New Delhi: Insatiate by trebling of its share price to Rs 750 since March, ICICI Bank has embarked on an ambitious plan to double return for investors in three years and be counted among the country's top five valuable entities, CEO and Managing Director Chanda Kochhar has said.
"The biggest thing I want to do for the investors is to double our return on equity in three years time," she said, but with a caveat that it was not a forward looking statement but a target she had set for herself and her team after taking over from K V Kamath as ICICI Bank chief in May.
For achieving this target, she said, she has identified six areas that need improvement, including taking the Bank's profitability to industry average level and expand the branch network by over a third without spending a single rupee on it.
"Doubling (the return) in three years' time is quite a stretched target. That means that every year you have to grow and improve the ROE substantially. (But) I've done a very clear thinking on how we are going to achieve that," she said.
After touching a 52-week low of Rs 252.75 on March 6, ICICI Bank stock have rebounded sharply and are currently trading at near Rs 750. However, it is still just about half the all-time high level of Rs 1,465 scaled in January 2008.
"My intention would be to reach sooner... as soon as I can," Kochhar said on when the Bank would reach among the top- five valuable entities and added that "from Rs 250 we moved to Rs 750 and I feel happy about it. But, it is still not the correct value."
To double the return for investors in three years, the bank would focus on "each and every item of the balance sheet and the Profit & Loss Account" in the first year to see how it could be improved, Kochhar explained, adding that the second and the third years would be the time for growth.
Asked about the need for change to achieve this growth target, she said the bank was looking to "tweak out the organisation to the current environment".
"Because the environment is very different, we need to do
the things differently," she said.
Listing out the six focus areas before the bank, she said
the bank would cut down on wholesale deposits and focus on
current and savings accounts; lower exposure to unsecured
retail loans; improve net interest margins to bring it closer
to industry average; raise fee income by focusing more on
trade finance; cut operating costs and control credit losses.
Stating that these targets had not been imposed by the board, but by herself, Kochhar said that, thirdly, the bank was looking to improve its net interest margin and take it closer to the industry levels. "We are at 2.4 percent, a good average for the industry is 3 percent," she added.
Explaining the six-pronged strategy, Kochhar said, the bank clearly wants to change the structure of the balance sheet in such a way that the proportion of current and savings account (CASA) deposits in the total deposit base increases.
Noting that the growth in the bank's CASA has been "very good in absolute terms" in the past, Kochhar admitted that the ratio has been lower than most of the banks, as it was also borrowing on wholesale funds.
"So, we are increasing our focus on CASA and reducing our
reliance on wholesale deposits. We started the year with 28.5
per cent CASA ratio, I want to end the year with 32-33 per
cent," Kochhar said.
Another focus area, she said, was on the asset side where
the bank would cut the composition of unsecured retail loans
as risks there for the entire industry was higher than what
all the banks had anticipated. "We will continue to focus on
home loans, car loans, project loans, corporate loans, but our
focus on unsecured retail loans will come down by the the time
the year ends."
She clarified that the improvement in net interest margins
would mainly come from cutting cost of funds.
"The fourth (focus area) is on the fee income. It's a fact
that in the current year, the fee income from the bulky deals
like M&A, large project finances is going to be less than what
we have seen in the past. Therefore, this year, we are
focusing on trade finance, commercial banking transactions."
"For us, that means a lot of changes internally... We are
doing that to become a bigger player in the trade finance part
of the business and fee income business.
"Then, the fifth item is operating costs, we have to
control our operating costs, but I did not want to curb the
growth of the organisation. We'll set up 580 new branches this
year, meaning a 35 percent increase in our branch network.
But, we will not allow the expenditure (to grow) even by one
rupee (from last year's level). So, we have to find lots of
efficiency elsewhere and use that to grow the company."
"The sixth is to control credit loss, because again, I believe that every rupee saved on credit provisioning is a rupee added to the profit. So, a lot of changes (may happen) on how we are approaching collections, our entire risk management and so on to bring down the credit losses," Kochhar said.
Summing up the strategy, she said, "By the time, we end this year, we want to get to CASA at 33 percent, reduce reliance on unsecured retail loans, improve and get more stable levels of fee income, control on costs and bring down credit losses.
"So, this should give us the improvement in profitability this year when the systemic credit growth is not that large and by the time we end the year and the credit growth rate starts, our balance sheet and P&L would be better tweaked to ride on the growth and we achieve the ambition of doubling ROE in three years."
Bureau Report
First Published: Thursday, August 27, 2009, 15:13