How has Chanda Kochhar played the biggest role in not only leading ICICI to beat competitors like HDFC, but also turning around the Indian banking industry. In short, how has Chanda Kochhar led the ICICI bank to such a high growth path? Ameya Shastri Pothukuchi
Chanda Kochhar is the first woman to head ICICI, India’s 2nd largest Bank and largest private bank. She oversees assets of $93 billion, more than 2,750 branches in India and the bank's presence in 19 countries. Kocchar joined ICICI in 1984 straight out of B-school and is credited with building the bank's retail arm from scratch. In 2009, she became ICICI’s youngest CEO at age 47. Mrs Kochhar is credited with pursuing a new strategy, prioritizing day-to-day banking business through its branches rather than big-ticket deals. ICICI reported a neat 31% year-over-year increase in profits in the fourth quarter of fiscal 2012. Kamath, Kochhar's predecessor, was one of the first banking executives in India to understand the changing face of the Indian consumer, and in 2000 he tapped protégé Kochhar to head retail banking operations. But things were not always so smooth. In May 2009, when Chanda Kochhar ascended as CEO of ICICI Bank, the world economic crisis was in full swing.
2008: Just to be sure, ICICI didn't escape the 2008 financial crisis. The bank had been paying higher interest rates than its state-owned competitors by relying on retail and corporate term deposits, a strategy that curbed profits but worked fine as long as corporate term deposits held steady. As the global crisis hit India, big customers started withdrawing term deposits en masse to meet operating expenses. Rates on those wholesale, or "bulk," funds jumped to 13%.
Because of its high cost of funds, ICICI became the biggest player in the highest-rate, and as it turned out, most dangerous part of the market: unsecured lending for credit cards and personal loans for everything from vacations to the kids' tuition. In 2008, just as the rates on deposits spiked, budgets were tightening for India's consumers. The regular raises and bonuses from the boom stopped, and many people were simply carrying too much debt. Pushing the cards and personal loans were the overzealous sales agents hounding customers at every shopping mall. But this didn’t really mean ICICI recouped much of the bad debt: The collection agencies it hired routinely harassed borrowers on the phone and pounded on their doors. The belligerent tactics caused such a rash of bad press that the government threatened to revoke the agencies' licenses. Millions of credit card holders simply stopped paying. At the peak, ICICI suffered losses of 15% on both credit cards and personal loans, making its default rates the worst in the industry Thus, ICICI had previously experienced rapid growth but now required rapid change. Kochhar quickly launched a transformation to rebalance the bank’s mix of loans and funding and to cut its operating and credit costs. Kochhar, expanded not by taking on more risk, but by building a base of loyal customers and shunning the pell-mell marketing of credit card and personal loans to newcomers that so endangered the franchise just three years ago. These measures were designed to enable ICICI Bank to resume growth with a fine-tuned business model. Kochhar executed a plan of disciplined expansion, which is elaborated below: * On the cost side, she reduced operating expenses by more than 10% by renegotiating leases on hundreds of branches, and even renting apartments for traveling execs, at one-fifth the price of staying at a hotel. * In fact, ICICI is now growing without expanding its workforce of 60,000. * She's also substantially lowered funding costs. Since 2009, ICICI has raised the share of its deposits in checking and corporate cash accounts from 29% to 42%. Those funds cost an average of 2%, vs. 9% for the term deposits they replaced. * At the same time, Kochhar totally changed the emphasis on...
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