Change Management@ICICI

"What role am I supposed to play in this ever-changing entity? Has anyone

worked out the basis on which roles are being allocated today?"

- A middle level ICICI manager, in 1998.

"We do put people under stress by raising the bar constantly. That is the
only way to ensure that performers lead the change process."

- K. V. Kamath, MD & CEO, ICICI, in 1998.

The Change Leader

In May 1996, K.V. Kamath (Kamath) replaced Narayan Vaghul (Vaghul),
CEO of India's leading financial services company Industrial Credit and
Investment Corporation of India (ICICI). Immediately after taking charge,
Kamath introduced massive changes in the organizational structure and the
emphasis of the organization changed - from a development bank 1 mode to
that of a market-driven financial conglomerate.

Kamath's moves were prompted by his decision to create new divisions to

tap new markets and to introduce flexibility in the organization to increase
its ability to respond to market changes.
Necessitated because of the organization's new-found aim of becoming a
financial powerhouse, the large-scale changes caused enormous tension
within the organization.
The systems within the company soon were in a state of stress.
Employees were finding the changes unacceptable as learning new skills and
adapting to the process orientation was proving difficult.

The changes also brought in a lot of confusion among the employees, with
media reports frequently carrying quotes from disgruntled ICICI employees.
According to analysts, a large section of employees began feeling alienated.
The discontentment among employees further increased, when Kamath
formed specialist groups within ICICI like the 'structured projects' and
'infrastructure' group.
Doubts were soon raised regarding whether Kamath had gone 'too fast too
soon,' and more importantly, whether he would be able to steer the
employees and the organization through the changes he had initiated.

1] Developmental Financial Institutions were set up with principal objective

of providing term finance for fixed asset formation in Industry.

Background Note

ICICI was established by the Government of India in 1955 as a public limited

company to promote industrial development in India. The major institutional
shareholders were the Unit Trust of India (UTI), the Life Insurance
Corporation of India (LIC) and the General Insurance Corporation of India
(GIC) and its subsidiaries. The equity of the corporation was supplemented
by borrowings from the Government of India, the World Bank, the
Development Loan Fund (now merged with the Agency for International
Development), Kreditanstalt fur Wiederaufbau (an agency of the
Government of Germany), the UK government and the Industrial
Development Bank of India (IDBI).

The basic objectives of the ICICI were to

• assist in creation, expansion and modernization of enterprises
• encourage and promote the participation of private capital, both internal
and external
• take up the ownership of industrial investment; and
• expand the investment markets.

Since the mid 1980s, ICICI diversified rapidly into areas like merchant
banking and retailing. In 1987, ICICI co-promoted India's first credit rating
agency, Credit Rating and Information Services of India Limited (CRISIL), to
rate debt obligations of Indian companies.
In 1988, ICICI promoted India's first venture capital company – Technology
Development and Information Company of India Limited (TDICI) – to
provide venture capital for indigenous technology-oriented ventures. In the
1990s, ICICI diversified into different forms of asset financing such as
leasing, asset credit and deferred credit, as well as financing for non-project
activities. In 1991, ICICI and the Unit Trust of India set up India's first
screen-based securities market, the over-the-counter Exchange of India
(OCTEI).

In 1992 ICICI tied up with J P Morgan of the US to form an investment

banking company, ICICI Securities Limited. In line with its vision of
becoming a universal bank, ICICI restructured its business based on the
recommendations of consultants McKinsey & Co in 1998. In the late 1990s,
ICICI concentrated on building up its retail business through acquisitions and
mergers. It took over ITC Classic, Anagram Finance and merged the
Shipping Credit Investment Corporation of India (SCICI) with itself. ICICI
also entered the insurance business with Prudential plc of UK. ICICI was
reported to be one of the few Indian companies known for its quick
responsiveness to the changing circumstances.

