38 0.55 0.58 ROA 1.89 0.77 0.19 1.96 1.51 Leverage 8.67 9.17 11.32 7.32 9.63 ROE 16.40 7.05 2.15 14.35 14.54

Source: Company; IDBI Capital Research

25

ICICI Bank | Initiating Coverage

 Valuation and outlook With the Covid-19 impact on the economy, FY21E would be seen as slower credit growth as well as deterioration of asset quality for the banking industry. RBI projects GNPA to rise from 8.5% in FY20 to 12.5% in FY21E under baseline scenario, while 14.7% under very severe stress scenario. ICICIB is well prepared among its peers to weather the storm with a) highest PCR (75%) among its peers, b) highest Covid-19 provisions (1.3% of advances), and c) higher home loan portfolio (31% of advances). Strong liability franchise and higher Tier I capital ratio will support the bank to gain the market share as and when the economy growth recovers. With expectation of improvement in GDP growth in FY22E, we expect higher credit growth for ICICB versus the industry. With decline in cost of funds led by lower market rates and capital raising we expect NIMs to improve in FY22E. Further, we expect credit cost to remain steady with stable asset quality. Thus we forecast ROA to improve from current (FY20) low of 0.8% to 1.3% in FY22E. Post the decline in stock prices, it trades at an attractive valuation i.e. P/ABV of 1.9x FY21E numbers and 1.7x FY22E numbers. We initiate on ICICIB with a BUY rating with a SOTP based target price of Rs.460, valuing parent business at Rs.343 (1.55x P/ABV FY22) and rest for the subsidiaries.

Exhibit 46: SOTP for ICICI bank Valuation Base Val. Eq. stake Attributable Value/share ICICI Bank & its Subsidiaries methodology (Rs.mn.) (%) Val. (Rs.) Rs.

ICICI Bank FY22E P/ABV 1.55 2,366,295 100% 2,366,295 343

ICICI Prudential Life Insurance Market Cap 641,691 641,691 641,691 52.9% 339,262 49 ICICI Lombard General Insurance Market Cap 575,420 575,420 575,420 55.9% 321,487 47 ICICI Prudential Asset Management 8% of FY22E AAUM 3507430 8% 280,594 51.0% 143,103 21 ICICI Securities Market Cap 162,962 162,962 167,596 79.2% 132,770 19 ICICI Securities Primary Dealership 8X of FY22E PAT 3335 8 26,682 100.0% 26,682 4 ICICI Home Finance 0.5x of BV FY20 16677 0.5 8,339 100.0% 8,339 1 ICICI Venture 0.5x of BV FY20 2449 0.5 1,225 100.0% 1,225 0 ICICI Bank UK 0.5x of BV FY20 34301 0.5 17,151 100.0% 17,151 2 ICICI Bank Canada 0.5x of BV FY20 33939 0.5 16,970 100.0% 16,970 2 Totsl value of subsidiaries 1,735,666 1,006,986 146

less 20% holding discount 347,133 201,397 29

Net value of subsidiaries 1,388,533 805,589 117

Total value 3,754,828 3,171,884 460

Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

Exhibit 47: One year forward P/ABV

3 3 2 2 1 1

0

Jul-09 Jul-16

Jan-13 Jan-20

Jun-12 Jun-19

Oct-07 Oct-14

Apr-11 Apr-18

Sep-10 Feb-10 Feb-17 Sep-17

Dec-15 Dec-08

Aug-13 Aug-20

Nov-11 Nov-18

Mar-07 Mar-14

May-08 May-15 1 yr fwd P/BV -SD 0.4 Avg 1.1 +SD 1.9

Source: Company; IDBI Capital Research

27

ICICI Bank | Initiating Coverage

Exhibit 48: One year forward P/ABV- Comparison with Peers 100.00

80.00

60.00

40.00

20.00

0.00 Mar-09 Feb-10 Jan-11 Jan-12 Dec-12 Nov-13 Nov-14 Oct-15 Sep-16 Sep-17 Aug-18 Aug-19 Jul-20 HDFC ICICI AXIS INDUSIND KOTAK

