Mumbai: In a significant strategic shift that is already having an impact, ICICI Bank Ltd has decided to go slow on its retail assets expansion after three years of accelerated growth in the segment.
As a result, consumer loans, mortgages and auto loans, which collectively accounted for about 69% of ICICI’s total loan book two years ago, have now come down to 58%, and are set to go down further.
Chanda Kochchar, joint managing director and chief financial officer of ICICI (Photo by: Bloomberg)
The shift stems from India’s second largest private sector lender believing that there is a bigger opportunity in corporate loans.
While some banking observers see this as ICICI, an aggressive consumer lender, developing cold feet in the retail segment, influenced by growing non-performing assets, or NPAs, in such loans, Chanda Kochchar, joint managing director and CFO of ICICI, said it is not possible to keep growing at the bank’s previous scorching pace, especially as its base becomes larger.
“The growth rate of consumer credit will come down from 35-40% to 12-15% this year,” Kochchar said in an interview with Mint.
According to her, the bank’s growth in consumer credit will be in sync with the industry, but its growth for corporate credit will be higher than the industry, or more than 20%.
ICICI’s focus now will be on retail liabilities instead of assets. In other words, the bank will aggressively mop up retail deposits and not go for retail loans. As retail deposits cost less than wholesale deposits, this should bring down the cost of deposits and add to the profitability of ICICI.
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The bank has already pushed up the share of current and savings accounts of its total deposits to 26% from 22% of its total deposits by focusing on retail deposits.
A bank does not pay any interest on current accounts and pays 3.5% on savings accounts.
“Three years back, our corporate credit book was growing at 5%,” said Kochchar. “(For the) last two years, the growth was around 12-15%. Now, we could grow at even 25%. The high consumer spend in the last few years created huge demand, and Indian firms now want to invest big money. By our estimates, there is about $700 billion (Rs29.9 trillion) investment in the pipeline. If you include the working capital requirement of Indian firms and the money required for overseas acquisitions, banks’ corporate loan book should grow between 20% and 25% this year.”
Kochchar also challenged the market perception about growing NPAs in consumer finance in ICICI Bank.
“Yes, the total value of NPAs in consumer loans is growing, but this is because our portfolio of unsecured loans is growing,” she said. “Earlier, unsecured loans were 13% of our total retail loans and now they have gone up to 18%. But, the losses are moving within the accepted level.”
The net NPAs of ICICI stood at 1.49% in March, up from about 1% a year ago.