Mumbai: India’s largest private sector lender by assets, ICICI Bank Ltd, is redrafting its retail strategy to beat the current slowdown in consumer spending.
Tackling slowdown: Debit card volumes for ICICI Bank have moved from Rs250 crore per month to about Rs400 crore per month. The bank is cautious on credit cards and is pushing spending on debit cards instead. Adeel Halim / Bloomberg
Until recently, the bank’s consumer business model was driven by aggressive growth in its loan book. But, as Asia’s third largest economy slows and consumers focus more on saving than spending, ICICI Bank has started chasing retail deposit liabilities instead of loan assets.
The lender has also set up a task force under executive director V. Vaidyanathan to control expenses and reduce waste. Yet another part of the bank’s strategy is to draw customers back to its branches. It has virtually stopped calling prospective customers on the phone to offer loans, depending instead on branches, short messaging service and emails to solicit business.
“We see robust activities in the liabilities market now. Until recently our savings account base has been growing at over 30% year-on-year. Our CASA (current and savings accounts) has grown from 18% a few years ago to 28% of the liability base. We plan to take it to 35%,” said Vaidyanathan.
India’s economy is forecast by the government to grow 7.1% in the fiscal ending March, the slowest pace in six years. Banks have become cautious on lending to consumers because of concerns about a possible increase in defaults as employers freeze or cut salaries and put hiring on hold.
Analysts also say loan collection and asset repossession has become tougher.
“A few bad customers are hurting all borrowers,” said a banking sector analyst at a Mumbai-based brokerage who didn’t want to be named. “Hence, in such an environment the bank focuses on high-income category customers who are the least prone to default and litigation (rather) than the marginal middle-class customers who are the first to be hit by the changing economic environment.”
According to Vaidyanathan, ICICI branches are being recast to execute the change. “Branches don’t just do servicing; they now do relationship management. The systems, and physical layout of the branch is being changed to accommodate this new requirement,” he added.
ICICI Bank has increased its branch network to 1,400 from 750 in a year’s time and will have 2,000 branches in the next one year. To bring customers back to branches, the private sector bank is running a programme called “Just Step In”. “It’s an investment for the future. We feel, therefore, there is more work to do on the cost front, to neutralize the impact of branch expansion,” Vaidyanathan said.
Describing the expense control exercise as “reallocation of resources to the new growth areas” and “merger of structures”, he said the bank had reduced the number of people who act as intermediaries for selling loans.
“We don’t make outbound calls any more. Over the past one year the bank has stopped telecalling. We have been using the alternate channels like branch, short messaging service and emails,” said Vaidyanathan. The bank has reduced outbound calls by 95%.
Within the retail loan segment, ICICI Bank is going slow on unsecured loans such as credit cards and personal loans and focusing on secured loans such as mortgages and auto finance.
“We love mortgages and auto loans in particular. These are long-term businesses. Considering the stiff underwriting standards, these will ride out any credit cycle,” Vaidyanathan said.
On an incremental basis, according to him, unsecured lending is only 3-5% of the overall loan book now, sharply down from 19% earlier.
ICICI Bank started tightening its credit norms in 2007, when interest rates started rising. “We dropped a few unsecured products along the way,” Vaidyanathan said.
It is also consolidating its credit card base and encouraging customers to use debit cards more than credit cards. Vaidyanathan is confident that card penetration will increase and “electronization is an unstoppable phenomenon,” but admits that “at this point in time we are cautious on credit cards, and pushing spends on debit cards instead”.
As a result of the focus on increasing the usage of debit cards, debit card volumes for ICICI Bank have moved from Rs250 crore per month to about Rs400 crore per month, while credit card spending remains unchanged at Rs1,000 crore per month.
Vaidyanathan said the bank started an education series for its consumers and this has helped reduce customer complaints by 50%.
“There is a huge change in customer expectations. Customers that were borrowing to meet their present needs are now looking to save for their future. They now need financial planning services which we are also encouraging,” he added.
The new branches opened and being set up by the bank are spread across rural and semi-urban areas, tapping the local population for deposits. They are also seeking opportunities for government business such as tax collection and salary accounts of public sector companies to reinforce the bank’s already strong presence in sectors such as information technology and related services, Vaidyanathan said.