Source: Company; IDBI Capital Research

Exhibit 49: ROA vs 1 year forward P/BV

Kotak Bank 4.9 4.2 3.5

2.8 ICICI Bank

FY21 (X) FY21 - 2.1 Axis Bank Indusind Bank P/BV HDFC Bank 1.4 0.7 0.0 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2 ROA-FY20 (%) Source: Company; IDBI Capital Research; Note: Bubble charts are in proportion to their market cap

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ICICI Bank | Initiating Coverage

Exhibit 50: Our estimates versus Bloomberg consensus estimates

Y/E March Our estimates Bloomberg cons. estimates Variation (%) (Rs mn) FY21E FY22E FY21E FY22E FY21E FY22E NII 365,276 401,692 355,896 395,479 2.6 1.6 NIM (%) 3.6 3.7 3.5 3.5 9 bps 9 bps Operating profit 320,747 347,905 301,662 328,814 6.3 5.8 PAT 109,687 154,244 116,311 165,722 (5.7) (6.9) Loans 6,904,603 7,733,155 7,221,502 8,185,755 (4.4) (5.5) Deposits 8,613,096 10,021,635 8,372,465 9,495,133 2.9 5.5 EPS (Rs) 15.9 22.4 18.2 25.3 (229 bps) (293 bps) BV (Rs) 212.8 242.5 194.3 215.2 1853 bps 2728 bps RoA (%) 1.0 1.3 1 1.3 (3 bps) (4 bps) RoE (%) 8.3 9.8 9.6 12.1 (127 bps) (227 bps) CAR (%) 18.5 18.2 16.4 16.1 205 bps 209 bps Tier 1 (%) 17.2 17 14.9 14.8 222 bps 225 bps

Source: Company, Bloomberg; IDBI Capital Research

29

ICICI Bank | Initiating Coverage

 Company background ICICI Bank (Industrial credit and Investment Corporation of India) is a large private sector Bank in India offering a diversified portfolio of financial products and services to retail, SME and Corporate customers. It was formed as a wholly owned subsidiary of ICICI ltd in 1993 in Vadodara. Initially ICICI as formed in 1955 at the initiative of the World Bank, the and representatives of Indian industry, for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified group offering a wide variety of products and services, both directly and through a number of subsidiaries. Later, In April 2002 with the approval of RBI the parent company (ICICI limited) was merged with the Bank. Over the years, Bank has transform itself and formed an extensive network of 5,324 branches (June 2020) and 15,661 ATMs. As of June 2020, Bank has deposit of Rs 8tn and Advances of Rs 6tn with strong CAR of 16%.

Exhibit 51: History/Acquisition/Milestones

1994- Incorporation of the Bank 1997- Acquired ITC finance and merged ICICI with the Bank 2001- Bank merged with 2001- Board of directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail

finance subsidiaries with ICICI Bank 2003- Incorporation of ICICI Bank Canada 2005- Acquired Investitsionno-Kreditny Bank, Russia 2007- Sangli Bank merged with the bank 2010- Acquired 2020- Board approved investment of Rs 10bn in Ltd.

