The dark clouds outside her corner office look ominous, but ICICI Bank MD & CEO Chanda Kochhar is quick to spot the silver lining. “At least, they would bring in rains,” she says. The same optimism, however, isn’t quite visible on the external economic environment. The head of the country’s largest private sector lender says the consumption story can’t handhold the economy for long and it’s important to kick-start the economy through executive decisions. Excerpts from an interview with Shyamal Majumdar and Manojit Saha
What’s your take on the interest rate outlook? Do you think the central bank will cut rates in the September policy?
I don’t want to guess what the central bank would do. My theory is simpler. While lower interest rates would be an enabling factor for investments to take place and for people to buy more homes or invest more in homes and cars, that alone won’t be enough. It is important now to kick-start the economy through executive decisions to restore confidence in the investment climate. The process of decision-making has to improve for projects that have been either completed or are nearing completion.
Will you bring down your lending rates?
We were one of the first banks to reduce our base rate by 25 basis points a few months ago. But I don’t see scope for any further reduction at this point. Lending rates for banks depend on the cost of funds and that has not come down.
ICICI Bank’s net interest margin was three per cent last quarter. Will you be able to sustain it?
My first aspiration was to take NIM to the other side of three per cent. In the last two quarters, we have been able to achieve that. For this year, I will be happy if it’s maintained at that level. Over the next two years, we will talk of increasing it further.
Casa plays an important role to sustain margins. Can you hold on to 40 per cent Casa?
We will try. It is even more hard work now in the current environment. Casa deposits are not growing for the industry as a whole. Earlier, we were lower than the industry average but now we are higher.
Loan growth has been subdued. Have loans for fresh projects stopped?
There is no new project approval as no one wants to commit, given the overall uncertainty. We are disbursing loans for projects that have already been sanctioned — thankfully, that is enough for the next one year at least. There is not much time left. I hope things that I talked about earlier would be sorted out in the next six to nine months. If they don’t, there are enough reasons to feel concerned.
Can you specify the areas where policy action is required urgently?
Last year, over 20,000 Mw of power capacity came up. Which is great going, but they are unable to work because of this whole risk on the availability of coal and the cost of coal. There are several other issues. Things like these have to be fixed. Or else, the loss of opportunity will be tremendous.
So you must be concerned about your substantial exposure to power projects.
Out of our total outstanding loans, about 5.5 per cent is towards the power sector. Almost half that exposure is towards projects that are already up and running. There are only a few projects which are dependent on either coal linkages or imported coal. In any case, we have the mechanism in place which does sensitivity across various projects to see the impact on their debt servicing ability. I think we have a stable portfolio quality.
You are quite bullish on your retail portfolio. What explains the optimism?
We expect retail loans to increase by 15 per cent this year. Housing and automobile loans on the retail side and project finance on the wholesale side will be the key growth drivers this year. I have already said I expect our overall loan book will go up by 20 per cent. I think the concerns may have been overdone on this front. There is no loss of jobs, companies are giving increments and consumption is taking place. That’s the best part of the India story. Having said that, it’s important to remember that the consumption story can handhold the economy for a limited period of time; investments have to happen.
Aren’t you concerned over the asset quality?
There is no threat to the quality of our assets. Most of the loans are to our existing customers and our unsecured credit is just three per cent of the overall credit. So what’s the issue? Even on the corporate side, I am expecting stable asset quality and do not expect any big shocks on account of NPAs. In any case, our net NPA ratio, which had peaked a couple of years ago is down.
Your stock has underperformed some of your peers’? Why isn’t the market seeing the upside?
We haven’t done that badly as you are suggesting. Also, remember that we have a holding company structure with several subsidiaries, unlike some of our peers which are standalone banks.
You took charge of the bank soon after the global financial crisis and we are in the midst of another one. What are the key takeaways from the previous crisis period?
One is that the composition of asset has to be quite balanced so that it can absorb the volatility of the changes in the economic environment. The second lesson is that the funding and the lending strategies should move in tandem. We should grow on the basis of our ability to raise current and savings account deposits. That is the big adjustment that we have made. Now, we are saying that we will grow but we will grow at a rate where we are able to maintain the current level of Casa which is 39-40 per cent. We have cut down bulk deposits (as a proportion of total deposits) to 35 per cent from 60 per cent, in three to four years.