While its development bank counterpart IDBI was reportedly not doing very
well in late 2001, ICICI had major plans of expanding on the anvil. This was
expected to bring with it further challenges as well as potential change
management issues. However, the organization did not seem to much
perturbed by this, considering that it had successfully managed to handle
the employee unrest following Kamath's appointment.
Change Challenges – Part I
ICICI was a part of the club of developmental finance institutions (DFIs –
ICICI, IDBI and IFCI) who were the sole providers of long-term funds to the
Indian industry. If the requirement was large, all three pooled in the money.
However, the deregulation beginning in the early 1990s, allowed Indian
corporates' to raise long-term funds abroad, putting an end to the DFI
monopoly. The government also stopped giving DFIs subsidized funds.
Eventually in 1997, the practice of consortium lending by DFIs was phased
out. It was amidst this newfound independent status that Kamath, who had
been away from ICICI for eight years working abroad 2, returned to the helm.
At this point of time, ICICI had limited expertise, with its key activity being
the disbursement of eight-year loans to big clients like Reliance Industries
and Telco through its nine zonal offices.

In effect, the company had one basic product, and a

customer orientation, which was largely regional in
nature. Kamath, having seen the changes occurring
in the financial sector abroad, wanted ICICI to
become a one-stop shop for financial services. He
realized that in the deregulated environment ICICI
was neither a low-cost player nor was it a
differentiator in terms of customer service.

The Indian commercial banks' cost of funds was

much lower, and the foreign banks were much more
savvy when it came to understanding customer needs
and developing solutions. Kamath identified the main
problem as the company's ignorance regarding the
nuances of lending practices in newly opened sectors
like infrastructure.
The change program was initiated within the organization, the first move
being the creation of the 'infrastructure group (IIG),' 'oil & gas group
(O&G),' 'planning and treasury department (PTD)' and the 'structured
products group (SPG)', as the lending practices were quite different for all of
these. Kamath picked up people from various departments, who he was told
were good, for these groups. The approach towards creating these new skill
sets, however, led to one unintended consequence.

2] Though Kamath had started his career with ICICI, he had left the bank to
join Asian Development Bank (ADB) in Manila in 1988.

As these new groups took on the key tasks, a majority of the work, along
with a lot of good talent, shifted to the corporate center. While the zonal
offices continued to do the same work - disbursing loans to corporates in the
same region - their importance within the organization seemed to have
diminished. An ex-employee remarked, "The way to get noticed inside ICICI
after 1996 has been to attach yourself to people who were heading these
(IIG, PTD, SPG, O&G) departments. These groups were seen as the thrust
areas and if you worked in the zones it was difficult to be noticed." Refuting
this, Kamath remarked, "This may be said by people who did not make it.
And there will always be such people." Some of the people who did not fit in
this set-up were quick to leave the organization. However, this was just the
beginning of change-resistance at ICICI.

Another change management problem surfaced as a result of ICICI's

decision to focus its operations much more sharply around its customers. In
the system prevailing, if a client had three different requirements from
ICICI,3 he had to approach the relevant departments separately. The process
was time consuming, and there was a danger that the client would take a
portion of that business elsewhere. To tackle this problem, ICICI set up
three new departments: major client group (MCG), growth client group
(GCG) and personal finance group. Now, the customer talked only to his
representative in MCG or GCG. And these representatives in turn found out
which ICICI department could do the job. Though the customers seemed to
be happy about this new arrangement, people within the organization found
it unacceptable.

In the major client group, a staff of about 30-40 people handled the needs of
the top 100 customers of ICICI. On the other hand, about 60 people manned
the growth client group, which looked after the needs of mid-size
companies. Obviously, the bigger clients required more diverse kinds of
services. So working in MCG offered better exposure and bigger orders. The
net effect was that the MCG executive ended up doing more business than
the GCG executive. A middle-level manager at ICICI commented, "The
bosses may call it handling growth clients but the GCG manager is actually
chasing non-performing assets (NPA)4 and Board of Industrial and Financial
Restructuring (BIFR)5 cases."

3] For instance, an eight-year loan, merger and acquisition advice and

working capital requirements.
4] Non performing Assets (NPAs) are loans on which interest payments have
been due for more than one quarter (3 months) and in the case of monthly
installments have been due for more than 3 installments.
5] The Board for Industrial and Financial Reconstruction (BIFR) is
responsible for the revival of companies declared sick. A company is
declared sick if it has incurred losses continuously for 3 years and its
networth turns negative.
Kamath was quick to deny this allegation as well, "Just because somebody is
within the MCG does not guarantee him success. And these assignments are
not permanent. Today's MCG man could easily by tomorrow's GCG person
and vice-versa." Complaints against these changes put in continued and
ICICI was blamed for not putting in adequate systems in place to develop
the right people.
The manner, which ICICI recognized an individual's efforts - the feedback
process - was also questioned. A manager remarked, "Last year the bonuses
varied from Rs 30,000 to Rs 250,000 depending on the performance. In
many cases the appraisal scores were same but the bonus amount was not.
And we were not told why."

