According to Bernstein research, the competitive race between India's two largest private sector banks has become increasingly one-sided, with ICICI Bank pulling ahead across almost every key operating metric during the June quarter. The brokerage noted that while HDFC Bank continues to battle weak retail credit demand and pressure on lending yields, ICICI Bank is executing better across the business just as industry conditions begin to improve. Bernstein maintains 'Outperform' ratings on both lenders but sees ICICI Bank as the better buy with an upside potential of up to 54%. Recent market performance data shows this trend continuing, with ICICI Bank gaining 1.18% over the past day compared to HDFC Bank's -7.46% decline, reinforcing the brokerage's preference for the lender.
As reported by Bernstein, ICICI Bank delivered another quarter of industry-leading growth with loan growth of around 20% YoY, comfortably ahead of HDFC Bank's 15% growth. The brokerage highlighted that ICICI's growth remained broad-based, with business banking continuing strong momentum, corporate lending accelerating further, and non-mortgage retail loans recovering. HDFC Bank also reported stronger loan growth than the previous quarter, improving from 12% to 15% YoY, but the bank still lagged overall system credit growth due to subdued retail lending. According to Bernstein, ICICI is no longer relying on one or two segments for growth, with multiple businesses contributing simultaneously to create a broader earnings base than HDFC.
According to Bernstein, HDFC Bank's deposit franchise advantage has narrowed considerably during the June quarter. While HDFC reported stronger period-end deposit growth, ICICI moved ahead when deposits were measured using average balances, which Bernstein considers a better indicator of franchise momentum. ICICI reported 14% average deposit growth compared with 13% for HDFC, leading across average CASA growth, average term deposit growth and total average deposits. The brokerage noted that HDFC's stronger headline deposit growth was supported by a sharp increase in wholesale deposits, allowing ICICI to maintain a superior liquidity position reflected in its higher liquidity coverage ratio.
As reported by Bernstein, HDFC Bank reported a 12-basis-point sequential decline in net interest margin (NIM) despite reducing borrowings during the quarter, while ICICI Bank recorded a modest expansion in NIM supported by stable loan yields and an improving loan-to-deposit ratio. The brokerage attributed HDFC's recent underperformance primarily to weaker lending yields, with loan yields declining by 127 basis points at HDFC Bank compared with 105 basis points at ICICI Bank since the beginning of the RBI's rate-cut cycle. Funding costs have fallen by similar amounts at both banks, but Bernstein said the data indicate that loan pricing, rather than funding costs, has become the principal reason HDFC's margins continue to lag ICICI's.
According to Bernstein, the brokerage retains 'Outperform' ratings on both lenders with specific target prices: ₹1,800 for ICICI Bank (25% upside potential) and ₹1,150 for HDFC Bank (54% upside potential). The firm made only modest changes to its HDFC Bank estimates following the June quarter, resulting in an around 2% revision to FY27 earnings estimates while leaving its valuation unchanged. Bernstein believes easing competitive intensity and improving industry conditions leave ICICI better positioned to sustain stronger growth without a meaningful impact on profitability, reinforcing its preference for the lender after the recent correction in its valuation.
