ICICI Bank: Golden past, tarnished present, uncertain future

KV Kamath, ICICI: Has the bank he ran for years lost its way?

When this journalist met KV Kamath in 2007, he had already run ICICI Bank with great distinction for over a decade and the lender was riding the crest of a wave. 

Sprung out of the Industrial Credit and Investment Corporation of India in 1994, ICICI Bank was the gold standard in Indian banking, the largest provider of home loans and a pioneer in retail banking.

Having picked up sister magazine’s Euromoney’s award for best Indian bank for the third time in four years, Kamath was asked what else he wanted to achieve. “On a 10-year horizon, I would like to see ICICI among the world’s top 10 banks,” he replied. “A lot of the growth will come organically, but if something comes up, we’ll look at acquisitions.”

It did not turn out that way. Within 18 months, Kamath was gone, leaving to become first chairman of IT giant Infosys, then president of the New Development Bank, an emerging-world multilateral. 

He was replaced by Chanda Kochhar, a trusted pair of hands who had joined ICICI as a management trainee in 1984, rising to the position of chief financial officer before her elevation to CEO.

Kochhar will, alas, be remembered for the manner of her departure. The veteran left in October 2018, only to be retroactively sacked three months later when ICICI found her guilty of violating the bank’s code of conduct. The case, which involves loans allegedly disbursed by ICICI Bank to a renewable energy firm controlled by her husband and Videocon, a local conglomerate, still rumbles on.

Yet that story, as complex and compelling as it is, risks overshadowing a far more important one: the slow and rather sad fall from grace of ICICI itself. 

The past decade has not been a happy time for an institution once instinctively viewed by many, at home and abroad, as the country’s best-managed private bank.

Its woes cannot be placed at the feet of one person (though Kochhar is the primary culprit) or blamed on one poor decision. 

Rather, in the wake of Kamath’s exit, ICICI made one strategic blunder after another. First, it switched the focal point of its lending activities from retail to corporates in the wake of the global financial crisis, only to see defaults rise.

It then switched tack again, opting to lend to major infrastructure projects, with ICICI trumpeting the fact that it was the “first Indian bank” to finance large-scale hydro- and thermal power plants. That no one else followed its lead was telling, and when many of the projects failed, ICICI was left holding the bag. Its non-performing loan (NPL) ratio spiked, peaking at over 9% in 2018.

By then, questions were being raised about Kochhar’s leadership and method of decision-making, particularly when a change in accounting policy that was not communicated to shareholders, allowed the bank to quietly write off doubtful corporate loans. Profits stumbled badly, and in the three months to the end of June 2018, ICICI Bank announced the first loss from its domestic operations in its history.

After Kochhar’s departure, the bank faced a dilemma: whether to look internally for a new CEO, or hire an outsider with a fresh approach. It opted for stability and continuity, promoting chief operating officer Sandeep Bakshi to the top job in October 2018.

The decision divided Mumbai. To some, Bakshi was tainted goods. Indeed, three months later, the CBI, India’s chief investing agency, briefly raised the prospect of investigating any connection between him and the Videocon loan case. But most were in favour of the appointment.

To many in India’s financial capital, Bakshi, who joined in 1986, is remembered as a trouble-shooter who over the past decade has turned around wobbly ICICI divisions, not once but twice, and who built the group’s general insurance business from scratch. Two Indian bank CEOs separately gave him the thumbs up. 

“He’s the guy ICICI Bank needs – I’d have been surprised if they’d chosen anyone else,” one told Asiamoney.

Bakshi has started out well enough. The lender reported a standalone net profit of $266 million in the three months to the end of June 2019, against a $17 million loss in the same period a year ago. Gross NPLs fell to 6.49%, from 8.81% a year earlier, with net NPLs declining to 1.77%, from 4.2% before.

Yet this is just the start: 15 years ago, ICICI Bank was seen as India’s best lender, a title now claimed by HDFC Bank or Kotak Mahindra Bank. Not only does it lag that pair, but it finds itself competing for customers with rising private-sector stars such as Yes Bank and RBL Bank, not to mention new challenger banks such as PayZello.

ICICI Bank is far from done. It remains much loved by customers and is investing heavily in digital. But it is still finding its feet, and it cannot afford another poor decade.