With Kamath's stated objective to make ICICI provide almost every financial
service, separating the customer service people from the product
development groups was another problem area. In the current scheme of
things, an MCG or GCG person acted as a clients' representative inside
ICICI.
The MCG or GCG person understood the client's need and got the relevant
internal skill department to develop a solution. Unlike foreign banks, there
were no demarcations between these internal skill groups and client service
person. (Demarcation helped in preventing an internal skills person from
cannibalizing business being developed by the client service group.) With no
such systems in place at ICICI, this distorted the compensation packages
between the competing divisions.

While Kamath's comments in the media seemed to dismiss many of the

employee complaints, ICICI was in fact, putting in place a host of measures
to check this unrest. One of the first initiatives was regarding imparting new
skills to existing employees. Training programmes and seminars were
conducted for around 257 officers by external agencies, covering different
areas. In addition, in-house training programmes were conducted in Pune
and Mumbai. During 1995-96, around 35 officers were nominated for
overseas training programmes organized by universities in the US and
Europe. ICICI also introduced a two-year Graduates' Management Training
Programme (GMTP) for officers in the Junior Management grades.

Along with the training to the employees, management also took steps to set
right the reward system. To avoid the negative impact of profit center
approach, wherein pressure to show profits might affect standards of
integrity within an organization, management ensured that rewards were
related to group performance and not individual performances. To reward
individual star performers, the method of selecting a star performer was
made transparent. This made it clear, that there would be closer relationship
between performance and reward. However, it was reported that pressure
on accountability triggered off some levels of anxiety within ICICI which
resulted in a lot of stress in human relationships.

Dismissing reports of upsetting people, Kamath said, 'much of the

restructuring plan has come from the bottom.' ICICI also reviewed the
compensation structure in place.
Two types of remuneration were considered – a contract basis which would
attract risk-takers and a tenure-based compensation which would be
appealing to employees who wanted security. Kamath accepted that ICICI
had been a bit slow on completing the employee feedback process.
Soon, a 360-degree appraisal system was put in place, whereby an
individual was assessed by his peers, seniors and subordinates. As a result
of the above measures, the employee unrest gradually gave way to a much
more relaxed atmosphere within the company.

By 2000, ICICI had emerged as the second largest financial institution in

India with assets worth Rs 582 billion. The company had eight subsidiaries
providing various financial services and was present in almost all the areas
of financial services: medium and long term lending, investment and
commercial banking, venture capital financing, consultancy and advisory
services, debenture trusteeship and custodial services.

Change Challenges – Part II

ICICI had to face change resistance once again in December 2000, when
ICICI Bank was merged with Bank of Madura (BoM) 6. Though ICICI Bank
was nearly three times the size of BoM, its staff strength was only 1,400 as
against BoM's 2,500. Half of BoM's personnel were clerks and around 350
were subordinate staff. There were large differences in profiles, grades,
designations and salaries of personnel in the two entities.
6] Bank of Madura was established in 1943 at Madurai, Tamil Nadu. By
2000, it was number one bank in Tamil Nadu and it had 278 branches all
over India.

Change Challenges – Part II Contd...

It was also reported that there was uneasiness among the staff of BoM as
they felt that ICICI would push up the productivity per employee, to match
the levels of ICICI7. BoM employees feared that their positions would come
in for a closer scrutiny. They were not sure whether the rural branches
would continue or not as ICICI's business was largely urban-oriented. The
apprehensions of the BoM employees seemed to be justified as the working
culture at ICICI and BoM were quite different and the emphasis of the
respective management was also different.

While BoM management concentrated on the overall profitability of the Bank,

ICICI management turned all its departments into individual profit centers
and bonus for employees was given on the performance of individual profit
center rather than profits of whole organization. ICICI not only put in place a
host of measures to technologically upgrade the BoM branches to ICICI's
standards, but also paid special attention to facilitate a smooth cultural
integration. The company appointed consultants Hewitt Associates 8 to help in
working out a uniform compensation and work culture and to take care of
any change management problems. ICICI conducted an employee behavioral
pattern study to assess the various fears and apprehensions that employees
typically went through during a merger. (Refer Table I).

