When 60-year-old Sandeep Bakhshi was pulled out from ICICI Prudential in early 2018 and asked to head ICICI Bank, the country's second-largest private sector bank was facing multiple challenges. One was instability due to the exit of Chanda Kochhar. Second was high level of non-performing assets or NPAs. Bakhshi, who grew up in a defence family, hopping from one school to another, was quick to adapt to the situation. In a little over two years, he has delivered results.
Return on assets has jumped from 0.43 per cent to 1.70 per cent. Net non-performing assets (NPAs) are down from 3.65 per cent to 0.63 per cent with substantial NPA provisioning. Capital adequacy is close to 20 per cent as against 9 per cent mandated by the Reserve Bank of India. The share price has almost doubled from Rs 303 to Rs 597 (February 26) since he took over. The bank, with over Rs 15 lakh crore balance sheet, is valued at 3.22 times its book. The BT-KPMG Study jury has conferred the Bank of the Year Award on ICICI Bank. The bank has also been adjudged as Best in Talent & Workforce and Fintech Initiative. So, what did Bakhshi do to get ICICI Bank back into the game?
Bakhshi, who calls himself a trustee of depositors, first decided to focus on core operating profit. This required clear market segmentation. The strategy, similar to what he had done in the life insurance subsidiary, was to adopt a 360-degree customer-centric approach. This meant unclogging complex processes, speeding up digitisation, building partnerships, cross-selling across corporate/retail customers and human resources reforms so that every employee focuses on one goal. Some re-calibration done by his predecessor after the RBI's asset quality review also helped by creating a robust risk management framework. A few digital initiatives such as iMobile started five years ago also helped.
The first big step was to restructure the workforce. The bank decided to move from grade-based (GM/DGM) to role-based (head of assets, liabilities, etc) designations and empower teams at zonal and branch levels. This ensured sharp reduction in hierarchy and faster response to challenges. Earlier, the bank used to approach customers, especially companies, with a single product, say a working capital loan or a term loan. Under Bakhshi, it started approaching clients for multiple relationships. The teams responded well to Bakhshis initiatives.
Simultaneously, the top brass worked on decongesting processes and speeding up digitisation. Digital initiatives improved operational efficiencies and helped tap tech-savvy customers. Technology has always been core to the banks strategy. The lender, known as early adopter of new technologies like ATMs in the 2000s, has now digitised the entire underwriting process with instant approval for retail loans. A year ago, it came out with a digital banking platform called ICICI STACK, which is offering as many as 500 banking services to retail, SME and corporate customers. The mobile banking app, iMobile, was extended to iMobile Pay, which offers payment and banking services to customers of other banks. There have been a little over half-a-million iMobile Pay activations from customers of other banks since launch in October last year. Four months ago, it added new features on its WhatsApp banking platform which enable customers to create fixed deposits and pay bills.
ICICI Bank has also launched specific products for MSMEs and start-ups. For example, Instabiz has been designed for MSMEs and self-employed customers. Then there is iStartup 2.0, which allows start-ups to open current accounts digitally and opt for a range of products. All this was done through partnerships with developers, start-ups, fintechs and e-commerce players. It recently launched India's largest API banking portal offering 250 APIs. The co-branded Amazon Pay credit card, which offers unlimited reward points, had been issued to 1.4 million people till October last year.
All this does not mean that Bakhshi is not opening new branches. His strategy of focusing on core operating profits, after all, requires low-cost funds. That is why he has decided to focus on more granular deposits. But challenges remain as new banks are offering higher savings and term deposit rates.
Loan Growth Strategy
Insiders claim Bakhshi has no target for loan growth in mind. He has built capacity in terms of physical distribution, digital delivery and partnerships. The bank is agnostic towards retail, SMEs and wholesale banking, but will do capital allocation based on the risk-calibrated framework.
Under Bakhshi, the share of retail loans has jumped to 66 per cent as against 57 per cent when he had joined. "Strong focus on digital and launch of new products post his appointment led to increase in retail lending," says Vinod Nair, Head of Research at Geojit Financial Services. Currently, almost half the retail portfolio is in mortgages. Vehicle loans are the next big head, followed by personal loans, business loans and credit cards. Unsecured loans, especially personal loans and credit cards, have contributed strongly to growth in retail business. Currently, 14 per cent of the retail book is personal loans and credit cards. According to the senior management, the resilience of the ecosystem, robust credit bureaus and availability of multiple data points are encouraging banks to increase the share of unsecured loans, which offer high margins. The bank claims higher retail lending is an outcome of the slow capital expenditure cycle and high growth in the services sector.
Will the next phase of retail growth come from rural and semi-urban areas? Rural and semi-urban is a big theme. In fact, ICICI Bank was the first to come out with "no white spaces" strategy during 2013 but the model didn't find favour with the regulator. Today, the bank has half the branches in rural and semi-urban areas. Rural loans contribute around 15 per cent to retail advances. The bank is also targeting small business customers. The business banking portfolio, primarily comprising secured small-ticket lending, is around 7.6 per cent of the retail portfolio. Big structural changes like GST returns are increasing cash-flow based lending.
The SME portfolio is small at around 4 per cent; it includes companies with turnover of less than Rs 250 crore. It has regrouped the SME portfolio with retail business group focusing on companies with turnover of less than Rs 250 crore. The mid-market group has got companies with turnover of Rs 250-750 crore. Companies higher than Rs 750 crore have been shifted to the corporate banking group. In the corporate banking business, the bank continues to focus on lending to higher-rated corporates. It is hopeful of the capital expenditure cycle turning in many sectors. But any lending to corporates will be based on the risk management framework.
International & Universal Banking
ICICI Bank has also reformulated its international strategy - a business which was over 20 per cent of its balance sheet before the global financial crisis. It is focusing on non resident Indians, Indian corporates abroad and MNCs. The share of international banking is around 6.2 per cent of total advances. Clearly, the bank doesnt want to compete with local peers. Wherever there is uncertainty of capital, it wants to stay away.
ICICI Bank operates as a universal banking services provider with subsidiaries in life, general, mutual fund, private equity and securities. These non-bank businesses are leaders in their fields. Ajit Mishra, Vice President, Research, Religare Broking, says the subsidiaries are benefitting from increasing awareness about insurance and growing interest of retail investors in equity and mutual funds. The two insurance subsidiaries and ICICI Securities are listed on stock exchanges. Early last year, the bank monetised 1.5 per cent in life insurance and 4 per cent in general insurance businesses, which strengthened its balance sheet by Rs 3,000 crore. The bank holds 51.37 per cent in ICICI Prudential and 51.89 per cent in ICICI Lombard. It has 75 per cent in ICICI Securities."We might witness some unlocking of value once ICICI Prudential AMC gets listed. ICICI Prudential AMC is the largest AMC in the country and manages close to Rs 3 lakh crore in assets," says Nair.
"The new management strengthened corporate governance and took efforts to improve the bank's image," says Religare Broking's Mishra.
The banks asset portfolio was tested in the worst of times. It is now up to Bakhshi to steer the ship ahead.
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