After going through a rough patch last year, India's second largest private sector bank is now on the mend and gearing for growth. On May 6, ICICI Bank reported its January-March earnings, marking six months of performance under the leadership of Sandeep Bakhshi. After the dramatic exit of Chanda Kochhar in October 2018, Bakhshi was left with a mountainous task of rebuilding the image of the bank and reinstalling lost investor confidence. The bank, since then, has come to grips with its situation and is dealing with the tasks at hand.
The bank has been dead slow in opening new branches. Since March 2017, it has added only 24 new locations to its network, as compared to its usual pace of 300-400 every year. Moreover, Its current network of 4,874 branches is also under review for space optimisation.
While the bank did not indicate shutting down of branches, it is in the process of giving up space in large branches with low footfalls.
"What we are certainly doing is, optimising the portfolio of branches that we have, by shifting the branches to better economic activity areas and making sure branches are productive and profitable," said Anup Bagchi, executive director, ICICI Bank. He added that the lender is still open to setting up new branches in areas of high economic activity. “It may not be very large format branches. It may be smaller formats in different places,” he said.
Bakhshi has also reoriented the bank's top management with focus on identifying different business verticals instead of hierarchy. "We have moved to role-based designations, from grade-based structures to empowered teams at the local level," Bakhshi said while addressing analysts over earnings call.
"I am optimistic about the role-based changes that we have made. This is the biggest change as this change goes across the length and breadth of the company," Bakhshi said, referring to this as a deep structural change. He added that the new structure offers opportunity for employees to have a much wider participation.
Parvati Pai, analyst at KR Choksey, said that these measures would benefit the bank on the cost front, while improving branch metrics. Rai expects the bank’s cost-to-income ratio to ease to around 40 percent in 2020-21, from 43.6 percent in 2018-19.
De-risking of balance sheet
"The bank is reorienting balance sheet towards lower risk, well balance portfolio and more granular portfolio," analysts led by Kunal Shah at Edelweiss Securities noted in a report. It has a better rating mix with "A-" and above rated loans constituting more than 67 percent, as compared to 52 percent in 2016. It has lower concentration risk with exposure to top 20 borrowers at less than 11 percent, as compared to 15 percent in 2015. "In our view, the bank will not shy away from opportunities in corporate as well as retail lending within defined risk parameters," the report said.
Shifting focus from cutting NPAs to achieving calibrated growth
ICICI Bank reported net NPA ratio at 2.06 percent, from 4.77 percent as on March 31, 2018. Its provisioning coverage ratio rose to 70.6 percent (excluding technical write-offs), from 47.7 percent a year ago. Also, its "BB" and below rated corporate and SME portfolio fell to Rs 17,525 crore, from Rs 18,812 crore in December 2018.
"Looking ahead, we will continue to maintain our focus on building scalable and resilient business to drive the growth of risk calibrated core operating profit. We will further strengthen our liabilities franchise and pursue growth in low capital consuming businesses," said Bakhshi, adding that the bank is at the end of this asset quality cycle and additions to NPAs are likely to stabilise going forward. He said that the bank's credit costs are likely to be in the range of 1.2-1.3 percent in the current financial year, from 3.5 percent in March 2019.