Source: Company

30

ICICI Bank | Initiating Coverage

Exhibit 52: Board members

Board of Directors

Name Designation Experience Mr. Girish Chandra Chairman Mr. Girish Chandra Chaturvedi is the retired IAS officer and retired secretary of Chaturvedi Ministry of Petroleum and Natural Gas and Current Chairman of NSE also. After his retirement from the regular service, he was appointed by the Government of India as the Member and then the Chairman of Warehousing Development and Regulatory Authority of India till Jan 2018. Prior to his retirement from IAS, he served Government of India at various levels across a number of sectors, including Banking, Insurance, , Health, Family Welfare and Petroleum and Natural Gas. He completed M.Sc. from London School of Economics, University of London, UK and M.Sc (Physics) from University of Allahabad. Mr. Sandeep Bakhshi M.D. & CEO Mr. Sandeep Bakhshi is the M.D. & CEO of ICICI Bank since Oct 15, 2018. Prior to this, he was a Wholetime Director and the COO of the Bank. He has been with the ICICI Group for 32 years and has handled various assignments across the group in ICICI Limited, ICICI Lombard General Insurance, ICICI Bank and ICICI Prudential Life Insurance. Mr. Anup Bagchi Executive Director Mr. Bagchi is an ED on the Board of ICICI Bank since Feb 1, 2017. Prior to this, he was the M.D. & CEO of ICICI Securities Limited. In his present role he is responsible for managing retail banking, rural and inclusive banking, treasury control and services, operations, infrastructure, and the corporate brand for the bank. He is a member of RBI’s Expert Committee on MSME and of SEBI’s Committee on Financial and Regulatory Technologies among others. He has a management degree from the IIM, Bangalore and an engineering degree from the IIT, Kanpur. Ms. Vishakha Mulye Executive Director Ms. Mulye is an ED on the Board of Bank since Jan 2016. She heads the Domestic and International Wholesale Banking, Markets and Commercial Banking businesses at the Bank. Ms. Mulye, a CA, has been with the ICICI Group since 1993. In her career, she has handled several responsibilities in the areas of strategy, treasury & markets, proprietary equity investing and management of long-term equity investments, structured finance, management of special assets and corporate & project finance. She has featured in several power lists such as the ’Most Powerful Women in Indian Business’ by Business Today and ‘Most Powerful Women’ by Fortune India. She was inducted into Business Today’s ’Hall of Fame’ after being featured seven times in a row in its power list.

31

ICICI Bank | Initiating Coverage

Name Designation Experience Mr. Hari L. Mundra Independent Director A rank holder both in B.A.Hons and M.B.A., Mr. Hari Mundra has 48 years of extensive industrial experience, both in India and Indonesia. He began his career in 1971 in HUL and was the youngest member of its Board as the Vice President and Executive Director in charge of Exports at the time he left them in 1995. As a Management Board Member of RPG Group, he was the Group CFO as well as the President and Chief Executive of Carbon Black Business till 2001. In 2002, he joined Wockhardt Group as the Executive Vice Chairman and In 2003, he became the Deputy Managing Director and Finance Director of Essar Oil and was instrumental in its resurrection. Post his superannuation; he has been the Senior Advisor to Hospira, USA and the Financial Advisor to Wockhardt Group for their turnaround. He has been the Visiting Professor at IIM, Ahmedabad for the last 11 years.

Mr. Lalit Kumar Nominee director Shri Lalit Kumar, belongs to the IES (1995 batch) and presently posted as Economic Chandel Adviser, Department of Financial Services, Ministry of Finance, Government of India, New Delhi. He is a postgraduate in Economics, MBA and Fellow in Insurance. Prior to his present assignment he served at various levels in different departments of Government of India, including Banking, Insurance, Capital Markets, External Assistance, Rural Development, Power, Irrigation and Health. Shri Kumar held key positions of Director (Insurance), Department of Financial Services, Ministry of Finance, Executive Director, CVO and Financial Adviser, IRDAI, and Whole Time Director Finance, Telangana State Power generation Corporation. He had also served earlier as Director (Government Nominee) on the Boards of National Insurance Company Limited, Oriental Insurance Company Limited, , Agriculture Insurance Co. of India, and National Insurance Academy.

Mr. S. Madhavan Independent Director Mr. Subramanian Madhavan has around 37 years of experience in Accountancy, Economics, Finance, Law, Information Technology, Human Resources, Risk Management and Business Management. He started his career with HUL. He was then a senior partner and Executive Director in PWC Private Limited. He has also served as the President Northern Region, Indo-American Chamber of Commerce and has been a past Co- Chairman, Taxation Committee, ASSOCHAM. He is presently acting as Co-Chairman of the GST Task Force, constituted by FICCI. He is a member of the Institute of Directors, the All India Management Association and the Delhi Management Association.

