ICICI Bank tops rival HDFC Bank in valuation multiple for first time

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26 Aug, 2025 12:21

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ICICI Bank’s share price has been on fire for the past one year, raking in gains of over 30 percent.

Strong investor interest has helped the lender topple rival HDFC Bank as an expensive stock in what some analysts would call a “crowded trade,” which means a position or theme embraced by a large number of investors.

On a 12-month trailing basis, ICICI Bank shares traded at 3.3 times the book value on April 20 compared with HDFC Bank’s multiple of 3 times.

Sure, the gap isn’t much and there is a long way to go in terms of market capitalisation. HDFC Bank’s market cap stands at Rs 7.5 lakh crore while that of ICICI Bank is Rs 5.25 lakh crore. However, it is noteworthy that ICICI Bank’s shares have crossed that of its rival for the first time in terms of a key valuation multiple.

Why do investors love ICICI Bank so much?

The private sector lender has cleaned up its balance sheet, increased provisioning cover for stressed loans, and turned its corporate-heavy loan portfolio into a retail-dominated one.

Its provision coverage ratio stood at 80 percent as of the December quarter of FY22, the highest in the sector. The ratio was a mere 54 percent five years ago.

Notwithstanding the pandemic, the lender reported robust net interest income growth in FY21 and in the first three quarters of FY22. This supported operating profit growth. Its net profit growth has shed the volatility of earlier years, credit costs have dropped and return on equity has improved sharply. Free of its stressed corporate book, ICICI Bank’s loan growth has been robust.

Another factor favouring ICICI Bank is the fading away of misgivings over its top management and corporate governance. The bank was mired in controversy when its head Chanda Kochhar was alleged to have circumvented conflict of interest norms. She stepped down in October 2018 and her successor Sandeep Bakhshi has steered the bank out of the trouble. The top management transition pain and misgivings over the bank’s governance are now behind it.

Investor confidence in the bank’s earnings trajectory remains high. For FY22, analysts expect return on equity to increase to 15 percent and improve further in the coming financial years. The upshot is that earnings growth is expected to trump that of HDFC Bank and profitability metrics look supportive of premium valuations.

“ICICI Bank appears firmly placed to deliver healthy sustainable growth, led by its focus on core operating performance. We estimate an RoA/RoE of 2.0%/16.5% for FY24,” analysts at Motilal Oswal Financial Services said.

Will ICICI Bank continue to outperform the market and HDFC Bank?

Given the outsized gains in the share price over the past year, analysts note that the margin of outperformance may narrow now. Even so, the lender’s stock will still find enough support among investors despite premium valuations.

“There has been a significant outperformance of Axis Bank/ICICI Bank over HDFC Bank but there still appears to be room for further outperformance,” analysts at Kotak Institutional Equities wrote in a note dated April 16.

Another factor in support of ICICI Bank shares is that rivals HDFC Bank and Axis Bank are poised for merger and acquisition costs, respectively. HDFC Bank needs to implement its merger with Housing Development Finance Corporation, while Axis Bank has to absorb Citibank India’s retail business that it acquired. Both transactions could be a significant overhang for their respective shares.