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Last Updated : Jan 24, 2018 08:13 PM IST | Source: CNBC-TV18

Good initiative by government to remind banks about governance: Chanda Kochhar, ICICI Bank

In an interview to CNBC-TV18's Shereen Bhan, Chanda Kochhar, MD and CEO of ICICI Bank shared her views on the business outlook, bank recapitalisation and Indian economy from the sidelines of World Economic Forum (WEF) Davos 2018.

CNBC TV18 @moneycontrolcom

In an interview to CNBC-TV18's Shereen Bhan, Chanda Kochhar, MD and CEO of ICICI Bank shared her views on the business outlook, bank recapitalisation and Indian economy from the sidelines of World Economic Forum (WEF) Davos 2018.

Below is the verbatim transcript of the interview.

Q: We get you on a day that the government has finally announced the details of its bank recapitalisation plan. Do you believe that this is going to give an impetus now to the public sector banking space?


A: I think it is good because some substantial amounts of capital have been announced for some banks and also the time period that is by March 31. So, I think it is good to take away the uncertainty to have substantial amount of capital committed and then along with that, of course, some governance rules.

Q: What do you make of that?

A: I think it is about saying that banking has to be done in a particular manner and it is good to remind the whole set of banks so to say that follow certain common guidelines when there are breach of contracts and so on.

Q: Isn't that standard hygiene stuff?

A: Yes, but sometimes it is good to remind yourself and good to make efforts to implement the things that we normally treat as common sense and take it for granted. I think it is good to focus on them and this is the time to focus on them.

Q: So as a private sector banker, in light of the recapitalisation, do you believe that it is likely to change things in any way at all, at least in the near-term?

A: I think this is something that was the basic hygiene that these banks needed for arriving at a certain amount of capital adequacy by March 31. But the good part is, as I said, it is a good number, it is a substantial number, so it gives these banks the comfort that they can continue to keep participating in the banking sector. So in that sense, we are as a banking industry working towards one, capitalising the opportunities on the retail growth and second, working towards resolution and recovery of some of the larger cases, having banks that have enough capital makes a lot of sense.

Q: Since you talked about resolution, do you believe that 2018 is likely to be the year that we see resolution actually take place? We have seen interest at least as far as some of the distressed steel assets are concerned. Do you believe that it is largely going to be restricted to any particular sectors? And do you really see resolution taking off at least in the first half of the year?

A: I am very hopeful that you should see resolution taking off. In fact we, as an industry and as a country have spent a lot of time talking about recognition. We should now focus on resolution and recovery.

Q: Is recognition done or have we been able to resolve the recognition part of it or do we expect any more skeletons to tumble out of the closet?

A: I think the stress is known. That stress part of it may have been as NPA currently part of it may be as assets under watch for various banks. It is a matter of time how they get recognised, but at least the estimate of what kind of stress exists, that is done. But, we should focus on resolution and recovery. And I am quite hopeful the way we have seen progress in some of the larger cases at least and the kind of interest that we have seen that at least we will move in certain time bound manner. Yes, what kind of recoveries will happen, those will vary from company to company, whether it is an operating company, non-operating company. But this year will set the benchmarks of how resolutions take place to a lot of assets.

Q: In terms of timelines, the SBI Chief yesterday in his conversation with me said that in terms of the first NCLT list, he hopes that by March or April we should expect some degree of conclusive action. What would you estimation be?

A: I would agree with that. Actually, in fact it was in this quarter that we should have seen some conclusive action, but we have got some extensions. So yes, if not March, by April, around that time, we should see the ball starting to roll.

Q: In terms of vulnerable sectors now, steel is a sector that is a rebounding. This was a big concern area for the banking system. What is the new steel today?

A: The country is looking at sector by sector and trying to resolve and arrive at what needs to be done around this sector. So as you say steel, a lot of the policies changed, the minimum import price and so on and various other things which have ensured that the steel industry capacity utilisations have gone up, profitability has gone up. So, we have to look at sector by sector and try to resolve.

Q: What is looking vulnerable today?

A: It is a known fact that there are various power projects that are half implemented so we still have to work through resolutions on those.

