A recent report by global brokerage firm Bernstein highlights a widening performance gap between India's banking giants, ICICI Bank Ltd and HDFC Bank Ltd. The analysis indicates that ICICI Bank continued its strong outperformance over HDFC Bank across crucial financial metrics during Q2 FY27, reinforcing its lead in growth, funding, and overall profitability.
HDFC Bank has experienced a significant de-rating over the past two years, resulting in its stock trading at a notable discount compared to its historical valuations and ICICI Bank. This trend is partly attributed to a lack of clear communication regarding its operating performance.
ICICI Bank's Strong Q2 FY27 Performance
According to Bernstein, ICICI Bank demonstrated robust loan growth of approximately 30 percent year-on-year (YoY), driven by strong momentum in business banking, corporate lending, and a recovery in non-mortgage retail lending. In contrast, HDFC Bank's loan growth remained stable at around 16 percent YoY, with healthy contributions from business and corporate lending, but offset by continued weakness in mortgages and slower retail segment expansion.
On the deposits front, ICICI Bank surpassed HDFC Bank in both average and period-end deposit growth during the quarter. This was supported by healthy FCNR (Foreign Currency Non-Resident) mobilization and stronger growth in current account and term deposits. ICICI also maintained its lead in retail deposit growth and exhibited a superior liquidity profile, while HDFC Bank retained an advantage in savings account deposit growth.
Margins, Costs, and Asset Quality
While both banks experienced similar underlying margin compression, ICICI Bank maintained a superior headline Net Interest Margin (NIM) due to its stronger loan yield performance. Regarding operating expenses, HDFC Bank maintained tighter cost control with approximately 6 percent YoY growth, whereas ICICI Bank's expenses grew by around 9 percent YoY, primarily driven by investments in branch expansion and franchise building.
Asset quality remained healthy for both institutions, with Gross Non-Performing Asset (GNPA) ratios declining sequentially and credit costs remaining benign. The quarter showed no signs of significant deterioration across major portfolios for either bank.
Profitability and Future Outlook for HDFC Bank
Despite treasury-related pressures, Bernstein noted that ICICI Bank continued to outperform HDFC Bank across key profitability metrics, including Return on Assets (RoA), Return on Equity (RoE), and Return on Risk-Weighted Assets (RoRWA). The core income gap, though narrowed from Q1 FY27 levels, remained substantial at approximately 90 basis points, underpinning ICICI's continued advantage in earnings growth and overall profitability.
With the operational disparity now arguably reflected in valuations, Bernstein suggests that the focus for HDFC Bank has shifted towards its management changes. The debate now centers on whether these changes can drive improvements in strategy and execution, or at least lead to more effective communication with stakeholders.