Quietly but inexorably, ICICI Bank is getting back its halo. And winning the Bank of the Year in the BT-KPMG Best Banks Survey 202021, for the second year running, simply embellishes the point. At the heart of this turnaround is the soft spoken, no-nonsense, humble-to-a-fault, delivery-focussed Sandeep Bakhshi. In the three and a half years since Bakhshi, 61, walked into the corner room of the country’s second-largest private sector bank as its MD & CEO, the bank has not only laid to rest the ghosts of a turbulent governance debacle that hurt badly, but also returned impressive numbers to show.
With a three-year extension (till October 2023) in hand, Bakhshi has relentlessly focussed on core operating profits, which have jumped 1.65 times since 2017-18 to Rs 31,351 crore in FY21. Net profits for shareholders have increased by 2.4 times to Rs 16,100 crore, and consolidated assets have gone from Rs 11.24 lakh crore to Rs 15.74 lakh crore in the same period. Net interest margins have risen from 3.5 per cent in September 2018 to 3.9 per cent in December 2021 despite tough competition, and in the same period, gross NPAs have dropped from 8.84 per cent to 4.13 per cent. Investors are noticeably enthused. The bank’s stock has delivered 27 per cent returns in a year’s time, outperforming the Sensex’s 13 per cent, and the Bankex’s 9 per cent.
And what does the man behind the performance have to say? “We are [actually] temporary trustees of this institution, and there has to be [only] one strategy, that is, the institution must live more than 100 years from now,” says Bakhshi.
The man is humble, yes, but he’s also a smart strategist. He’s taking the bank through some fundamental changes in the way it approaches business. For example, unlike its earlier approach of writing a big fat cheque for a project loan and earning interest, it is now not only tapping the employee base of an enterprise but also its entire ecosystem. Hundreds of dealers and suppliers of corporate biggies such as ArcelorMittal Nippon Steel, Asian Paints, Exide, Hero Cycles, Hindustan Unilever, Voltas and dozens of others are directly commingled with ICICI Bank’s digital ecosystem to avail instant and collateral-free loans. It’s a win-win for everyone. The corporates are able to improve their operational efficiencies by having reduced working capital cycles, and are also helping their network companies get the best financing deals in quick time.
This new corporate initiative is already clocking average monthly transactions worth a few thousand crores of rupees. In the retail banking space, where ICICI Bank has 61 per cent of its loan book, the Mumbai-headquartered lender is tapping new-to-bank customers via its universal fintech app. There are already millions of new customers whom the bank is targeting for crossselling retail banking products. In the fast-growing SME segment, partnering with e-commerce giants Amazon and Flipkart is providing it access to top-rated sellers.
Clearly, the 67-year-old ICICI Bank has cast its net far and wide.
Bakhshi, who had earlier headed the group’s generaland life insurance units, believes that to ensure the longevity of the institution, the key pillars are protection of capital, brand, trust and reputation. At the end of every quarter, there would be a full download to the leadership team, which is now about 600-plus.
Technology has made it possible to discuss the performance, risk frameworks, business philosophy, and new ideas with its 100,000-plus employees. Bakhshi has been making efforts to drill down core values in the minds of the bank’s employees—that banking is actually an adverse ratio business; and that an institution like ICICI Bank has to have risk frameworks while lending money to corporates and retail.
That was probably the miscalculation the bank had made earlier when it came under pressure post the global financial meltdown both for its overseas exposure and domestic lending. Similarly, in the period after 2017, the bank saw its gross NPAs crossing the 8.84 per cent mark because of a slowdown in the economy. Bakhshi often reminds his team that the bank makes 3 per cent money when it does a right risk exposure in a loan, and loses 100 per cent in a bad loan deal. “The elements of brand, trust and reputation are well drilled in our minds,” says an employee.
The new ICICI Bank, which Bakhshi is building, believes in simplicity in products and services— make products that you can sell to your brother, sister or a family member. That is the underlying message to employees. And that is also a big change at the developmental financial institution-turned-commercial bank that had visionary leaders such as N. Vaghul and K.V. Kamath.
Bakhshi is very cautious in building a corporate loan book, which has a share of 24 per cent in the loan mix.
There is, however, a sharp focus on tapping opportunities in the corporate network for fee-based income as well as interest income.
The bank is offering the full array of banking services to customers, including salary accounts, payments, remittances, credit cards, forex, investments, etc. While a loan is a one-time business transaction, a customer needs other banking products throughout the year. Clearly, the bank is pivoting itself to a customer-centric organisation from a product-centric one. The bank claims to have made big strides in the high-value retail accounts of promoters, directors and employees by building relationships for salary accounts, wealth management, mortgages, etc. “ICICI made rapid strides in simplifying systems and processes, and implemented a 360-degree customer approach, a high level of digital-based solutions ecosystem, and frictionless digital lending, which improved growth and customer experience,” says Amnish Aggarwal, Director-Institutional Research, Prabhudas Lilladher.
