The making of a new bank

A WEEK BEFORE SHE TOOK OVER AS managing director and CEO of ICICI Bank in May 2009, Chanda Kochhar told analysts about the future strategy of the bank: the 4Cs—capital conservation, current account saving account (CASA) improvement, cost control, and credit monitoring.

These were words that one would not associate with a bank that had redefined aggression in the Indian financial sector; a strategy that had not only catapulted it to the largest private sector bank in the country but had also welcomed its new CEO with an ailing balance sheet.

Though ICICI’s management refused to comment, the shift in the way the bank was run by Kochhar’s predecessor K.V. Kamath became evident after interest rate hikes by the Reserve Bank of India on June 16, 2011. Previously one of the last banks to raise lending rates, ICICI was among the first few banks to announce a hike on July 1. “The bank has been raising its rates on time for a while but this time it was the first among the large banks to do so,” says an analyst. Rivals HDFC Bank and Axis Bank announced a hike 10 days after ICICI did.

Apart from tightening credit disbursal and building a deposit franchise, Kochhar has also empowered the deal counters to take calls on the rate changes, depending on the asset-liability situation, again a different approach from Kamath who used to make the decision himself. An analyst with a global investment bank says, “The growth in India is big and the market is not as price conscious as it used to be before the recession. You don’t need to use either price or credit to get business. It will come, and Kochhar has realised this.”

After her first year at the helm, ICICI’s loan book shrank 17%, against a growing industry. Today, the credit card and personal loan portfolios have fallen from 8% to 2%, interest costs have come down by a quarter and operating expenses are down by 6%. ICICI’s valuation has doubled, net interest margins are rising, and the nonperforming assets have fallen—led by a two-third reduction of its unsecured retail loan book and CASA ratio is over 45%.

“Earlier, ICICI would target a 30% to 40% growth in its loan book and then try to create the deposit base to fund those loans. In the last two years, it has focussed on building a good liability franchise, keeping the CASA growth as the target and then growing the loan book,” says Punit Srivastava, deputy head of equity research at Daiwa Capital Markets.