32

ICICI Bank | Initiating Coverage

Name Designation Experience Ms. Neelam Dhawan Independent Director Ms. Neelam Dhawan, has over 35 years of experience in the IT industry. Starting from 1982, she has held various positions across HCL, IBM, Microsoft and Hewlett Packard. She has been M.D. and leader of the Country businesses for 11 years for Microsoft and later Hewlett Packard in India. Ms. Dhawan’s last assignment was that of Vice President for Global Industries, Strategic Alliances and Inside Sales for Asia Pacific and Japan, for Hewlett Packard Enterprise. Ms. Dhawan is a member of the Global Supervisory Board of Royal Philips, Netherlands since 2012 which helped her extend her experience of IT industry to the healthcare sector. She is an Economics Graduate from St. Stephen’s College, Delhi University. She also has a MBA degree from Faculty of Management Studies, University of Delhi, India. Mr. Radhakrishnan Independent Director Mr. Radhakrishnan Nair, holds degrees in Science, Securities Laws, Management Nair and Law. He has around 40 years of experience in the banking industry and in the field of securities and insurance regulation. He has also served as the MD of Corporation Bank Securities Limited and ED of SEBI. He has rich and varied experience in branch, regional and corporate banking apart from treasury management and foreign exchange management. He is an independent Director of two subsidiaries of the Bank - ICICI Prudential Life Insurance and ICICI Securities Primary Dealership Limited. He is also a Director of Geojit Financial Services Limited, JRG Fincorp Limited, Inditrade Microfinance Limited, Touchstone Regulatory Advisors Private Limited, Inditrade Community Foundation, Axis Mutual Fund Trustee Limited and Inditrade Housing Finance Limited. Mr. Nair is also a Trustee in NPS Trust. Ms. Rama Bijapurkar Independent Director Ms. Rama Bijapurkar is an independent management consultant working in the area of business-market strategy and regular visiting faculty at IIM Ahmedabad and is also co- founder of People Research on India’s Consumer Economy. She is among India’s most experienced independent directors and has served on the boards of several of India’s blue chip companies as well as on the governing councils of academic institutions and public service institutions. She holds a BSc (Honours) degree in physics from University of Delhi and a PGDM from IIM, Ahmedabad. Mr. B. Sriram Independent Director Mr. B. Sriram is a Certificated Associate of the Indian Institute of Banking & Finance, . He holds a Diploma in International Law & Diplomacy from the Indian Academy of International Law & Diplomacy, New Delhi and an AIMA Diploma in Management from the All India Management Association, New Delhi. He is also an M.Sc in Physics and B.Sc (Hons) in Physics from St Stephen's College, Delhi University. He was MD & CEO, IDBI Bank Ltd and Managing Director of SBI and State Bank of Bikaner & Jaipur. He has worked with State for about 37 years and is well experienced in all areas of Banking and Finance.

33

ICICI Bank | Initiating Coverage

Name Designation Experience Mr. Uday Chitale Independent Director Mr. Uday Chitale was appointed on the Board of ICICI Bank in January, 2018. He is a CA with over 43 years’ standing and is Senior Partner of M. P. Chitale & Co. His professional experience covers auditing & assurance and business/management advisory. He is accredited mediator on the panel of experts of CEDR (UK). He has served on the boards of prominent companies also a director and VP-Asia Pacific of the global association of accounting firms, DFK International.

