Mumbai: India’s second largest lender by assets, ICICI Bank Ltd, is taking a close look at costs in an exercise that would help it save up to Rs1,300 crore in the fiscal year to next March, bank executives said.
Mumbai-based ICICI Bank, the country’s largest private sector lender, is also rejigging its business model as a result, driving more of its consumer business through its branch network rather than through the external selling agents it works with.
Changing framework:The ICICI Bank Towers in Mumbai. Prashanth Vishwanathan / Bloomberg
“We have been rationalizing our direct marketing agents and direct sales agents force, renegotiating rentals, wage management, and there are many idle assets in the organization in the form of offices and seats, which have also been rationalized,” said ICICI Bank executive director K. Ramkumar.
The genesis of this important strategic change goes back to a meeting in a London hotel in 2007, before the subprime mortgage crisis triggered by home-loan delinquencies in the US became a full-blown global financial maelstrom the following year. K.V. Kamath, who was then the bank’s managing director and chief executive, summoned his senior team to London while on his way back from the US. He told senior managers they had to pull up their socks because he suspected an economic storm was looming.
V. Vaidyanathan, then an executive director at ICICI Bank and now head of ICICI Prudential Life Insurance Co. Ltd, led the resultant cost-cutting exercise with a team consisting of various business heads. The bank termed the exercise waste reduction.
Ramkumar did not comment on the size of the savings that another ICICI Bank official, who didn’t want to be named, had told Mint about in an earlier meeting. An ICICI Bank spokesperson independently confirmed that the cost-trimming would yield a saving of Rs1,300 crore in 2009-10.
The bank reduced its expenses on external or direct marketing agents to Rs529 crore in fiscal 2009, down 65% from Rs1,524 crore in fiscal 2007, according to the bank’s annual financial statements.
Reduced role for agents
ICICI Bank has doubled its branch network to 1,400 from 750 over the past year, and aims to have 2,000 branches in the next 12 months.
“The bank branches, which earlier were just cost centres, will now become revenue centres. They would now, along with liabilities, also sell asset products,” said Ramkumar. Each branch manager will also “have profit and loss accountability”, he added.
As the bank widens this network, it hopes to make around 60% of its loan disbursals from its branches in the near future, up from 20-25% in previous years.
The lender has tightened the credit criteria for two-wheeler loans and is increasingly disbursing more of these from its branches. But it will not be easy for ICICI Bank to eliminate direct selling agents for its car loans business as this is driven by car dealerships.