Technology has been the centrepiece of this business model. There is also an ecosystem-based approach to help the corporate in managing its business across the value chain efficiently. The bank says that the current loan mix of retail and wholesale mirrors the changes in the industry with low capacity utilisation levels, deleveraging, and pre-payments by strong corporate groups.
Looking ahead, there are new opportunities with high capital expenditure by the government, PLI schemes, and asset monetisation and privatisation initiatives. Over the past few years, the bank’s share of high-rated corporates has also jumped from 51 per cent four years ago to 71 per cent today.
Meanwhile, the bank’s SME and business banking is firing on all cylinders, with a loan book of Rs 36,353 crore on December 31, 2021,a growth of 30 per cent year-on-year (YoY). The share of SME in the total loan book is around 4 per cent, but digitisation has now made it possible to take a larger bet in this business. In fact, the current high growth in SME and business banking, which has an equal share, is piloted by the digital platforms—InstaBIZ and Merchant Stack—that the bank has developed in the recent past. The value of financial transactions on InstaBIZ—for SMEs and the selfemployed—grew by about 68 per cent YoY in Q3FY22. Using Merchant Stack, the bank offers services to retailers, online businesses and large e-commerce firms. In the past four months, it partnered with Flipkart and Amazon to offer an instant and completely digital overdraft facility of up to Rs 25 lakh to their small and medium sellers to meet their working capital requirements. Even non-bank customers are allowed to avail money instantly without any hassles of bank statement, balance sheet or income tax returns. The bank leverages credit bureau scores and retail transaction analysis to assess creditworthiness.
Retail banking is also a big focus area under Bakhshi. The bank is trying to create customer journeys through the personalised and omnichannel model. There is extensive use of in-house big data and analytics and credit bureau scores to cross-sell to existing customers. The share of retail in total advances has already gone up from 57 per cent when Bakhshi joined, to 61 per cent. Mortgages contribute more than half the loan book within retail, whereas vehicle and rural loans have a share of 13-14 per cent each. In the past three years, the personal loans and credit cards businesses have expanded big time. Personal loans have a share of 11 per cent and credit cards contribute 4.5 per cent to the retail book. The bank is also creating new products like Buy Now, Pay Later (BNPL), which are typically smaller in ticket size but the customer has to fall within the bank’s overall risk architecture.
It took another bold decision in December 2020 when it opened its mobile banking platform iMobile Pay to customers of other banks. There have been 5.3 million activations from non-ICICI Bank account holders as of end-December last year. “The bank’s retail portfolio is largely secured and built on proprietary data and analytics in addition to bureau checks and is well-priced in relation to risk,” says Jitendra Upadhyay, Senior Equity Research Analyst, Bonanza Portfolio. At the same time, Edelweiss Research has recently highlighted two key risks— maintaining a retail traction of aggressive growth; and deterioration of the macro environment, which could result in higher restructuring and slowdown of business growth.
The bank had stopped investing and started winding down its international book. It called back about $370 million of capital from both its UK and Canadian subsidiaries. Under Bakhshi, the bank—with a presence in the US, the UK, Canada, Singapore, Hong Kong, China, Dubai, etc.—has repositioned and recalibrated its books. The strategy for international business has been usually around the NRI ecosystem (deposits, remittances etc.) both for Indians going overseas and Indians trying to invest in India. There is also an MNC piece, which includes Indian firms with global operations and foreign firms investing in India.
The bank’s cost-to-income is at 37.20 per cent in FY21 compared to HDFC Bank’s 36.32 per cent, and upwards of 40 per cent for Axis Bank, Kotak Mahindra Bank and SBI. The cost ratio, however, has gone up slightly in 2021-22 because of significant investments in technology, branches and people. In terms of growth, the bank’s commercial vehicle and equipment segment is a bit stagnant because of industry’s concerns over delinquencies. “The company has sizeable exposure to SME, corporate and unsecured retail credit that might be at risk going forward due to ongoing disruption,” says Upadhyay of Bonanza Portfolio.
Aggarwal of Prabhudas Lilladher says the bank has been quite resilient during the Covid-19 waves as the gains of a customer-centric approach and tech advancements of the past few years enabled minimal impact. “We believe maintaining one step ahead in tech applications and providing one-stop-shop financial solutions would be key to sustaining growth in an environment prone to disruption by fintech companies,” says Aggarwal.
Evidently, all these moves point to a long-term vision for the bank. “We owe a debt of gratitude to our predecessors who have given us such a great legacy. We have to do our bit to ensure that as trustees, probably we will put one extra brick before we hand it over to our successor,” says Bakhshi, who believes in playing his part sincerely in building the institution, and then bowing out. But by then, he would have etched his name deep into the annals of Indian banking history.
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