Source: Company

34

ICICI Bank | Initiating Coverage

Exhibit 53: Key shareholders Major Institutional Shareholders (%) Life Insurance Corporation limited 9.1 SBI mutual fund 4.2 HDFC mutual fund 4.2 Dodge & Cox international stock funds 3.6 ICICI Prudential mutual fund 3.4 Government of Singapore 2.8 Reliance mutual fund 2.2 Aditya Birla mutual fund 2.1 Kotak Mahindra mutual fund 1.9 UTI mutual fund 1.5 Abu Dhabi investment authority 1.4 Europacific growth fund 1.3 SBI life insurance 1.2 Mirae asset mutual fund 1.2

Source: Company

Exhibit 54: Shareholding Pattern

Public, 7.6 Others, 2.7 Govt., 0.4

PF , 1.9 MF, 27.5

Insurance Co., 14.1

AIF/FI/Banks, 0.9

FPI, 44.9

Source: Company

35

ICICI Bank | Initiating Coverage

Exhibit 55: Quarterly Data

Quaterly Data 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Income Statement (Rs Mn)

Net Int. Income 51,586 52,533 53,633 59,621 55,898 57,091 57,052 60,217 61,019 64,177 68,752 76,201 77,374 80,574 85,453 89,269 92,798

Non Int. Income 34,293 91,197 39,383 30,172 33,879 51,862 31,669 56,786 38,518 31,565 38,829 36,210 34,254 41,942 45,740 42,550 61,426 Net Revenue 85,879 143,730 93,016 89,793 89,777 108,953 88,721 117,003 99,537 95,742 107,581 112,411 111,628 122,516 131,193 131,819 154,224 Operating exps 33,731 37,369 37,777 38,674 37,945 39,089 38,144 41,863 41,454 43,244 46,117 50,077 48,744 53,775 55,707 57,918 46,459 Operating profit 52,148 106,361 55,239 51,119 51,832 69,864 50,577 75,140 58,083 52,498 61,464 62,334 62,884 68,741 75,486 73,901 107,765 Provisions 25,145 70,827 27,127 28,982 26,087 45,029 35,696 66,258 59,713 39,943 42,442 54,514 34,957 25,069 20,832 59,674 75,940 PBT 27,003 35,534 28,112 22,137 25,745 24,835 14,881 8,882 (1,630) 12,555 19,022 7,820 27,927 43,672 54,654 14,227 31,825

Tax/MI 4,679 4,511 3,694 1,892 5,255 4,253 (1,621) (1,318) (434) 3,466 2,973 (1,871) 8,847 37,123 13,189 2,013 5,833 PAT 22,324 31,023 24,418 20,245 20,490 20,582 16,502 10,200 (1,196) 9,089 16,049 9,691 19,080 6,549 41,465 12,214 25,992

Balance Sheet (Rs Mn)

Networth 919,431 950,091 975,071 999,448 1,006,182 1,027,819 1,044,947 1,051,534 1,053,360 1,053,675 1,071,627 1,083,634 1,103,949 1,106,059 1,149,976 1,165,009 1,186,160 Deposits 4,240,862 4,490,714 4,652,843 4,900,391 4,862,539 4,986,427 5,174,031 5,609,752 5,468,784 5,586,689 6,067,547 6,529,197 6,607,318 6,962,730 7,163,451 7,709,690 8,016,223 CASA 1,913,480 2,052,560 2,319,610 2,468,210 2,380,230 2,468,760 2,606,350 2,899,250 2,762,930 2,835,480 2,993,740 3,239,400 2,988,770 3,250,000 3,364,090 3,478,180 3,406,160

Advances 4,494,265 4,542,555 4,574,694 4,642,321 4,640,752 4,827,801 5,053,869 5,123,953 5,162,887 5,444,866 5,643,078 5,866,466 5,924,154 6,133,587 6,356,543 6,452,900 6,312,146 Domestic book 3,541,481 3,629,501 3,746,674 3,894,907 3,926,076 4,108,459 4,346,327 4,478,335 4,518,410 4,754,360 4,971,430 5,236,140 5,327,750 5,533,240 5,790,670 5,913,240 5,841,870 Retail 2,085,339 2,175,884 2,237,025 2.404,722 2,473,521 2,587,701 2,739,197 2,900,157 2,970,440 3,118,130 3,332,080 3,528,310 3,635,960 3,809,660 3,976,460 4,080,030 4,045,760 SME 179,771 195,330 210,436 222,831 208,834 207,595 247,640 256,198 239,160 146,730 162,320 179,170 176,980 190,640 217,440 228,510 208,570 Corporate 1,276,371 1,258,288 1,299,213 1,267,354 1,243,722 1,313,162 1,359,491 1,321,980 1,308,810 1,489,500 1,477,030 1,528,660 1,514,810 1,532,940 1,596,770 1,604,700 1,587,540 Overseas 952,784 913,054 828,020 747,414 714,676 719,342 707,542 645,618 644,490 690,510 671,640 630,320 596,400 600,350 565,870 539,670 470,270

