Sandeep Bakhshi took over an embattled bank in late 2018. In just 10 quarters, things have changed
Since Bakhshi joined, the share of the bank’s corporate loans in the total loan book has been almost flat at 24%. Moreover, the bank now has 73.2% of its loans to customers rated ‘A-’ and above
Employees clocking in early on a muggy November 2018 morning to get into the comfort of ICICI Bank’s air-conditioned headquarters in the central Bandra Kurla Complex spotted someone unusual among them in the elevator queues.
It was Sandeep Bakhshi, the new managing director and chief executive officer who had slipped into those shoes just a few weeks earlier. Like any other legacy institution in India, ICICI Bank Towers has separate elevators for regular employees and directors. Bakhshi, too, had access to an exclusive elevator that could whisk him away to his 10th floor office. But he was waiting in the queue meant for all bank employees.
The new CEO was signalling a powerful culture change at India’s second largest private bank by assets. “I was pleasantly surprised at his humility, or at least the intent to be seen as a regular employee," said an employee who stood in the elevator queue that morning. “I have not seen any former boss do that."
Bakhshi continues to use the common elevator to date.
It has been 10 quarters since Bakhshi was brought in to steady the ship after the bank had been buffeted by allegations that the previous managing director and CEO, Chanda Kochhar, had favoured the Videocon Group. She had resigned on 4 October 2018 and on the same day Bakhshi, then chief operating officer at the bank, was appointed as the top boss.
Within a short span, he has attempted a slew of changes, some of which will yield results only in the long run at the 27-year-old lender. The bank has renewed its focus on better quality assets, shedding its earlier single-minded attention to growth. Branch-level managers now have greater leeway to decide targets that best suit their context. There is also a renewed push into retail banking spearheaded by digital operations. The common thread connecting the disparate changes: A focus on the bank’s culture and an effort to get rid of ‘short-termism’.
Bakhshi was not available to be interviewed for this story, but it doesn’t seem to worry him much that arch rival HDFC Bank, India’s no. 2 lender, keeps the position in the leader board that it had wrested from ICICI Bank in 2017 (India’s top bank by assets is the government-owned State Bank of India).
“The new CEO believes that we should only sell products to customers which we think we could sell to our family," said the employee quoted above.
Bakhshi, who has clocked 35 years at the ICICI group of companies, has fought corporate fires before. In 2010, he was brought in to lead ICICI Prudential Life to manage an internal crisis. He had inherited an aggressive sales-at-any-cost culture set in place by the firm’s first chief executive Shikha Sharma, who was immensely successful during her time. Mis-selling was rampant in the insurance industry, especially in the equity-linked product segment. Bakhshi turned around ICICI Pru, as it is known in the industry, by shrinking its set of products and eventually took the company public. What he delivered made him the shoo-in candidate to restore the credibility of ICICI Bank and he was inducted as the chief operating officer in August 2018, two months before Kochhar quit. Then, he became the CEO.
Embattled troops need hope the most and like any leader stepping into a bad situation, Bakhshi crafted a new narrative: “One bank, One RoE, one KPI" (RoE being short for return on equity and KPI for key performance indicator). He removed several performance indicators that were associated with multiple products at the branch level.
Experts credit this one tagline for improved efficiency at the bank, as it removed the burden of monthly sales targets on several products. Insiders say that there used to be as many as 14 different KPIs at the branch level, making work distracting and difficult for employees. Some of these targets were related to fixed deposits, current and savings accounts, and mutual funds, among others.
The bank woke up to the need for KPIs at the branch level, depending on the location and local demographic profile. For instance, a branch in a locality of retirees would not need credit cards or small business loan targets. Instead, the staff must woo depositors and maintain a strong inflow of term deposits.
On the lending side, ICICI Bank’s new strategy shows the risk profile of its corporate assets. Since Bakhshi joined, the share of the bank’s corporate loans in the total loan book has been almost flat at 24%. And asset quality? The bank now has 73.2% of its loans to customers rated ‘A-’ and above, up from 62.5% as on 31 March 2018, thereby clocking more than 1.5 times growth in that cohort of customers with lower risk profiles. The bank’s gross bad loans as a percentage of total loans was 4.96% at the end of fiscal 2021, down from 7.75% on 31 December 2018, the quarter when Bakhshi took charge.
In the lending business, riskier bets allow lenders to charge more than high-rated corporates, who tend to bargain hard for cheaper loans. In other words, there will inevitably be pressure on margins at ICICI Bank. To circumvent this, Bakhshi had the bank take a 360-degree approach to cover all business verticals as a whole and not operate in silos.
What this meant was more teamwork and an attempt to recoup lost margins in the corporate loans business through volumes in other segments.
