HDFC Bank vs ICICI Bank: Growth Lead Meets Recovery Bet

ICICI Bank shares have gained 3.5% so far in 2026 while HDFC Bank has fallen 28%, with second-quarter results highlighting a widening divide in growth and funding performance. Economic Times Markets reported on October 19 that ICICI’s stronger operating momentum was supporting a valuation premium, while brokerages were treating HDFC increasingly as a potential recovery investment.

The distinction is not simply between a stronger and a cheaper stock. ICICI faces pressure on margins from its foreign-currency-funded expansion; HDFC must demonstrate that improving margins can accompany a sustained narrowing of its growth and funding-cost disadvantages.

ICICI leads growth; HDFC earns more in absolute terms

ICICI Bank’s second-quarter profit increased 20% year on year to ₹14,800 crore. HDFC Bank remained larger by earnings, reporting ₹19,500 crore in profit, but its increase was a more modest 5%.

ICICI’s loans expanded 30% and deposits rose 27%. Excluding lending linked to Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, loan growth was 24%; deposit growth excluding FCNR(B) was 17%.

HDFC reported loan growth of 16.4%, or 14.4% excluding FCNR(B)-related lending, alongside deposit growth of 18.8%. Anand Rathi said the bank had yet to close its post-merger operating gap with ICICI. Growth in current and savings account deposits—CASA—continued to lag lending, suggesting that reducing its funding-cost disadvantage would take longer.

Foreign-currency deposits bring growth and margin pressure

ICICI mobilised about $18 billion in FCNR(B) deposits and deployed a substantial share into loans, including an expansion of its overseas book. That supported balance-sheet growth but diluted margins: the report put earnings on overseas assets at around 1%, against more than 4% on domestic assets.

ICICI’s reported net interest margin declined 18 basis points from the preceding quarter to 4.18%. Management expected further moderation in the third quarter, followed by recovery from the fourth quarter. That recovery remains an expectation, not a reported outcome.

HDFC’s reported net interest margin on assets fell 10 basis points sequentially to 3.16%, reflecting FCNR(B) flows, funding costs and a lower CASA ratio. Its CASA ratio stood at 31.6%, compared with ICICI’s 36.1%.

Brokerages see a recovery route for HDFC

With roughly 70% of HDFC’s loan book linked to floating rates, analysts expected support from the recent rate increase cited in the report, deployment of FCNR(B) deposits and the expiry of expensive borrowings. Anand Rathi said margins might have reached their low point, retained a buy rating and set a ₹966 price target. It expected return on equity to remain around 14% over the medium term.

JM Financial upgraded HDFC from add to buy, citing valuations after the share-price correction. Its forecasts included approximately 15% loan growth and 14% earnings-per-share growth over FY26–FY29.

For ICICI, Anand Rathi argued that sustained operating outperformance justified a premium and set a ₹1,865 target. JM Financial’s ₹1,710 target used a valuation of 2.4 times estimated FY28 core book value.

Anand Rathi valued HDFC at 1.8 times estimated FY29 adjusted book value. The two quoted valuation multiples use different forecast years and book-value measures, so they are not a like-for-like comparison. Brokerage targets are forecasts rather than assured future prices.

Asset quality and execution remain important

Neither bank had an across-the-board advantage on bad loans. HDFC’s gross non-performing asset ratio was lower at 1.11%, against ICICI’s 1.20%. ICICI had the lower net NPA ratio, at 0.30%, compared with HDFC’s 0.37%.

ICICI’s credit cost fell to 0.20%, helped by fewer fresh bad loans and a large corporate recovery. HDFC’s credit cost increased slightly to 0.46%, although gross and net slippages declined sequentially. HDFC also held about ₹49,500 crore in contingent provisions, equivalent to roughly 1.5% of loans.

Leadership changes add an execution risk at HDFC. The report said Anup Bagchi’s appointment had reduced uncertainty over the top position, while Anand Rathi cautioned that possible senior-management departures, including Kaizad Bharucha’s request for early cessation, could disrupt business.

The investment cases therefore hinge on different tests: whether ICICI can sustain strong growth as margins stabilise, and whether HDFC can translate its lower valuation into improving funding costs, profitability and returns. The brokerage recommendations reported here are not a BharatVox recommendation to buy either stock.