ICICI Bank is known for its agility, spotting trends early — moving into a business quickly when opportunities arise and also exit them as they recede and storm clouds appear. The bank has laid emphasis alternately on corporate and retail segments during different phases of growth of the Indian economy during the past two decades. It is now once again stepping up focus on the retail side as demand for credit has been tepid from the corporate side.

India’s largest private sector bank has also introduced new concepts such as providing banking services on Facebook and tablet banking (to open new accounts) to connect with the customers.

According to Chanda Kochhar, Managing Director and CEO of India’s largest private sector bank, given the challenging economic environment, the bank has been growing the retail business much faster than the corporate business in the last year or so.

Kochhar, who has been at the helm of the bank for nearly five years, says the bank is letting go of some corporate business if it doesn’t like the risk.

Excerpts from the interview:

How has the economic slowdown impacted your business?

Banking is a reflection of what is happening in the economy. Whether it is in terms of credit growth, deposit growth, and asset quality, all move in line with how the economy moves. I’ve always believed that the banking industry can grow at 2.5 times the GDP growth rate.

Clearly, as we look at the situation today, as far as credit growth is concerned we are seeing something which is more or less in line with the formula I mentioned, that is, 2.5-3 times the current GDP growth rate.

But the important feature here is that the retail side of the business still continues to grow. There is still demand for mortgages, car loans, and so on. On the corporate side, there is demand for working capital and transaction banking business.

But yes, there is currently no real demand for setting up new projects. I think, the investment pipeline in terms of new projects is hardly there. People are focussing on just trying to complete their existing projects.

As far as deposits are concerned, the one good feature is that the rate of growth of deposits is almost similar to that of credit. But yes, within that, the growth in CASA (current account and savings account) deposits is getting a little tighter, mainly because of the fact that for all companies also the working capital cycles are getting elongated, liquidity is tight and even the retail consumers are becoming more conscious about how much money to leave is savings account vis-à-vis how much to deploy in fixed deposits, and so on.

But, I think, the rate of growth of deposits is not something that one can complain about.

Given the stress in the economy, has your approach to lending changed?

Our approach to looking at projects and then taking decisions has been pretty tight and prudent for a long time. Being one of the largest lenders in project finance, we look at every project that is set up in the country.

So, even when there was this boom in project approvals our rate of approvals was very low because we were selective about the projects that we would fund. To give you an example, we did not fund even a single power project based on gas, except, of course, Dabhol, which was many, many years ago.

But the gas-based projects that were floated three-four years ago, we did not fund even one because we were not sure of the gas allocation policy of the Government, we were not sure about the gas availability.

That is why we are not seeing the burden of those gas-based projects today with us. So, we have always been very selective in our credit decisions.

And, second, given the state of the economic growth currently, we have consciously calibrated the growth of business on the corporate side. So, if you see, in the last few quarters our rate of growth on the retail side is actually much in excess of 20 per cent. But we have brought down the rate of growth on the corporate side and, therefore, our net growth is about 14 per cent or so. This is because we are actually growing the retail business much faster than the corporate business.

Have you revised your lending target for the current financial year?

I think the broad approach to growth for us is that we as a bank have a strong franchise and that should enable us grow 2-3 per cent higher than the industry average. And that is how we are driving the bank.

In today’s scenario, the rate of growth for the industry itself is very volatile and highly dependent on how the economy moves.

We are looking at each of the risks (loan proposals) very carefully and approving only those risks which we think are good, irrespective of the fact that that may mean slower growth on the corporate side.

So, when we started the year we probably felt that we might grow the balance-sheet by close to 20 per cent and, at that time, the belief was that maybe all businesses will grow at that rate.

But as we are seeing the economic situation evolving more and more while our retail business is still growing above 20 per cent, we are letting go of some corporate business if we don’t like the risk and not sticking to the target (overall) of 20 per cent.

However, we would target to grow 2-3 per cent above the industry average. That ensures two things — one, we are using our franchise properly and, at the same time, we are not moving that ahead that we build unnecessary risks.

What steps have you taken to tackle bad loans?

We have been pretty tight in monitoring the quality of our assets. We are clearly focussed on three aspects. One, we are constantly working on the composition of the assets. As soon as we saw the slowdown on the corporate side, we accelerated the pace of growth in the retail business.

In the last year or so, our retail business has grown much faster than the corporate business. Almost 35 per cent of our loans and advances come from the retail side, which gives us a diversified loan book.

Two, we have been very selective in our credit decisions. And, three, we are very proactive in monitoring our assets.

We look at how the environment is changing, whether the approvals (regulatory) are happening or not, what does it mean to our clients, do we need to tighten the security structure, do we need to move out of certain loans, what do we need to do to save the quality.

So all of this has helped us keep our performance stable. Of course, this is not to say we do not have additions (in bad loans).

This is also not to say, we will not see more additions because the banking system will see and so are we going to see.

But we believe that we are keeping good control on the non-performing assets.

The second broad approach is that since the environment is going to cause some volatility in the bank’s performance with respect to credit quality and market movement, it is important to focus on the basic parameters of profitability — net interest margin, cost-to-income ratio, fee income, etc — so that we have the ability to absorb some of the stress.

What could be the impact of the upcoming elections for the banking sector?

I think for the bank, our clients and for the country as a whole what is most important is governance and decision-making. It is not really about which political party or political alliance forms the Government, but the speed of decision making, because things have to move in the country, investments have to take place.

If investments have to take place, approvals have to come. If approvals have to come then there has to be decision-making across political and bureaucratic levels.

Today, I think the saddest part is that the whole process of decision making in the economy has slowed down substantially. And what as a country, as a bank and I as an individual would look forward to is that process of decision making be accelerated.

Technically, elections should not have much to do with it (improvement in decision making). But may be the fact that it (decision making) has slowed down so much one can hope that after elections this will pick up.

I think the pick up in investment demand will still take some time. I think the effective increase in investment demand for new projects is still three-four quarters away.

ICICI Bank has been typically known for ground-breaking initiatives. Have you come up with anything new lately?

Our tablet banking initiative is very innovative. So, opening an account right there (wherever you are) is very transformational in the way you do banking. I am sure other banks will emulate it. Our entire movement on social media, including allowing access to your account via Facebook, has been pioneering too.

Today, I think the saddest part is that the whole process of decision making in the economy has slowed down substantially.

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