ICICI Bank Anticipates Q3 Margin Pressure From FCNR-B Deposit Costs
Full impact of foreign currency deposits expected to weigh on margins before recovery begins.
1Margin Squeeze Forecast
ICICI Bank expects its net interest margin to dip marginally in the December quarter. Executive director Sandeep Batra stated that the full cost impact of FCNR-B deposits raised in the September quarter will materialize now. Following this period, the bank anticipates that margins will begin to recover despite current policy rate levels.
2Performance Metrics Overview
The bank reported a 17.7% year-on-year growth in net interest income, reaching ₹25,339 crore. Profit before tax rose by 20.4% to ₹19,724 crore. Excluding treasury losses of ₹230 crore caused by rising government bond yields, the profit before tax growth was even stronger at 23.4%, totaling ₹19,954 crore for the period.
3Impact of Deposit Mix
The net interest margin fell to 4.18% in the September quarter from 4.36% in June. Batra attributed 9-10 basis points of this decline to a shift in the deposit mix. The bank mobilized $18 billion in FCNR-B deposits, which significantly lifted total deposits by 27.1% on-year while lowering the CASA ratio to 35.8%.
4FCNR-B Funding Dynamics
The landed cost of these foreign currency deposits reached approximately 6.5%, slightly exceeding the initial estimate of 6.30-6.40%. These deposits, which run for three to five years, are exempt from reserve and priority-sector lending requirements. This exemption allows the bank to deploy the full amount into loan books and bulk deposit repayments.
5Loan Growth Drivers
Total loans grew 30% on-year, with domestic corporate loans rising 30.6% due to capital expenditure and longer working capital cycles. Conversely, the credit card book shrank 9.7% as the bank exited unprofitable segments. Management clarified that this contraction is not a credit quality issue but rather a result of a high base.
6Interest Rate Outlook
Management anticipates the RBI may raise the repo rate twice more by 25 basis points each, reaching 6%. Since a large portion of the bank’s loan portfolio is linked to the repo rate, loan yields adjust faster than deposit costs during hiking cycles, a pattern the bank expects to repeat in coming quarters.
7Insurance Regulation Analysis
The bank assessed the impact of an Irdai consultation paper proposing to cap commissions on single-premium life cover at 2%. Batra noted that bancassurance fees represent less than 1% of total income and 5% of fee income. Consequently, the bank expects the potential regulatory change to have an absolutely minimal effect on earnings.
8Strategic Financial Outlook
ICICI Bank is navigating a complex environment characterized by high deposit costs and shifting liquidity conditions. By leveraging FCNR-B inflows to fund corporate growth, the bank is positioning itself for a margin recovery after the third quarter. The focus remains on balancing liquidity buffers with efficient capital deployment across its diverse lending segments.