ICICI Bank vs HDFC Bank: Why a treasury slide doesn't undermine ICICI's lead
Copyright © HT Digital Streams Limited All rights reserved. Manish Joshi 3 min read Oct 21, 2025, 02:31 pm. IST For Q2FY26, HDFC Bank reported a net profit growth of 10.8% y-o-y, compared to ICICI Bank’s 5.2% increase. (File photo: Bloomberg) Summary Core earnings, stronger margins and a leaner balance sheet make ICICI Bank a more attractive bet than peer HDFC Bank, despite slower profit growth and a drop in treasury income in Q2FY26. The Street reacted differently to the September quarter (Q2FY26) results of India’s top private sector banks, HDFC Bank and ICICI Bank. HDFC Bank’s stock remained flat, while ICICI Bank’s shares fell 3%. Investors may have been attracted to HDFC’s seemingly stronger growth in net profit of 10.8% year-on-year compared to ICICI’s 5.2% increase. However, this market reaction may have overlooked three key factors. The first is the quality of earnings, where ICICI Bank outperformed HDFC Bank in core operations. Adjusted for interest on income tax refunds, ICICI Bank’s net interest margin (NIM) rose 3 basis points (bps) sequentially to 4.3% in Q2FY26, while HDFC’s NIM fell 8 bps to 3.27%. ICICI’s margin expansion stems from the relatively faster repricing of liabilities at the lower end compared to HDFC. As HDFC’s treasury profits, a volatile revenue stream for banks, grew nearly eight times year-on-year (YoY) on a smaller base to around ₹2,400 crore, its net profit growth hit double digits. In contrast, ICICI’s treasury profits fell a sharp 68% year-on-year to ₹220 crore, weighing on profit growth. The threat of NIM compression still looms large as there could be further interest rate cuts by the Reserve Bank of India (RBI). While the inflation forecast has turned more favorable in light of the Goods and Services Tax (GST) rate cut, opening room for monetary easing, the RBI may be asked to act if it sees any threat to the GDP growth rate. In such a scenario, ICICI Bank looks better positioned than HDFC Bank to absorb additional rate cuts, based on its current NIM trajectory. The second factor is the loan-deposit ratio (LDR). HDFC Bank faces pressure to bring down its LDR. The bank’s intention is to reduce its LDR to around 87% over the long term, even as the ratio jumped 300 basis points sequentially to 98% in Q2FY26. To achieve this, HDFC will have to either slow loan growth or boost deposits – both of which could weigh on net interest income. ICICI, on the other hand, has no such limitation, with its LDR already at 87%. The third factor is ICICI’s return on average assets (RoAA), which is estimated at 2.3% for FY26—significantly higher than HDFC’s 1.8%, according to Motilal Oswal Financial Services. This not only justifies ICICI’s premium valuation, but also positions the bank to grow earnings faster in the future, given its ₹21 trillion balance sheet — about half the size of HDFC’s. A smaller balance sheet inherently provides ICICI Bank greater flexibility and agility to scale its operations and seize growth opportunities. Premium Pressure Recently, ICICI Bank’s valuation premium over HDFC Bank has narrowed, with the former trading at 2.6x compared to the latter at 2.5x, based on Motilal Oswal’s FY26 estimated price-to-adjusted-book-value (P/ABV), which accounts for the valuation of subsidiaries. This narrowing of the valuation gap increases ICICI’s relative attractiveness. In the lending business, the book value continues to grow as long as no losses are reported, which can make the price-to-book value (P/BV) look cheaper over time. However, FY26 earnings growth for both banks is expected to moderate to around 10%, well below the high growth rates seen in the past. As a result, price-to-earnings multiples—again adjusted for subsidiary valuations—of 18x for HDFC and 16x for ICICI may offer limited upside. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #mark to maket #ICICI Bank #HDFC Bank #q2 earnings Read next story