The retail king gets the crown

K V Kamath has gone beyond just numbers by being innovative and creating new markets

On October 25, 2001, ICICI Managing Director and Chief Executive Officer Kundapur Vaman Kamath and ICICI Bank Managing Director Hoshang Noshirwan Sinor entered the Reserve Bank of India headquarters. Half an hour later, a beaming Kamath and Sinor left the then RBI Deputy Governor Y V Reddy's cabin.

Their mission was accomplished. The country's first universal bank was to be formed five months later, with the reverse merger of ICICI with ICICI Bank.

Rewind to a year ago, and the mood was very different in ICICI. The scene and the dramatis personae were the same, but a different drama unfolded on the RBI's 18th floor. On October 5, 2000, Kamath, Sinor and a core team made a 40-minute, 22-slide presentation to a trio of RBI deputy governors. The presentation outlined how ICICI would metamorphose into an universal bank. But that day, Kamath was not smiling as the regulators were not happy.

A week later, in a teleconference with foreign institutional investors, a disappointed Kamath said ICICI would become a bank only after a transition path was finalised with its stakeholders and approved by the regulator.

As on November 10, ICICI Bank with Rs 74,315.82 crore market capitalisation is way ahead of the State Bank of India (Rs 59,729.79 crore), its peer in the private sector HDFC Bank (Rs 32,852.62 crore) and accounts for close to 24 per cent of the market capitalisation of listed Indian banks.

In terms of assets, it is still a distant second to SBI. As on March 31, 2006, its asset base was Rs 2,51,389 crore compared with SBI's Rs 3,93,870 crore. The gap has, however, been narrowing fast. The compound annual growth rate (CAGR) of ICICI Bank's assets for the last three years has been 23.86 per cent against SBI's 7.06 per cent.

Kamath has not only rescued the old ICICI, which was wilting under the burden of bad loans and growing asset-liability mismatches, by converting it into a bank, but also transformed it into a retail juggernaut.

In five years, he has built a retail portfolio of over Rs 1,00,000 crore. In percentage terms, retail assets now account for 69 per cent of the bank's total assets. Of this, 51 per cent is mortgages.

With 630 branches, ICICI Bank services 20 million customers. It is the leader in practically all retail loan segments "� mortgages, auto finance and credit cards.

Despite growing at a break-neck speed, Kamath has been able to contain net non-performing assets (NPAs) at 0.72 per cent of its total assets in March 2006. The comparable figure for HDFC Bank is 0.44 per cent and SBI 1.87 per cent.

The process of selecting the BS Banker of the Year was by no means an easy one. In the first stage, a perception survey was undertaken among finance professionals. In the second stage, the Business Standard Research Bureau took a close look at the financials of all leading banks.

The focus was on the three-year CAGR of assets, operating and net profits and net worth besides other parameters such as return on net worth, return on assets, NPAs and market capitalisation.

At the final lap, the senior editors of Business Standard had a brain-storming session on the performance of top bankers.

IDBI Bank, Centurion-Bank of Punjab and Kotak Bank have done well on most of the parameters but none of them could be considered for the coveted title as IDBI Bank and Centurion-BOP had the benefit of mergers and acquisitions, while Kotak Bank has a relatively smaller base. Among public sector banks, Allahabad Bank too fared well.

Finally, the focus was on two banks "� HDFC Bank and ICICI Bank (the third bank which has done extremely well on most of the parameters is UTI Bank whose Chairman PJ Nayak was the BS Banker of the Year in 2004-05).

In most of the financial parameters, HDFC Bank has bettered ICICI Bank, but the award goes to K V Kamath for two reasons. First, ICICI Bank is more than three times bigger than HDFC Bank and, hence, the growth rate cannot strictly be comparable. Finally, what helped Kamath, 58, clinch the Banker of the Year crown was his innovative streak and the creation of niche markets.

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'Our aspiration is to raise our market cap to $100 bn-plus'

In 1996 you took over as the CEO of ICICI, a project finance institution. Today, retail assets account for 69 per cent of ICICI Bank's loan portfolio. Do you plan to make it a total retail bank?

A bank has to respond to realities. The market realities between 1996 and 2001 fairly indicated that corporate lendings were not sustainable. Corporate India was not competitive and it was getting into deeper trouble for a variety of reasons.

Among other things, the cost structure was not right and the interest rate was too high. We had to look for alternatives to derisk our portfolio. We decided to get into retail and it was a right call. Post 2002, we see a resurgent corporate India and today there is an opportunity to work with corporate India.

Its needs are very different today. The corporations are leveraging themselves appropriately and accessing markets "� both debt and equity "� appropriately. As a bank we need to respond to their needs.

How?
Resurgent India is buying assets abroad and raising money globally. We are partnering them. Corporate India is also very active in seeking risk management products. It has spent about $8 billion in acquisitions but the domestic investment pipeline is worth $200 billion. So, acquisition financing is an opportunity but the bigger opportunity is funding domestic requirement.

