Both Chanda Kochhar and her predecessor K.V. Kamath had to walk over hot coals after they took over the top job at ICICI Bank and the erstwhile ICICI, respectively.
In 1996, Kamath came to the helm of an organization whose core business model of project lending had imploded. Kamath’s genius lay in the fact that he quickly realized that ICICI needed a radical makeover rather than mere tinkering at the edges. The route he chose was hectic growth in new businesses such as consumer lending, to bring down the contribution of loss-making legacy assets in the balance sheet.
Such rapid expansion led to fissures that cracked open in the global financial crisis. Kochhar took charge in May 2009 and slammed the brakes on growth. ICICI Bank’s balance sheet shrank and it lost market share to rivals such as State Bank of India, HDFC Bank and Axis Bank. Though the latter two private sector rivals each lend less than half of what ICICI Bank does every year, the gap between their market values has narrowed over the past five years, a sign that investors are more confident of the growth prospects of HDFC Bank and Axis Bank compared with their outlook on ICICI Bank. The latter’s return on equity, too, is unimpressive.
Kochhar said in an interview to Mint that ICICI Bank is “back on the growth track”. Our banking columnist Tamal Bandyopadhyay had written in a March column that Kochhar unveiled a growth strategy at a company offsite in Kerala. The contours of this plan are still unclear to outsiders.
It is too early to judge what Kochhar has done. But the loss of growth momentum, the mediocre performance parameters and the haemorrhaging of senior talent are clear worries among investors.
To be fair, many were unconvinced about Kamath’s strategy in his initial years as well. We remember a time when the dividend yield on the ICICI stock was a tad higher than the yield on its long-term bonds.
There are already signs of a course correction at ICICI Bank in areas such as credit cards and unsecured loans. But the acid test is to evolve a new growth model and get the team to deliver. Unfortunately, ICICI Bank does not come across as the nimble and innovative organization it was as recently as three years ago.
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