The changing face of ICICI Bank

The changing face of ICICI Bank

Mumbai: When ICICI Prudential Life Insurance Co. Ltd’s managing director and chief executive V. Vaidyanathan resigned on 28 July, he became the fourth high-profile executive to quit the ICICI Group since Chanda Kochhar’s rise to the top at India’s largest private sector bank.

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He joined his predecessor Shikha Sharma, Sanjoy Chatterjee, executive director at the bank; and Renuka Ramnath, who had been heading ICICI Venture, India’s largest private equity firm, in leaving the group.

Vaidyanathan has moved to Kishore Biyani-promoted Future Capital Holdings Ltd. Sharma heads Axis Bank Ltd; Chatterjee is co-head of Goldman Sachs in India; and Ramnath has set up her own fund, Multiples Alternate Asset Management.

ICICI Bank Ltd took just 24 hours to identify Vaidyanathan’s successor—Sandeep Bakhshi, an executive director who had helped Kochhar consolidate the bank’s retail book. The organization doesn’t seem to have a leadership vacuum; it has a healthy talent pipeline of 2,000 people.

While a section of the analyst community says that people movement is a concern for the bank, Kochhar, 49, and the youngest chief executive officer (CEO) in the bank’s 55-year history, is unfazed by such exits.

“Historically, ICICI Bank has been a talent pool for the Indian financial sector. In a high-growth, progressive organization, people are given large responsibilities at a very young age and the experience and expertise that they gain become very valuable for other organizations." she said in an interview. “This is a recognition of our work culture and our ability to nurture talent and build a leadership pool."

To be sure, high-profile exits are not a new phenomenon in ICICI Bank. Kishor Chaukar, former head of ICICI Securities Ltd, the bank’s investment banking arm, and a batchmate of its chairman K.V. Kamath at the Indian Institute of Management-Ahmedabad, had left the organization early this decade to head Tata Industries Ltd.

Talent suppliers

Kochhar’s former colleague, Kalpana Morparia, now heads JPMorgan Chase and Co.’s India operations. The long list of others who left the bank in the past for other organizations include Ajay Srinivasan (CEO of Aditya Birla Financial Services Group), Vedika Bhandarkar (managing director and vice-chairman, India, and head of the investment banking department and global markets solutions group in India at Credit Suisse India), Bala Swaminathan (with Bank of America Merrill Lynch).

Even Rashesh Shah, founder and chairman of Edelweiss Capital Ltd, used to work for ICICI Bank. Vaidyanathan aspires to start his own organization someday.

“You cannot do much to stop people if they want to do something different," says K. Ramkumar, executive director of the bank who is in charge of human resources. “Highly talented people put on the bench for (a) long time will leave. You should not grudge (that)."

Entities such as ICICI Bank, HDFC Bank Ltd and State Bank of India will have to come to terms with the fact that they “will be suppliers of talent to the industry," he says.

Neeraj Swaroop, head of Standard Chartered Bank in India, was heading consumer banking at HDFC Bank until 2005. Another HDFC Bank executive, Samir Bhatia, head of corporate and SME (small and medium enterprises) banking, had left for Barclays Plc in India in 2006 to head its retail and commercial banking operations in India.

The churn in senior management following a change of guard is not unique to ICICI Bank alone.

Proven track record

After Sharma took over the reins at Axis Bank, Hemant Kaul, a close confidant of its former chairman and managing director P.J. Nayak, and head of retail banking, quit. Similarly, after the merger of Centurion Bank of Punjab with HDFC Bank, its CEO Shailendra Bhandari quit even though he was made an executive director at HDFC Bank. Bhandari now heads ING Vysya Bank Ltd.

“Too many senior-level exits in a short span of time does not augur very well for an organization. In case of ICICI Bank, they have found replacements within the group who have been equally competent and have had a proven track record," said A.S.V. Krishnan, senior research analyst at Ambit Capital Pvt. Ltd.

“There will be churn of talent, but it’s not a cause of concern for analysts and investors once the performance gets demonstrated... For instance, when P.J. Nayak quit Axis Bank, there was a blip in sentiments, but that lasted only until Sharma demonstrated the same consistency in performance at Axis Bank," he added.

Kochhar, too, seems to have convinced investors that she could deliver. In the past one year, the bank’s stock has advanced 38.23% against a 22.58% rise in the Sensex, India’s bellwether equity index.

Kochhar took over as managing director and CEO in May 2009, but the succession plan had been drafted in late 2007 when the bank appointed Wayne Brockbank, a professor at the University of Michigan’s Ross School of Business and a human resources consultant, to evaluate the leadership qualities of senior ICICI Bank executives.