So, will you rebalance the portfolio and bring down retail assets?

There is no theoretical balance. You need to look at emerging opportunities. The India growth story will continue for long. There are opportunities in corporate India, consumers, the overseas play as well as rural India.

Can you sustain the growth?

A bank always has to work within constraints of risks. We must be aware of the inherent risk in our business. Growing too fast is also a risk. ICICI Bank is growing what we believe within the limits of manageable growth. When the industry is growing at around 20 per cent, a bank which is well positioned to seize the market opportunities can grow at 30 per cent.

Where do you see ICICI Bank in 2010?

I look at the Chinese banks as the benchmark. A Chinese bank got recently listed at a market cap of $110 billion. Our aspiration is to look for this kind of market cap. We have to raise our aspiration level from $15-20 billion to over $100 billion and strike a balance somewhere in between. This a statement and to support this we need to put in a lot of hard work.

Any plan for launching new businesses?

We are in every area of financial services. Insurance is a particular growth area for us. I would expect a lot of opportunities in insurance to create value for our stake holders.

Any constraint for growth?

A typical constraint for any entity is capital in its various forms "� financial capital, human capital and technology capital. Then, of course, one needs to put in the right building blocks and seize the opportunities.

Financial capital was an issue and we had to go for overseas listing to raise money but today financial capital is no longer a constraint. Similarly, human capital is no longer an issue as we have a pool of skilled people well versed with risk mitigation, treasury business and so on.

We have the demographic advantage of a young India and that is providing us with a talented work force. Ten years back, to run an ATM we needed three levels of redundancy "� a leased line, a dial-up line and a V-Sat to make sure that the ATM performs.

We are able to keep our technology architecture very cost effective and we are better placed than even the global players. Our own assessment is that big structural changes are taking place at the market place and we are on a growth paradigm which will last 15 to 20 years. There are risks but we must understand them and address them.

How did you get involved in the IPO scam?

We have explained our stance to the regulator and beyond that I don't want to talk on this.

The market has always had the perception that ICICI Bank's balance sheet is fragile and you're hiding NPAs.

The perception probably lasted longer than reality because people wished it that way. Let me be frank about it. People could not understand how we would get the market share. Historically, indeed there was a challenge in the balance sheet because of the structural changes that corporate India had undergone in the late 1990s.

But nobody was willing to acknowledge that we were addressing it upfront by raising capital, introducing new products, derisking ourselves and making sure that all these initiatives did not have any dire impact on our balance sheet.

Nobody wanted to acknowledge that this could work. Again, when we were able to execute what we wanted to do on the consumer credit front and started getting the market share, there were issues like it was an untested strategy and it would never work. Looking back, it was a wishful thinking of some people. Today only a very brave person will say that our balance sheet is fragile.

You have been at the helm for over a decade now and you do not have any retirement age. Does this indicate your inability to groom a successor?

Absolutely not. Look at ICICI Bank's bench strength at various levels. We have one of the strongest benches across the world in the financial services business.

We have leaders in the age group of 35-45. They are holding board positions at various group companies. Each of them has proved by being market leader in the business s/he drives. I salute this young team.

Then why did you stay put after completing two terms?

May be the board felt that we need continuity for some more time. We are a young organisation. ICICI is 50 years old but in our new avatar we are effectively less than four years old. I leave to the board to decide on the right time for my retirement.

Who will succeed you?

We have a team and from the team the successor will emerge.

What's the turning point in your career? Converting ICICI into a bank?

From the point of view of all stake holders, the defining moment was when we derisked ourselves by converting into a bank. That made sure that we could run profitably. Had that not happened, we would have faced very serious challenges.

Are you a man of action or a man of vision?

Vision and charisma alone do not work. Ultimately you must have a bias for action. At the same time you can't be part of every single bit of action. It won't work. A leader must have a great degree of vision, organising ability and confidence to delegate and a little bit of charisma. I have a little bit of all these things.

Do you lack any particular quality?

(After a long pause) I am probably too technical a person. By training I am an engineer and also did my MBA but I never have an exposure to liberal arts. I wonder sometime that if I had exposure to liberal arts, probably I could have been a better person, better leader and achieved a little more than what I have (done). Early in my career I used to feel that technical education is the best education but after 35 years of working I like to admit that I stand corrected.

Tell us about your life beyond banking

I am a very simple person. I make my own cup of tea. Most of the time when my wife and kids are away I actually go home to a flat which is locked. We don't have full time domestic help.

I open the door myself, switch on the lights, heat my food and eat alone. I follow cricket and tennis. For more than 20 years watching motor racing has been a hobby. I enjoy any programme on TV which is technically well produced.I enjoy anything that epitomises quality.

Do you watch Hindi films?

I watch Hindi films for laugh. I don't want to sit through an agony. The last Hindi film I saw was Bluff Master.

Your favourite drink

Single Malt. Once in a while.