Borrowings 1,740,950 1,717,567 1,590,980 1,475,561 1,414,601 1,507,024 1,581,761 1,828,586 1,619,703 1,746,858 1,642,928 1,653,200 1,567,200 1,510,328 1,373,747 1,628,968 1,649,179 Domestic 815,250 789,870 713,520 672,070 656,700 720,250 775,220 1,014,640 827,610 936,270 860,850 905,420 890,010 860,190 754,670 1,029,430 1,124,520 Overseas 925,700 927,690 877,460 803,480 757,900 786,770 806,540 813,950 792,090 810,590 781,080 747,780 677,190 650,140 619,080 599,530 524,660 Yield on Adv.% 9.1 8.8 8.9 8.9 8.7 8.7 8.5 8.7 8.7 8.8 9.0 9.3 9.4 9.5 9.5 9.4 9.3 Cost of Funds % 5.7 5.6 5.5 5.2 5.2 5.0 4.9 4.9 5.0 5.0 5.1 5.2 5.2 5.2 5.1 4.9 4.6 NIMs % 3.2 3.1 3.3 3.6 3.3 3.3 3.1 3.2 3.2 3.3 3.4 3.7 3.6 3.6 3.8 3.9 3.7

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ICICI Bank | Initiating Coverage

Quarterly Data 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Operational Efficiency (%)

Cost to Income 39.3 41.5 40.6 43.1 45.4 35.9 43.0 35.8 46.9 45.2 42.9 44.5 43.7 43.9 42.5 43.9 37.5 Cost to Assets 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.5 0.4 Asset Quality (%)

Gross NPA 5.3 6.1 7.2 7.9 8.0 7.9 7.8 8.8 8.8 8.5 7.8 6.7 6.5 6.4 6.0 5.5 5.5 Net NPA 3.0 3.2 4.0 4.9 4.9 4.4 4.2 4.8 4.2 3.7 2.6 2.1 1.8 1.6 1.5 1.4 1.2 Prov. Coverage 44.5 49.4 47.1 40.2 41.4 45.8 48.3 48.4 54.1 58.9 68.4 70.6 74.0 76.1 76.2 75.7 78.6

Credit Cost 0.6 1.6 0.6 0.6 0.6 1.0 0.7 1.3 4.7 3.1 3.1 3.9 2.4 1.7 1.3 2.1 1.3 Return Ratio (%)

ROE 9.9 13.2 10.1 8.3 8.2 8.0 6.3 3.9 0.0 3.4 6.0 3.6 7.0 2.4 14.6 4.2 8.9 ROA 1.3 1.7 1.3 1.1 1.1 1.1 0.8 0.5 0.0 0.4 0.7 0.4 0.8 0.3 1.7 0.5 1.0

Others

CRAR (%) 16.2 16.2 16.0 17.4 17.7 17.6 18.1 18.4 18.4 17.8 17.2 16.9 16.2 16.1 16.5 16.1 16.0

Branches 4,451 4,468 4,504 4,850 4,852 4,856 4,860 4,867 4,867 4,867 4,867 4,874 4,882 5,228 5,275 5,324 5,324 ATMs 14,073 14,259 14,146 13,882 13,780 13,792 14,262 14,367 14,394 14,417 14,944 14,987 15,101 15,159 15,589 15,688 15,661

Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

Financial Summary

Profit & Loss Account (Rs mn) Financial Ratios (%)

