ICICI Bank Q3 Profit Decline: Understanding Credit Quality Through Gross NPA Formula & Provision Rise

ICICI Bank Limited (IBN) reported a challenging third quarter for fiscal 2026, with profit after tax declining 4% year-over-year to INR113.2 billion ($1.3 billion), ended December 31, 2025. The bank’s earnings faced headwinds from elevated provisioning levels and mounting operational expenses, yet rising net interest income and solid loan expansion offered some offset. Understanding the bank’s credit quality challenges requires examining how the gross NPA formula—calculated as Gross NPA divided by Gross Advances—reveals underlying asset quality pressures.

Net Interest Income Grows Despite Operating Expense Surge

ICICI Bank delivered positive momentum in core profitability drivers during the quarter. Net interest income expanded 7.7% year-over-year to INR219.3 billion ($2.4 billion), supported by an improved net interest margin of 4.30%, up 5 basis points sequentially. Non-interest income (excluding treasury operations) reached INR75.3 billion ($837 million), climbing 12.4% from the prior-year period, while fee income specifically increased 6.3% to INR65.7 billion ($731 million).

However, operating expenses surged 13.2% year-over-year to INR119.4 billion ($1.3 billion), reflecting the bank’s ongoing digital transformation initiatives and infrastructure investments. Additionally, the bank recorded a treasury loss of INR1.57 billion ($17 million) during the quarter, a significant reversal from the INR3.71 billion ($41 million) treasury gain posted in the corresponding prior-year period. This swing in treasury results further pressured overall profitability.

Loan Portfolio Expansion Outpaces Deposit Growth

ICICI Bank’s balance sheet expansion remained healthy throughout the quarter. Total advances reached INR14,661.5 billion ($163.1 billion) as of December 31, 2025, growing 4.1% sequentially. The advance growth was broadly distributed across retail loans, domestic corporate advances, rural banking segments, and business banking, indicating balanced portfolio diversification.

On the funding side, total deposits climbed to INR16,596.1 billion ($184.6 billion), up 3.2% from the prior quarter. While deposit growth lagged slightly behind loan expansion, the deposit base remained substantially larger than advances, providing the bank with adequate liquidity cushion and stable funding structure.

How Gross NPA Formula Reveals Credit Quality Mixed Performance

Asset quality metrics tell a nuanced story for ICICI Bank. The net non-performing assets ratio improved to 0.37% as of December 31, 2025, down from 0.42% in the prior-year period, signaling gradual credit normalization. During the quarter, the bank successfully recovered and upgraded INR32.8 billion ($365 million) in NPAs through resolution efforts and upgrades (excluding write-offs and sales).

Yet underlying credit stress remains evident when examining the gross NPA formula dynamics. Net additions to gross NPA totaled INR20.7 billion ($231 million) during the quarter, while gross NPA increased by INR53.6 billion ($596 million) before accounting for write-offs. The bank wrote off INR20.5 billion ($228 million) of gross NPAs, demonstrating active portfolio cleanup efforts. These components—when incorporated into the gross NPA formula that measures Gross NPAs relative to Gross Advances—underscore the credit quality pressures management faces.

Provisions (excluding tax) jumped significantly to INR25.6 billion ($285 million) compared with just INR12.3 billion ($136.8 million) in the prior-year quarter, more than doubling year-over-year and reflecting the bank’s cautious stance on future credit risks.

Capital Buffers Remain Robust Amid Basel III Requirements

ICICI Bank’s capital position remains well-fortified according to Reserve Bank of India guidelines. Total capital adequacy stood at 17.34% as of December 31, 2025, substantially above regulatory minimums. Tier-1 capital adequacy was 16.46%, also comfortably exceeding requirements. These robust buffers provide the bank with flexibility to absorb potential credit losses and fund business growth without immediate capital raises.

The Investment Outlook: Balancing Growth Against Near-Term Headwinds

ICICI Bank faces a bifurcated operating environment heading into 2026. Digitalization investments and rising operational costs will likely continue pressuring net margins in coming quarters, while the mixed credit quality metrics signal that loan growth isn’t immune to broader economic stress. The gross NPA formula analysis suggests management must remain vigilant on credit underwriting standards.

Conversely, ICICI Bank benefits from robust loan demand reflecting India’s economic resilience, ongoing fee income expansion from digital banking initiatives, and reasonable economic growth expectations. The bank’s capital strength provides a safety net as it navigates uncertain credit conditions.

Currently, ICICI Bank carries a Zacks Rank #4 (Sell) rating, reflecting these near-term profitability and credit headwinds offsetting longer-term growth catalysts.