HDFC Bank vs ICICI Bank: Which private sector lender to choose in long term?

HDFC Bank vs ICICI Bank: The private banking sector in India is dominated by two stalwarts, HDFC Bank and ICICI Bank, offering investors a blend of stability and growth potential. Both banks have delivered robust performances, backed by strong fundamentals and solid financial metrics. However, with differing strategies and market positions, choosing between the two for long-term investment can be a challenging decision.

For investors looking to make a long-term investment decision, weighing the strengths and opportunities of these two banks becomes essential. Analysts across leading brokerages share their views on which bank holds the edge in the current market scenario.

Stock Price Trend

ICICI has outperformed HDFC Bank in 2024 so far. ICICI has climbed over 33 percent on a year-to-date (YTD) basis, while HDFC Bank has gained around 9 percent during the same period. In comparison, Nifty Bank index, which rose over 10 percent in this period.

However, in the last one HDFC Bank beating its rival adding 10 percent versus a 6 percent gain in ICICI.

ICICI has delivered positive returns in eleven of the 12 months this year, while HDFC Bank has gained in nine. Just in December, ICICI rose over 2 percent, extending gains for seventh straight month since June. Meanwhile, HDFC Bank advanced 3.5 percent in December, rising for the fifth straight month since August.

Over the past year as well, both bank stocks delivered positive returns, with ICICI rising 31 percent and HDFC Bank 14 percent. Both stocks outperformed Nifty Bank, which advanced 13 percent in this period.

Boosted by strong market sentiment and investor confidence, ICICI reached an all-time high of ₹1,361.35 in September 2024. Currently, trading at ₹1,328.95, the stock is just a little over 2 percent below its peak. However, it has surged over 37 per cent from its 52-week low of ₹970.05, recorded in January 2024.

Meanwhile, HDFC Bank also hit a record high of ₹1,880.00 in September. The private bank now trades at ₹1,858.95, just 1 percent away from its peak. That said, the stock has experienced an over 36 percent rise from its 52-week low of ₹1,363.45, hit in February 2024.

Over the last three years, ICICI has delivered better returns, surging over 76 percent as against a 23 percent rise seen in HDFC Bank.

HDFC Bank vs ICICI Bank: A Comparative Look at Q2FY25 Earnings

HDFC Bank reported a 5.3 percent year-on-year (YoY) increase in standalone net profit to ₹16,821 crore in Q2FY25, compared to ₹15,976 crore in the same period last year. Net Interest Income (NII)—the difference between interest earned and interest paid—grew 10 percent to ₹30,110 crore from ₹27,390 crore in the year-ago quarter. This marks the first comparable year-on-year performance since the merger with its parent, Housing Development Finance Corporation (HDFC), was finalized in July 2023. HDFC Bank’s core Net Interest Margin (NIM) stood at 3.46 percent on total assets and 3.65 percent on interest-earning assets for the September quarter, slightly lower than the 3.47 percent and 3.66 percent, respectively, reported in Q1FY25.

ICICI Bank, India’s second-largest private-sector lender, posted a robust 14.5 percent YoY increase in net profit to ₹11,746 crore for Q2FY25, driven by strong growth in non-interest income, fee income, and treasury gains. Sequentially, the bank’s net profit rose 6.21 percent. ICICI Bank’s NII grew 9.5 percent YoY to ₹20,048 crore in Q2FY25, supported by solid advances growth. However, the bank’s NIM decreased to 4.27 percent in Q2FY25, down from 4.36 percent in the previous quarter and 4.53 percent in Q2FY24.

HDFC Bank vs ICICI Bank: Which private bank stock should you pick in the long term?

Experts from leading brokerages weigh in on the strengths and prospects of these banking giants to help investors make an informed choice.

Shrikant Chouhan, Head of Equity Research, Kotak Securities prefers HDFC Bank for long-term investment, citing four key factors:

1) An improving liquidity environment that positions the bank to optimize its operations effectively.

2) A proactive strategy to reduce its Credit-Deposit (C-D) ratio.

3) Clear credit growth targets to instill investor confidence.

4) Attractive valuations that minimize downside risks while offering upside potential.

Dnyanada Vaidya, Research Analyst – BFSI, Axis Securities holds a favorable view of both banks but leans towards HDFC Bank. Vaidya notes that HDFC Bank’s strategy to focus on reducing its Loan-to-Deposit Ratio (LDR) will bolster its financial strength in the long term, even if credit growth moderates temporarily. Moreover, its pristine asset quality, even in a challenging market environment, underscores its robust underwriting practices. Vaidya emphasizes that HDFC Bank’s emphasis on profitable growth and strong risk calibration bodes well for Return on Assets (RoA) improvement.

Narendra Solanki, Head of Fundamental Research, Anand Rathi Shares and Stock Brokers also favors HDFC Bank for its steady margins and improving gross slippages. He notes that at nearly three times its book value, HDFC Bank offers attractive valuations, given its historical quality of earnings. However, he acknowledges ICICI Bank as a short- to medium-term option due to its superior C-D ratio and improving credit costs.

While HDFC Bank has emerged as a favorite among analysts for long-term investments, ICICI Bank is not without merit. With its solid financial metrics, including improving credit costs and a robust C-D ratio, the bank remains a formidable choice for medium-term growth. Analysts note its ability to sustain headline Net Non-Performing Assets (NPA) improvements, positioning it well in the private banking sector.

Technical View

Mandar Bhojane, Equity Research Analyst, Choice Equity Broking has also identified HDFC Bank as a technically and fundamentally strong investment.

He highlights the stock’s breakout from a prolonged consolidation range and its bullish momentum, supported by rising volumes. With the Relative Strength Index (RSI) at a strong 68.34, Bhojane predicts significant upside potential, targeting ₹2,200 and ₹2,400 in the short term, with immediate support at ₹1,700.

ICICI Bank, on the other hand, trading at ₹1,330, is nearing a breakout from a prolonged consolidation phase, marked by higher highs, higher lows, and rising volumes, signaling bullish momentum. The RSI at 64.44 supports this positive trend, with a move above ₹1,350 potentially targeting ₹1,450 and ₹1,550. Immediate support is at ₹1,280, offering an entry point, while a stop-loss at ₹1,230 can help manage risks. The technical setup indicates strong potential for upward movement.

Share.Market’s Take

Both HDFC Bank and ICICI Bank are well-positioned to benefit from the Reserve Bank of India’s recent decision to cut the Cash Reserve Ratio (CRR) to 4 percent. This policy move is expected to enhance liquidity and drive credit growth across the sector.

A factor analysis conducted by Share.Market research assigns HDFC Bank a perfect score of 5/5 across momentum, value, quality, volatility, and sentiment. Meanwhile, ICICI Bank scores 5/5 on value, volatility, and sentiment, and 4/5 on momentum and quality, highlighting its strong fundamentals.

In summary, for long-term investors, HDFC Bank emerges as the preferred choice due to its market leadership, consistent performance, and strategic focus on profitability and asset quality. However, ICICI Bank’s robust medium-term outlook, backed by operational efficiencies and improved credit metrics, makes it a compelling pick for those seeking shorter investment horizons. Investors are advised to align their choices with their financial goals and risk appetite, as both banks offer promising opportunities in India’s thriving private banking sector.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.