Q: One of the other issues that is being red flagged by agencies like Moodys, ICRA, etc. is the affordable housing segment and the delinquency rates expected to rise there. You have got about 6,700 crore of exposure to that segment. Is that something that you see as well?

A: First of all, this is a segment where the growth has just started. As the investments in affordable housing comes and as these affordable houses get built, the growth potential is huge. But, in every growth area, we have to make sure that we do our due diligence and then, undertake the business and take part of growth. So as far as we are concerned, we actually so far have had very good credit experience, we are not seeing a cause for worry, but the basic principles that all of us will have to follow is that even this lending should be done on the basis of earning capacity and not just on the basis of the fact that someone is buying a house, so the money has to be lent. So that basic principle of banking that lend against cash flows and lend against earning capability and not just the monetary value of the asset.

Q: In terms of credit growth what the picture is looking like at this point in time, do you see a significant upturn, what is your expectation?

A: If you look at the numbers, the year began with very low banking credit growth but it has picked up substantially and now it is showing up as 12 percent per annum. Within that if you look at the consumer side of the growth it continues to be healthy above 15 percent. The industrial side of the credit growth which had turned negative at certain point in time has at least turned positive. I think these are the positives.

As far as we are concerned our domestic business is growing at almost 18 percent within which retail is growing upwards of 20 percent. So, we are seeing healthy growth actually coming back.

Growth on the corporate side is more related to increased capacity utilisation, is more related to the medium sector industries who are getting their contracts out of the government spends, so that is where the growth is coming from.

Q: Do you expect a significant revival in private capex because that is the hope and the expectation?

A: As a country when we look at private capex, we are all used to looking at only a few mega projects and investments in a few industries across mega projects. I think the structure of the economy is changing. Currently infact with so much of government spending, the real spends and investments are coming in those sectors who are getting the government contracts. So, on road side the construction company is getting the contracts, on railways the private partnerships are playing a role there in laying of tracks and railway stations and so on. So, that is where investment is coming. We are not seeing those big large mega projects but that doesn't mean that on the industrial side the activity has not started.

Q: Let me get you to weigh in on the current debate which is back on the table now and that is whether 100 percent foreign direct investment in the banking sector should be allowed or not. It was something that was toyed with in 2015 as well. We understand that it might be discussed but if at all it is, what is your thought?

A: I have always believed that the more freedom you allow for capital movement, I think finally it actually shows up in the buoyancy of the sector. So, that is the positive of it.

In fact if you look at the banking industry, there are anyway checks and balances in terms of who can take ownership. RBI has that not more than 5 percent in some form and not more than 10 percent in some form. I think there are a lot of checks and balances built-in. So, as long as the checks and balances are properly implemented I think more and more freedom and movement of capital always brings efficiencies and buoyancies.

Q: You have been part of the meetings that the Prime Minister had with investors, what is your own sense, they know the India story, most of them who met with the Prime Minister, a lot of them are already invested in India, what was the specific ask or expectation beyond what the government has already done?

A: You are right, they know the India story, I don't think they were asking about whether there is a demographic dividend or not and whether there is a market for their products or not. I think what I took away from the meeting was that the feeling was that there were certain expectations and there were certain promises and we see that gradually more and more of those promises are getting delivered. So, I think that confidence building, that things are moving in the right direction, I think that is a big kind of applause from them. Of course the ask always is that what you are doing, continue to do more and more of that. However the fact that we have moved on the ease of doing business and it is not just about numbers but one could get a sense from them as well that they are seeing that impact, I think that is the positive part. Then of course the expectation is that we should keep doing more and more of that.

Q: What do you think the Budget is likely to deliver on and whether the fiscal deficit target of 3 percent for next year is going to be something that the Finance Minister sticks with or do you expect and anticipate any slippage?

A: I in fact think that nowadays it is not just the one Budget day that makes so much of a difference. I think the country is going through some various big structural transformations on a continuous basis. So, in that sense I think it will be a continuation of so many things that we have spoken about, the formalisation of the economy, the financialisation of savings I think would continue, of course that is not part of the Budget but everywhere where the investments are either a priority for the nation or investments that create employment, I think those would find focus whether it is agriculture, rural economy, affordable housing and so on.

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First Published on Jan 24, 2018 07:52 pm
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