Year-end: March FY19 FY20 FY21E FY22E Year-end: March FY19 FY20 FY21E FY22E

Net interest income 270,148 332,670 365,276 401,692 Growth Fee Income 102,319 116,451 106,860 124,421 Deposits 16.4 18.1 11.7 16.4 Other Income 42,803 48,035 65,194 52,524 Advances 14.5 10.0 7.0 12.0 Operating Income 415,270 497,156 537,330 583,808 NII 17.3 23.1 9.8 11.4 Pre-Provision Profit (5.3) 19.9 14.1 8.5 Operating expenses (180,890) (216,144) (216,583) (235,903) Net Profit (50.4) 135.8 38.3 40.6 Employee expenses (68,082) (82,712) (89,687) (96,844) Spreads (%) Other expenses (112,808) (133,432) (126,896) (139,059) Yield on Assets 7.8 8.2 7.9 8.0 Pre-Provision Profit 234,380 281,012 320,747 347,905 Cost of Funds 4.7 4.7 4.6 4.6 Provision (196,611) (140,532) (174,107) (141,696) NIM 3.3 3.6 3.6 3.7 Loan loss Provisions (168,112) (88,144) (150,272) (118,932) CASA 49.6 45.1 45.0 45.5 Other Provisions (28,499) (52,388) (23,835) (22,764) Operating Efficiency (%) PBT 37,769 140,480 146,640 206,209 Cost-to-Income 43.6 43.5 40.3 40.4 Taxes (4,135) (61,172) (36,953) (51,965) Cost-to-Assets 2.0 2.1 1.9 1.9 Net profit 33,634 79,308 109,687 154,244 Asset Quality (%) GNPA 7.4 6.0 6.8 6.4 Balance Sheet (Rs mn) NNPA 2.3 1.5 2.0 1.9 Provision Coverage 70.6 75.7 72.4 72.2 Year-end: March FY19 FY20 FY21E FY22E Credit Cost 3.6 2.3 2.6 1.9 Capital 12,894 12,948 13,790 13,790 Capital Adequacy (%) Reserves 1,070,740 1,152,063 1,453,690 1,658,089 CAR 16.9 16.1 18.5 18.2 Networth 1,083,634 1,165,011 1,467,480 1,671,879 Tier I 15.1 14.7 17.2 17.0 Deposits 6,529,197 7,709,690 8,613,096 10,021,635 Valuations Borrowings 1,653,198 1,628,968 1,183,407 868,187 EPS (Rs) 5.2 12.3 15.9 22.4 Total Liabilities & Equity 9,644,592 10,983,652 11,648,081 12,845,498 ABV (Rs) 147.2 164.6 193.1 221.4 Cash & Bank with RBI 802,963 1,191,558 1,242,829 1,237,305 P/E (x) 74.6 31.8 24.5 17.4 Investments 2,077,327 2,495,315 2,617,939 2,910,852 P/ABV (x) 2.6 2.4 2.0 1.8 Advances 5,866,466 6,452,900 6,904,603 7,733,155 ROE (%) 3.2 7.1 8.3 9.8 Other Assets 818,522 759,777 797,766 877,542 ROA (%) 0.4 0.8 1.0 1.3 Total assets 9,644,592 10,983,652 11,648,081 12,845,498 RORWA (%) 0.8 1.1 1.4 1.7

Source: Company; IDBI Capital Research

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ICICI Bank | Initiating Coverage

Notes

Dealing (91-22) 6836 1111 [email protected]

Key to Ratings Stocks: BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below.

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ICICI Bank | Initiating Coverage

Analyst Disclosures

We, Bunty Chawla and Nikhil Vaishnav, hereby certify that the views expressed in this report accurately reflect our personal views about the subject companies and / or securities. We also certify that no part of our compensation were, are or would be directly or indirectly related to the specific recommendations or views expressed in this report. Principally, we will be responsible for the preparation of this research report and have taken reasonable care to achieve and maintain independence and objectivity in making any recommendations herein.

Other Disclosure

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