ICICI Bank dethrones HDFC Bank on every financial metric. A power shift underway in Indian banking?

HDFC Bank has entered the elite Rs 15 lakh crore market cap club, a milestone worth celebrating. But beyond the applause, a quiet narrative is building among investors --- ICICI Bank is steadily pulling ahead, outperforming India’s largest private lender across nearly every key metric.

In the recent past, ICICI Bank has emerged as a frontrunner among India’s private sector lenders. The shift comes as HDFC Bank continues to navigate challenges arising from its 2023 merger with HDFC, which has impacted its growth trajectory.

If we take FY25 for example, ICICI Bank's profit growth at 15% is higher than that of HDFC Bank's 11%. The NII growth was at the same levels. ICICI also has a better net interest margin (NIM) of 4.41%, compared with NIM of 3.65% for the latter.



HDFC Bank falling behind in loan growth and race for deposits

ICICI Bank has achieved 14% growth in both advances and deposits, as of FY25, while HDFC Bank’s advances grew at roughly half the rate of its deposits.

For HDFC Bank, the merger with HDFC added a substantial loan portfolio but fewer deposits, resulting in a loan-to-deposit ratio (LDR) that spiked to over 100% post-merger. Although HDFC Bank brough this down to 96.5% at the end of FY25, it continues to face pressure to boost deposits or temper loan expansion. In contrast, ICICI Bank’s LDR ratio stood at a more comfortable 82.4% as of March 2025.

A high LDR can indicate that a bank is lending a large portion of its deposits, which might lead to liquidity issues if depositors withdraw their funds quickly.

The elevated LDR levels post the merger resulted in HDFC Bank consciously slowing down credit growth in FY25 to maintain LDR at balanced levels. The management of HDFC Bank expects the current improvement in systemic liquidity to aid deposit growth.

"However, the pace of decline in LDR ratio will moderate going ahead as loan growth picks up pace and returns to pre-merger levels of 85-90% only by FY27," said JM Financial.

ICICI Bank has also maintained a sharper focus on operational efficiency and risk management. Its risk-weighted assets -- a measure of how much capital is required to cushion potential losses -- stood at 76%, higher than HDFC Bank’s 68%. Despite taking on relatively riskier assets, ICICI Bank has kept its credit costs low at 35 basis points in FY25.

"ICICI has been a consistent performer, ticking all the right boxes on growth, margns, operational profitability and asset quality. While HDFC Bank has also seen a steady performance until the merger, the inclusion of the relatively lower-yielding mortgage portfolio along with an increased share of high-cost borrowings took a toll on HDFC Bank's margins," said Dnyanada Vaidya, Research Analyst- BFSI, Axis Securities.

For HDFC Bank, the true potential of the merger is likely to play out over the next 6–8 quarters, once synergies from the combined mortgage and banking franchise are realized. "Until then, investors may continue to see some pressure on operational metrics and margins," said Arpit Jain, Joint MD, Arihant Capital Markets.

Better ROA and ROE for ICICI Bank

ICICI Bank has the edge over HDFC Bank even on return ratios. The ROE (return on equity) for ICICI currently stands at 17.4%, which is higher than HDFC's 14.39%. Analysts expect the former RoEs to moderate to 16% over FY 25-27. The return on asset (RoA) for ICICI Bank is around 2.2%.

Should investors worry about a power shift?

Not necessarily. As HDFC Bank is gradually steering through the merger challenges, analysts believe the bank will push the growth pedal to mirror systemic growth in FY26 and further accelerate the pace of growth going into FY27.

"With merger synergies playing out and the bank witnessing an improvement in operational efficiency, we expect the cost-income ratio to improve," Vaidya said.

Additionally, the bank continues to replace high-cost borrowing with lower-cost deposits alongside pursuing growth in the retail segments, which should help maintain its NIMs in a tight range despite the rate cut cycle.

While HDFC Bank remains a structurally strong player, analysts say ICICI's better capital efficiency and sharper execution make it a more favourable pick in the short to medium term.

"That said, the banking sector continues to remain healthy, and investors can keep an eye on both names depending on risk appetite and time horizon," said Arpit Jain.

"Driven by broadly steady margins, improving opex ratios and pristine asset quality keeping credit costs in check, we expect RoA improvement to 1.9% by FY27 for HDFC Bank. We remain optimistic about both HDFC Bank and ICICI Bank," Vaidya added.

Data inputs: Ritesh Presswala

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)