ICICI Bank: Banking on Change

It’s a season of change at some of the big and happening companies of India Inc., from Hindustan Unilever to Axis Bank, Infosys to L&T. However, probably it is the ICICI Bank, the country’s biggest private sector lender, whose course correction has surprised more than anyone’s else and has, in fact, attracted more eyeballs (to its news on the World Wide Web), much to the envy of its (banking) neighbors, sorry, rivals.

Getting straight to the point, ICICI Bank, under its new CEO, Chanda Kochhar, has decided to reverse its famed aggressive style of banking which saw it grow phenomenally during the late 90s and the first decade 2000, however, found itself battling mounting bad debts when the credit catastrophe of 2008  hit the global banking  system hard. The worst crisis in the living memory forced banks across the globe to rethink their growth strategy. ICICI’s top brass too headed to the drawing board to chalk out new plan to spearhead bank’s growth in the new decade and amidst new ground realities that demanded banks to be more vigilant, cautious and prudent. Under the leadership of Ms. Kochar, the bank has rightly opted for a course correction. Making a quite switch over to the strategy of ‘slow yet safe’ growth, instead of chasing growth at any cost, the bank has also become more conservative in its approach. It has implemented what it calls the strategy of 4Cs components of which include: Current & Savings Account (CASA) deposit growth, Cost control, Credit quality improvement and Capital conservation. And the benefits are trickling in: the bank’s CASA ratio has increased from 28.7% at March 31, 2009 to 41.7% as on 31 March, 2010 and further to 44.0%, as on September 30, 2010. At the same time, its Net non-performing asset ratio declined to 1.37% at September 30, 2010 from 2.19% at September 30, 2009 (the bank’s Net non-performing assets decreased significantly by 30.0% to Rs. 3,192 crore at September 30, 2010 from Rs. 4,558 crore at September 30, 2009), while the CAR (capital adequacy ratio) jumped to a solid 20.2% with the Tier-1 capital adequacy at 13.8%. In another major positive, the bank’s provisioning coverage ratio improved to 69.0% compared to 51.7% at September 30, 2009. Led by these improvements, the bank’s profits after tax grew 18.8% to Rs. 1,236 crore (US$ 275 million) for Q2-2011 from Rs. 1,040 crore (US$ 231 million) for Q2-2010.

So, are we going see a changed ICICI? “Actually our next phase of growth has already started,” Ms. Kochhar said in a recent interview to the Economic Times. She pointed out the improved performances in the last two quarters, which saw a reduction of the unsecured personal book in the bank’s retail portfolio while domestic corporate portfolio grew at about 30% annualized basis, during the same time, to drive home the point. “It is going to be very focused growth. The growth that we are going to focus on will be on housing loans, car loans, commercial vehicle loans, the whole gamut of project and infrastructure finance and trade finance,” she added.

However, the runaway food and oil prices could depress demand (for consumer loans) and play spoilsport. Also, with competition heating up in the banking sector, it won’t be easy to woo customers.

For now, we hope the change delivers for this home-grown financial ‘super market.’