TABLE I
'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN

PERIOD EMPLOYEE BEHAVIOR

Day 1 Denial, fear, no improvement
After a Sadness, slight improvement
 month
After a Year Acceptance, significant improvement
After 2 Relief, liking, enjoyment, business development
Years activities
Source: www.sibm.edu

7] In 1999-2000 business per employee at ICICI averaged Rs. 59.5 million

to BoM's Rs 22 million and profit per employee was Rs 0.78 million to BoM's
Rs 0.17 million.
8] Hewitt Associates is a global management consulting and outsourcing firm
specializing in human resource solutions.

Based on the above findings, ICICI established systems to take care of the
employee resistance with action rather than words.
The 'fear of the unknown' was tackled with adept communication and the
'fear of inability to function' was addressed by adequate training. The
company also formulated a 'HR blue print' to ensure smooth integration of
the human resources. (Refer Table II).

TABLE II
MANAGING HR DURING THE ICICI-BoM MERGER

AREAS OF HR
THE HR BLUEPRINT INTEGRATION
FOCUSSED ON
• A data base of the entire HR • Employee communication
structure • Cultural integration
• Road map of career • Organization structuring
• Determining the blue print of • Recruitment &
HR moves Compensation
 • Communication of milestones
• Performance management
• IT Integration – People
• Training
Integration –Business
• Employee relations
Integration.
Source: www.sibm.edu

To ensure employee participation and to decrease the resistance to the

change, management established clear communication channels throughout
to avoid any kind of wrong messages being sent across.
Training programmes were conducted which emphasized on knowledge, skill,
attitude and technology to upgrade skills of the employees.
Management also worked on contingency plans and initiated direct dialogue
with the employee unions of the BoM to maintain good employee relations.
By June 2001, the process of integration between ICICI and BoM was
started.

ICICI transferred around 450 BoM employees to ICICI Bank, while 300 ICICI
employees were shifted to BoM branches. Promotion schemes for BoM
employees were initiated and around 800 BoM officers were found to be
eligible for the promotions. By the end of the year, ICICI seemed to have
successfully handled the HR aspects of the BoM merger.

According to a news report9, "The win-win situation created by….HR

initiatives have resulted in high level of morale among all sections of the
employees from the erstwhile BoM."
Even as the changes following the ICICI-BoM merger were stabilizing, ICICI
announced its merger with ICICI Bank in October 2001.
The merger, to be effective from March 2002, was expected to unleash yet
another series of changes at the organization.
With Kamath still heading ICICI, analysts were hopeful that the bank would
come out successfully in the task of integrating the operations of both the
entities this time as well.
Exhibits
Exhibit I: Organizational Structure of ICICI (2001)
Exhibit II: Employee Strength Over the Years
Exhibit III: ICICI Profitabilty Over the Years

9]'Bank of Madura & ICICI Bank merger proceeds smoothly,'

www.rediff.com, September 27, 2001.

Aggressive to conservative: Why ICICI Bank is changing

Chanda Kochhar, Managing Director of ICICI Bank, India’s second largest

bank, has been voted by Forbes magazine as one of the 100 most
powerful women. In an exclusive interview to CNBC-TV18, Kochhar unveils
the future plans she has for the bank and expresses her views about the
Indian economy.
Kochhar said the economic recovery in India was stronger as compared to other
economies. She sees a return of confidence among Indian retail consumers. "Capacity
utilisation has been increasing across industries and the domestic demand is steadily
increasing." She expects corporates to revisit their earlier investment plans.

Kochhar said ICICI's FY10 plan was a bit ambitious prima facie. She aims to
remain focussed on housing and car loans while reducing focus on smaller personal
loans. ICICI Bank's current account, saving account ratio (CASA) stands at 30% and
Kochhar is targeting a CASA of 33% by year-end.

