ICICI Bank (NYSE:IBN), as India's second-largest diversified banking group, has shown remarkable progress in overcoming past governance challenges and establishing strong fundamentals under the leadership of CEO Sandeep Bakshi. This progress is particularly noteworthy when compared to its key competitor, HDFC Bank, which has encountered difficulties across its profit and loss statement. Despite facing tight liquidity conditions in India and fierce competition for low-cost deposits, ICICI Bank's low funding cost stands out, supporting its potential for sustained credit and earnings growth. This is a critical factor in a country like India, where the economy is experiencing low teens percentage nominal GDP growth and a robust lending appetite, as indicated by the latest monthly credit numbers.

The bank's financial metrics provide a deeper insight into its valuation and performance. With a price-to-earnings (P/E) ratio of approximately 17.93, ICICI Bank is not conventionally cheap, trading at a high-teens forward P/E ratio, about three times book value. This valuation is justified by a high teen percentage return on equity profile and a 20-30% earnings growth runway, making it an attractive investment despite the rate cut cycle. The price-to-sales (P/S) ratio at about 4.95 and the enterprise value to sales (EV/Sales) ratio of roughly 5.47 further highlight the market's valuation of the company in comparison to its sales. Additionally, the significantly high enterprise value to operating cash flow (EV/OCF) ratio of approximately 1624.87 suggests the company's valuation in relation to its operating cash flow, while the debt-to-equity (D/E) ratio of around 0.82 indicates the company's reliance on debt financing in relation to its equity.

In the third quarter of fiscal year 2024, ICICI Bank faced net interest margin (NIM) pressure, with NIM moderating by approximately 10 basis points quarter-over-quarter to 4.4%. However, the bank's management expects deposit repricing pressure to ease in the next quarter or two. The bank's disciplined approach to lending, particularly in avoiding higher-risk unsecured lending, and its strong provision coverage, contribute to its resilience. Additionally, improvements in fee income from non-bank businesses and a slowdown in headcount additions are expected to support the bank's financial targets going forward.

Looking ahead, ICICI Bank is well-positioned for continued growth, with strong monthly system credit growth reported by the Reserve Bank of India (RBI) and the bank's loan growth outpacing the system. Management's guidance for the upcoming quarter and full-year results remains manageable, with expectations for continued credit growth at a moderated pace. ICICI Bank's access to lower-cost retail deposits distinguishes it from its peers, allowing it to navigate loan growth challenges more effectively.

In summary, ICICI Bank's intact funding cost advantage, disciplined lending approach, and strong fundamentals set it apart in a challenging liquidity environment. The bank's long-term growth story remains compelling, with room for earnings to compound over time. Despite recent stock rallies, the valuation remains attractive relative to the bank's historical trading levels and underlying fundamentals.