“It was like taking the entire bank to a customer. Even when ICICI Bank executives now go to a corporate (house), besides giving a term loan, it is also about getting his transaction banking account, financing his dealers, vendors and their employees," said a person aware of the changes.
Retail banking executives pass on opportunities to the corporate team, for instance. “This is because everybody is looking at achieving the target as a whole bank," said the person quoted above.
A third person, who also spoke on condition of anonymity, said that after the introduction of the new norms, the leadership team of about 400 people get the same bonus, irrespective of the performance of their verticals. “The idea is to win as a team or lose as a team."
By removing multiple KPIs, the management also gave flexibility to the bank branch manager to decide what business worked best for the branch. Instead of targets that were set top-down from the corporate office, the manager can decide targets within the guardrails of risk. “The manager (now) has to decide how to meet the profit target by selling the right products," says a former employee of the bank.
The intent was clear—improve operating profit and grow the business through a risk-calibrated approach.
Stay with the product
The other significant change that Bakhshi brought was to put in place a sales culture that dislikes customer churn. He had learnt from his ICICI Pru days that unless the customer stays with a product, the firm cannot see sustainable profits. At the bank, his motto read: Be fair to the customer, fair to the bank.
The bank, thus, stopped selling products that were not seen to be beneficial to customers. As head of the ICICI Prudential Life, Bakhshi had witnessed rampant mis-selling of products. At ICICI Bank, he stopped the sale of participating insurance products from ICICI Pru. Participating products allow the insured customer to receive dividends from the profits of the insurance company.
This hit the revenue of the ICICI insurer as 60-70% of its business was dependent on distribution through the bank. The bank also suffered in terms of loss of fee income. But this was absorbed by the bank’s focus on selling multiple products to a single customer. The bank’s return on assets improved from 0.39% at the end of fiscal 2019 to 1.42% by end of fiscal 2021.
ICICI Bank, once at the forefront of corporate banking, has also pivoted majorly towards the retail segment. The share of retail loans to total advances has moved from 59% in the December quarter of fiscal 2019 (when Bakhshi joined) to 66.7% in the January-March quarter this year. In the same period, the bank’s current and savings account deposits, also called Casa deposits, have grown 44% to ₹4.31 trillion.
While the bank made its digital strides early, it has, of late, started harnessing the power of data. According to the second person quoted earlier, over the last three-four years, big, public data meshed with the bank’s own data has worked well for ICICI Bank. “There are several customers who keep their digital footprints with the bank and the bank can therefore align its offerings accordingly. These footprints have exponentially grown and any bank or financial institution which is able to use that data and execute on it will be a winner," said the person mentioned above.
The bank took another bold decision in December last year when it opened its mobile banking platform iMobile Pay to customers of other banks. “Come, try out our offering" was the offer. Over two million sign-ups from other banks were recorded and many among them opened savings accounts and applied for credit cards, home loans, and personal loans, the bank said this June.
All credit to Bakhshi?
How much of the new spring in the steps of ICICI Bank is Bakhshi’s doing? For all of the credit for turning around the bank, the CEO has avoided the limelight—a stark difference from his predecessor Kochhar’s high profile presence in the media and industry bodies. Bakhshi, a mechanical engineering graduate from Chandigarh, stays the reticent banker he is.
“Bakhshi seems to be different from former heads of the bank and is more focused on the job at hand," said Hemindra Hazari, an independent commentator.
Others say it’s too early to judge Bakhshi on the basis of his performance over the last three years. For example, they point out that the economy was slowing even before the outbreak of the covid-19 pandemic and this necessitated a pull back on corporate loans.
Inherited momentum helped Bakhshi, too. “He happened to be at the right place at the right time. The bank had undergone a lot of improvement under Kochhar’s tenure itself. He, therefore, managed to get a much cleaner book with a strong retail franchise," said an analyst, adding that consistency in the operating numbers for another two years is key.
The recovery in the quarters ahead in the aftermath of the economic ruin caused by covid-19 will decide much of ICICI Bank’s trajectory under Bakhshi. For instance, an analyst at a rating agency said, “Our concerns remain on the quality of retail assets over a period of time as the growth has been substantial."
A hit on the salaries of consumer loan borrowers could directly impact the bank’s retail portfolio. For now, the markets seem sanguine about ICICI Bank and Bakhshi. Shares of ICICI Bank have more than doubled to reach levels of ₹640-650 in the week gone by, as compared to where they stood when Bakhshi took over as the CEO. This compares to a 57% increase in the BSE Sensex, the Bombay Stock Exchange’s benchmark index, and 40% increase in BSE Bankex.
It reflects confidence in the ICICI Bank stock—a confidence pinned on the bank’s turnaround of operations and perhaps a turnaround scripted by Bakhshi.
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