Her short-term strategies include increasing net interest margins via increased current
account and savings account ratio, cutting back on unsecured loans, and increasing fee
income from trade and financial activity.
Here is a verbatim transcript of Chanda Kochhar's exclusive interview on CNBC-
TV18 anchored by Senthil Chengalvarayan, President and Editorial Director, TV18
Business Media; and Indrajit Gupta, Editor, Forbes India. Also watch the
accompanying video.
Chengalvarayan’s Q: You are ranked higher than Queen Elizabeth Hillary Clinton.
That is quite a responsibility, and also a statement that bankers are not so vilified
as they were maybe 18 months ago?
A: Well the Indian bankers were never vilified.
Chengalvarayan’s Q: What made you put her on the cover?
A: As you know, Forbes really is positioned as the drama critic. In India, we believe we
should be the drama critic of the Indian business. The ICICI cover story and Chanda
really captures that position so well because here was a very interesting transition
playing out. Mr. Kamath handing over charge to her, at a time when the Bank was I
think looking to overturn all the precepts that had made it successful. We had to take a
very sharp look at structure, strategy, systems and culture as well and could not get a
bigger story than that, especially given that ICICI had been one of the most successful
organizations in India. So, it was pretty obvious frankly. We had no clue that this was
going to happen.
Chengalvarayan’s Q: Did you have more than butterflies in your stomach coming
into the job because one you were following almost a legend of corporate India,
not just as an MD of a bank but someone who’s been really looked upon as a
voice of corporate India. You walked into almost virtually a minefield if I can call it
that for the industry?
A: I feel that for leaders it is important to never have butterflies in the stomach because
otherwise you don’t emerge as a strong leader. So, it is important for leaders to always
have that confidence to handle whatever is the challenge. In a way, I have grown and
evolved in the organization. So, it was really more a process of evolution rather than a
one day change so to say.
Chengalvarayan’s Q: All of us outside look at this big change in ICICI Bank, from
being a super-aggressive bank to being a slightly more conservative bank. So,
you are saying it is just part of evolution. It is not such a big mind change for
you?
A: For me, in terms of handling the organization as I said, since I have grown it was an
evolution. The change in the approach that you are saying is indeed a change, which
has been necessitated by the economic environment that has changed substantially
during this period. Therefore, I believe the DNA of the organization is growth. But finding
the right dimensions of growth that are suitable to the current economic environment
may not have been suitable in the past economic environment.
Chengalvarayan’s Q: You said leaders should not walk into a crisis with
butterflies in their stomach. But you were taking over the mantle at the time of
crisis. Did you at any point feel that maybe Mr. Kamath should stay on a little
longer? Did you want to delay your ascendancy into the corner office?
A: As I said, leaders should not walk into with butterflies in their stomach. I believe in
fact the other way that when a challenge hits it is the duty of the leader to broaden the
shoulders even further and straighten the back even more because you have to act as a
sponge to take that challenge.
Chengalvarayan’s Q: You didn’t want Mr. Kamath to be the sponge?
A: You have to have the confidence to feel that you can be the sponge and you have to
be the sponge because you cannot pass the stress on to the team. You have to absorb
it and let the team continue to work.
Gupta’s Q: In some ways your last stint before you became CEO was in the
corporate centre. It would have seemed like a baptism by fire given the kind of
crisis you had to deal with particularly in October? What are the lessons that you
learnt before you took over the mantle from Mr. Kamath during that stint, the
crisis?
Related News:
A: Actually before I came to that stint, since in a way I had handled almost every
business in the organization whether it was corporate, retail or international or project
finance. Therefore when I came to the corporate centre, it actually gave me an ability to
look at a function like finance, audit or risk management with the eyes of a business
person as well. So, in that sense, the ability to see what the risks could be and at the
same time to evaluate those risks from a little practical manner. So, in that sense, it was
a very enriching way of coming to a corporate centre after handling all businesses. I
think that was a period that then made me understand not just the bank but in a way it
was an indirect overseeing of the subsidiaries as well, so, what is happening in our
insurance companies and so on. So, it really was in a way a good grounding for taking a
total view of not just the bank but of the group as a whole.
Chengalvarayan’S Q: So, in a sense you were steeped in the DNA of the bank, in
the culture of aggressive growth. How difficult was it to convince the rest of the
team that we now have to go, not slow but we have got to contain ourselves a
little bit?
A: I won’t call it difficult but I would still say that it did involve kind of getting the buy-in of
the team of the team because the DNA of the organization in a way was oriented
towards an economic environment that was very different. So, right from January
onwards, even before the financial year began, I spent a lot of time with the team and at
different levels of the team trying to make them understand that the change is really
because of the change in the economic environment. So, to make them see reason for
the change, and also to make them believe that this is what is good for the long-term
growth of the organization. So, this is not something that we are doing that we will never
grow.
Chengalvarayan’s Q: And coming from somebody who was seen as an
aggressive grower of the bank, did that go on a little easier?
A: I think it did because people saw reason of both as I said, why this is required and
how this is going to be helpful for the longer period. So, I think they noticed the reason.
Therefore, it went down better. But if one had just sat in a corner room and issued a
diktat, I don’t think that is the way it would have really got absorbed. If you really see our
strategy for this year, some of the things that we are trying to do are actually quite
difficult given the current environment because we are saying we want to increase the
current and savings account in an environment where the industry ratios are actually
coming down, or we are saying we want to cut costs in a context where we want to
increase 580 branches. So, on the face of it, these things sound quite unachievable.
You also have to discuss with the team how we are going to make it happen. It is only
then that they get a buy-in.
Chengalvarayan’s Q: Are you a little sanguine about growth today than you were
about a month ago because the green shoots seem to have caught on?