Brockbank spent a year during which he zeroed in on Kochhar after talking to peers, bosses and subordinates of at least six other senior bank executives.

Growth pangs

Kochhar’s job was cut out. Chasing growth, thousands of bank agents sold mortgages, car and consumer loans, but in the absence of adequate retail deposits, the bank’s dependence on high-cost wholesale deposits grew, raising its cost of funds.

The high-growth business model also forced it to raise equity from the market frequently. Between fiscal 2004 and 2008, when the global financial system was awash with liquidity and interest rates were low, a growth-hungry ICICI Bank borrowed short and lent long.

So when the rate cycle suddenly changed and the financial system was hit by an unprecedented liquidity crunch in late 2008, the bank found it difficult to sustain its business model. Kochhar had to consolidate the balance sheet and fight public perception about the quality of the bank’s assets. She also had to bring down the cost of deposits aggressively.

Her formula is working. A 35.2% growth in net profit in the June quarter is testimony to that. After a long pause to put its house in order, the balance sheet expanded by 2% in the June quarter and the bank is in a position to reap the opportunity presented by the economic recovery.

It has reduced the cost of deposits and raised its current account and savings account deposits as a proportion of total deposits to a high 41.7%.

Kochhar has also brought in a change in the focus of the bank—from product innovation to customer care. Its new slogan “khayal aap-ka" demonstrates that change. Post the merger of Bank of Rajasthan Ltd with itself, it has 2,500 branches.

The objective is to garner low-cost deposits and increase customer interaction. To do that, it is hiring executives from public sector banks, something ICICI Bank had done in early 1990s when it was set up (subsequently, its parent institution was merged with it).

The other salient business features in the Kochhar regime is shrinking the portfolio of unsecured loans. If such loans go bad, banks take a direct hit as there is no collateral to back them.

Ready for competition

The bank is preparing itself for the competition that will intensify on the human resources front once the Reserve Bank of India allows new private companies to open.

It has tied up with Manipal University for supply of talent and is running many programmes to ensure that the pipeline does not dry up. Post the acquisition of Bank of Rajasthan, ICICI Bank has 49,000 employees. It has brought 9,000 relationship managers who were working on contract onto its pay roll, the largest one-shot recruitment the bank has ever done.

“Indian companies choose a reactive strategy rather than an integrated one to create a pipeline of leaders," says Anita Belani, India head at talent and career management firm Right Management, which advises Fortune 500 companies. “The business paradigm has changed and as companies expand to capture growth, both in India and abroad, lack of leadership pipeline is a risk to business."

Ramkumar does not want to take any risk and insists that the bank has an adequate number of replacements for leaders at every level. “At the highest level, we need a 200% cover. This means for every person we should have a cover of two possible replacements," he says.

It has identified 750 among 2,500 branches as “A" class branches in terms of business and wants to have a 60% cover at the branch banking level. It is also hiring people for treasury and expanding the legal team. For commercial banking, it has recruited around 75 public sector bankers and plans to scale up this number to 200.

ICICI Bank measures attritions at two different levels—one is the overall attrition and the other is talent attrition. “If the talent attrition number goes to double digit then we would get worried. For sometime now it has been in the range of 5-7% for ICICI Bank," says Ramkumar. The overall attrition level for the bank is around 20%. “In a high-growth economy this number does not bother me."

Room for growth

“What is important for an organization is whether it builds adequate depth of talent to fill up any slot that comes up due to someone leaving, and whether it is able to attract talent from outside when required. We are doing both successfully. In the recent past, we have had a senior person coming back to the organization at the board level," says Kochhar.

She was referring to Rajiv Sabharwal, who returned to the bank after a brief stint at Sequoia Capital India, a private equity firm.

In an internal communication with employees, Kochhar has envisaged ICICI Bank among the world’s top 20 banks in terms of market capitalization by 2015. There is still a long way to go; its current world ranking is 56 in terms of market value.

While it is back on the path of growth, a former ICICI executive says the story of high-profile exits is not yet over. “There could be more. But every time a senior executive quits, it’s wrong to interpret that somebody is leaving. It could be that the organization wants to get rid of the person," he says.

Kochhar refuses to be dragged into any controversy.

“At times, an individual’s career objectives may differ from the organizational view; or the fit of a person for the emerging strategy may be misaligned. In such cases it is best for the individual to move on. This keeps the organization vibrant and creates room for people to grow," she says.