The managing director and chief executive officer of India’s biggest private bank-ICICI Bank- Chanda Kochhar believes that at the time of Lehman Crisis, the first thing needed to do was to clear the customers perception of the bank’s exposure to the Crisis.
Speaking to CNBC Asia, Kochhar said she continued to communicate and instill confidence among her employees in dealing with customers who panicked and made a dash to the bank branches to withdraw their holdings.
Also read: India's economy is out of the woods: ICICI CEO
“ One of the option was to keep the branch open even till 2 am in the morning and ask the customers to come in, serve them water and tell them atht nothing is wrong with the bank. After that, if they still wanted to withdraw money, they could,” she adds.
Below is the edited transcript of Kochhar’s interview.
Q: ICICI Bank didn’t escape the global financial crisis when Lehman collapsed in September 2008. A lot of people were afraid that bank was going to go under. Suddenly thousands of people were lining up in front of your branches and ATMs to withdraw cash. As a CEO how did you go about instilling calm amidst all the chaos, amidst all the panic?
A: That was a crisis of perception and not so much of reality. We did have exposure to Lehman Brothers and that is what created anxiety amongst people but that exposure was not even one percent of our balance sheet. The first important requirement of me as a leader was to clear that perception.
Q: How did you go about doing it?
A: It was very difficult at that time but the most important part was to keep communicating.
Second was to take on the ground action to ensure that the operations don’t get destabilised. If there are thousands of people waiting in the branch wanting to withdraw cash, get into the details of looking at the logistics and saying is cash available in branches. If they want to withdraw, there should be no shortage of cash.
The last one was to instill confidence amongst the employees, especially the people at the branch. I was talking to the branch managers directly and telling them to show their confidence and patience towards the customers.
Q: How did you do that?
A: We had two options, one is that at 5 pm just put the shutters down and say sorry the branch is closed you can keep standing outside but we will see you tomorrow or the other option was to keep the branch open even till 2 am in the morning and tell the customers come in, we will give you water and tea but we will tell you nothing is wrong with us. After that if you still want to withdraw money you can withdraw money.
Q: Operationally could you find enough armor trucks to deliver all that cash?
A: It was like a clear operation where we had to really calculate the number of trucks that we needed, some were armored some were not armored, we had to take decision to say just move the cash without armored trucks. So it was really money moving within the country across the large country of India overnight so that we could keep our ATMs and our branches filled with cash.
Q: Any lessons learned in the process?
A: Yes many lessons learnt. One is very operational lessons of how to manage logistics. The second lesson is to say that be with your team at that time and give them confidence. And the third is to not run away from challenge and not run-away and say I will not give you cash but being with the customers and say I am here with you and I will support whatever decision you want to take. You may want to withdraw money I don't scream about it but I am here to tell you there is no need to withdraw money.
Q: In the last six years you have fully turned around the bank, you have brought down non-performing loans, you have actually increased your bad debt provisions. Are you happy with the banks asset quality today?
A: I am very happy with the entire consolidation process that we have brought about in the last five years. If you see our proportion of stable deposits has almost doubled, our net interest margins have gone up substantially, our provisions have come down, our provision coverage has gone up and net-net our return on assets has doubled from being less than or almost 90 bps four years ago to 1.7 percent now. So I am very happy with the way things have moved.
As far as the asset quality is concerned actually I would say that I am quite confident about the asset quality of the bank. But we must remember that the kind of challenges that all the economies are facing and when you look at India an economy that was growing at 9 percent seven-eight quarters ago, and the growth rate has halved to 4.5-5 percent in a matter of seven-eight quarters, clearly that adjustment will have some impact on the asset quality of the banks. But I am confident that the kind of assets that we have are actually in a way manageable, not something that will create crisis whether for us or for the banking sector but yes I think current economic environment entails that we have to monitor the asset quality.
Q: But you do see some pressure on asset quality?
A: Yes we are seeing the pressure currently. Again if I were to get into a little bit more details if you look at the entire consumer side of the portfolio which is mortgages, car loans, there is actually no pressure at all.
The performance on that portfolio is very stable but when you look at the corporate side of the portfolio I think the stress is different across different projects, power projects are differently placed to road projects, infrastructure projects and so on.
Different stress across different companies, across different groups based on their leverage levels. So in that sense it is time for us to monitor what is happening in the environment and how does that impact our clients, because of that what steps do we need to take to save our exposure. So it is a time of heightened activity of monitoring and control.
Q:Your debt restructuring pipeline, what does it look like?
A: For the next couple of quarters you would see additions to both non-performing assets (NPAs) and restructuring, both for us and the banking industry. But the estimates that we have in our mind of credit charges and so on are keeping all those.
Q: Your operating in the middle of the financial system in India, there is Fed taper and what it means for global liquidity. What sort of impact do you think this is going to have on India and interest rates in the country?
A: I think the entire world is interconnected so the tapering by US, India is not going to remain out of that impact due to that. But my bigger belief is that really a lot more depends on how we manage growth in the Indian economy because if we actually bring back growth and the confidence around growth in the Indian economy we will still have money flowing in the Indian economy. We must remember that money was flowing in a big way in the Indian economy when India was growing at 8-9 percent and the developed world was struggling to grow at 1 percent so that was the differential.
Today of course if the developed world is confident of growing around 2.5-3 percent and if India says I will grow at 4.5-5 percent I think the differential is very low. You will automatically see low appetite for money coming into India. But if we bring back domestic growth, if we increase this differential in growth rates between the rest of the world and India I think there is still going to be substantial investment.
Q: Where do you see growth in India, is the worst over?
A: I actually think the worst is over but that does not mean that the recovery is going to be very fast. I think the recovery is going to be slow and gradual. I think the worst is over because the export-oriented companies are doing better because of the adjustment in the rupee.
We have brought a lot of control on our current account deficit and the government is quite focused on controlling the fiscal deficit. So all those things have meant that we have kind of brought the slide down to an end.
But from here on for recovery to come back we have to actually put in lot more efforts in bringing back investment drive in the country. So I think therefore while we bottomed out, but the movement up is going to be slow, gradual and will depend a lot on how much more efforts we put in.
Q: And who is going to make those efforts, the government?
A: Yes I think it is the entire ecosystem all across. In my view what we need to bring back is energy and decision making. Today decisions are getting slower, that is in a way increasing the time to complete a project. It is bringing about uncertainties around a project implementation and even if a project is complete today we have lots of projects which are complete but yet not generating cash flows because something or the other is not approved. So yes on a day-to-day basis the bureaucracy, the regulatory authorities have to bring back decision making which is what can bring back this confidence.
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