A: Indeed the green shoots seem to have caught on for the Indian economy. I would not
still say that for the global economy, but for the Indian economy definitely. In every
industry that I am seeing now the capacity utilization only seems to be increasing
further. Even the most difficult industries that probably saw a whole amount of negative
year-on-year (YoY) performance in the past few months are now coming closer to last
year’s capacity utilization and so on. So, the sense of the domestic consumption and
the fundamental driver that is driving our growth is even more established. Indeed the
Indian corporate sector is actually talking of restarting a whole lot of investments that
they had put back a few months ago. More importantly, the Indian retail consumer is
getting back that confidence of starting to buy homes, cars, some of the decisions that
they had postponed a few months ago.
Chengalvarayan’s Q: But will that make you or the people at the bank also now be
tempted to go back to a slightly more aggressive posture than maybe you would
have thought of a month ago?
A: I have said this from the beginning that there are certain products that we believe we
will continue to focus on. So, we never de-focused on them. We will continue to focus
on them. These products are housing loans, car loans and the whole set of corporate
finance, whether on working capital side or projects side or the infrastructure side. On
some products that have become very risky, which is the very small ticket personal
loans and so on, we will continue to let that portfolio actually come down. Even as the
economic recovery takes place, I think it is too early to expect that the risks in those
portfolios would come down. So, in a way the green shoots does not make us change.
The orientation really remains the same.
Gupta’s Q: Innovation has been at the heart of everything that ICICI has done in
the last 10 years or so. How much do you worry that somewhere in this whole
attempt to try and slow the bank down and take a slightly more conservative
approach you could lose that spark in the organization? How do you hope to
prevent that?
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A: Actually it is not possible to do all these changes without innovation. So, even the
changes that one is talking about currently need a whole lot of innovation. For example,
we are saying that on the corporate side, we really want to grow our trade finance
business to a large extent, get into the regular back to basic banking, transaction
banking business. This is a business that we were not so much focused on in the past.
If we have to really grow this business we have to innovate in our internal systems,
processes, in our credit decision making and also again in the way our branches work.
So, what we have done is gone back to our branch structures, really equipped a few
branches, made them absolutely equipped to actually handle trade finance rather than
handle only retail customers and train the people there, re-skill the people there and so
on. So, there is a whole lot of innovation required there. I think every change really
requires innovation. Therefore, I don’t worry that we will lose out in being an innovative
organization. In fact we will continue to have to be innovative if we have to achieve our
objective.
Chengalvarayan’s Q: One of the challenges for you was to raise CASA at a time
when it was dropping for the bank. What percentage is it now?
A: Now it is about close to 30%. We had started the year with about 28.5%. My target is
that by the end of this year we should reach about 33%.
Chengalvarayan’s Q: That is industry average?
A: Yes, closer to industry average.
Chengalvarayan’s Q: And you would be comfortable with that?
A: Yes.
Chengalvarayan’s Q: Since you are talking targets, your return on equity is
relatively poor at about 7.8%. We believe that your team has promised analysts
and investors that you would get up to 15% in the next three years. That is an
aggressive target. Could you just take us through how you hope to achieve that?
A: Clearly, in a way this is a self-set target for all of us. I said that we have to double our
return on equity in a three-year period. How do we get there? If we just do simple,
business as usual calculations, it is difficult to get there in a three-year period. So, in my
view, the strategy to get there would be a kind of two-phased approach. The first phase,
which is this year, clearly is more focused internally on our individual items of balance
sheet and the profit and loss accounts to improve each of those items that get’s us to a
better level of profitability. But the time the second year comes, the second and third
years would really be years of growth as well, because the growth in the businesses
that we like: Housing, project finance, infrastructure finance, will all come back in the
Indian economy by then. So, in the first year, we are basically concentrating on six
things, on the deposit side, improved the current and savings account (CASA) ratio, on
the asset side to reduce the reliance on unsecured loans. In the P&L, target to improve
net interest margins mainly through CASA, increased fee incomes from trade finance
activity and not really the M&A and other activities that are not present currently, and
control operating costs inspite of rolling out 600 new branches, and finally cut down on
credit losses. So, it is a clear six-point agenda. But as we implement this during the
year, I think in a way what I tell my team is that with this we will keep the balance sheet
ready for the next phase of growth because by then we would have 33% CASA, better
NIMs structure, lower credit loss ratios and then as the growth comes back in the
economy we will actually grow with much better fundamentals.
Chengalvarayan’s Q: You said consumption and infrastructure are India’s long-
term growth story and investment. You have been almost 60% retail income
driven and 40% from industry. Is that a ratio you are comfortable with or would
you like to change it?
A: This will change slightly. Again, it is in the context of the economic environment. In
the last five-seven years, actually the Indian corporate sector did not invest that much. It
was really the services sector and the Indian demographic profile, the Indians earning
out of their salaries in the service sector and consuming, which was driving India’s
growth. So, our retail business actually played a much larger role in actually catalyzing
that growth. As we come to a point where now Indian corporate sector is also talking of
investing, I think we would not only keep funding homes and cars but we will also fund
projects. So, in that sense, the ratio would correct a little bit and instead of 60:40 you
would probably land up with a more equal distribution.
Chengalvarayan’s Q: Since we are talking about the most powerful women, what
is it about Indian banking that has seen so many women rise to the top, whether it
is investment banking, whether it is in ICICI?
A: I think banking or any entity for that matter, whichever entity focuses on being more
of a meritocracy organization, just in a way gives an opportunity for either men or
women to rise based on merit. So, I would say it has got more to do with meritocracy.

Chanda Kochhar: 'This is Back to Banking Basics'

Chanda Kochhar explains why she views the current slowdown as an opportunity to put
ICICI Bank on a fitness regimen
Re-shaping ICICI

Related

Chanda Goes to War

'Expect a Desirable Newness'

How has the new economic context shaped your strategy?

In the current context, growth necessarily need not be on our balance sheet. There are
various aspects of growth. We should use, may be, two to three quarters in a way to
consolidate some of the parts of our balance sheet in a manner we will keep them better
prepared for the high trajectory of growth that comes back in the environment.

Over time, our proportion of unsecured personal loans has increased substantially. It is
time for us to reduce that proportion in the balance sheet.

On the deposit side, in the past, our reliance on wholesale deposits was very high. So
again, a big focus to say how do we increase our current and saving account.

How will the cost structure be rationalised?

Reducing our cost structure is the other focus for this year. We are increasing 600
branches, which is a 40 percent increase. So one approach could have been: I should
be happy and satisfied with 25-30 percent increase in costs. But I am saying we will
implement the branches and keep the cost structure the same. The total employee base
that we had last year, we are going to keep that constant, which is big task.

What will it take to reorient the bank?

The challenge is to reshape our own mindset. And at the same time, we need to also
reskill and reset our key performance metrics. The other challenge is to equip ourselves
to be able to handle it, because the bulky fee income can be centralised but these kinds
of things needs to be decentralized and distributed. This is typically back-to- banking
basics and this gets done mainly at the branch.

How will the changes be sequenced?

This year, we’ll look at every line item of the P&L and see to improve net interest
margin. And to do that, we need to a whole new CASA strategy. Then on the fee
income, while I recognise that the bulky fee income this year will be less, we will be
develop a more sustainable model of the trade finance transaction.

Then, the third is operating expenses. Fourth is to reduce the loss charges. So if I would
do these four things during this year, I would think one would have created a better
base on which to grow next year.