The bad news is that the worst of non-performing loans (NPLs) and restructured loans is not yet behind for the banking industry. The consolation, if any, is that the macro-environment may not deteriorate here on. That is ICICI Bank CEO Chanda Kochhar's big picture view of the economy and the banking industry.
Now in her fifth year behind the wheel at India's largest private sector bank, the 51-year old Kochhar has managed to get her company back on the growth path even if meant reducing speed and allowing rivals to narrow the once formidable lead it had.
And the stock market appears to be taking notice, albeit grudgingly. ICICI Bank shares are down roughly 8 percent so far this calendar. That compares with a 2 percent and 14 percent decline in the shares of its closest peers HDFC Bank and Axis Bank respectively.
Kochhar, currently ranked 65 on the Forbes Power Women list, took charge in May 2009 as the bank was passing through one of its worst crises. A string of defaults in its personal loan and credit card businesses severely eroded its asset quality, forcing a drastic change in its loan book mix which was then three-fourths retail. The bank has been cautiously rebuilding itself since then, and is now once again betting on retail as its main growth driver.
Considering that companies are shedding jobs, freezing salary hikes and even delaying salaries in some case, will the retail strategy pay off for ICICI Bank? More importantly, it was an aggressive retail focus that brought the bank down on its knees five years back.
But Kocchar is more confident of the bank's battle plan this time around.
"While there is some anecdotal evidence of some job losses but on the other hand there is also evidence that many of the IT companies are actually increasing their recruitment and so on," she said in an interview to Latha Venkatesh of CNBC-TV18.
"So broadly what we have seen in our portfolio since our retail portfolio is mainly secured—housing and car loans—that segment of the population has not really seen job losses in a big way. Their incomes continue to stay and therefore they continue to pay their EMIs because they don't want to lose their home and cars," she said.
The other big priority for the bank is to ensure that costs are under control, and don't exceed 40 percent of the income. ICICI Bank has already got there, but the challenge will be to maintain that level, considering there is not much scope for improving on it.
"I don't think we can squeeze much more from the existing cost," Kochhar admits.
"We have brought the cost to income ratio down to below 40 percent. From here on our focus will be that we maintain the ratio at sub 40 percent levels," adding that her bank will be among the most efficient banks even if the red line is not crossed.
And while the economy may be stabilising, banks will continue to see additions to their bad assets and restructured loans.
"...because every positive or negative impact on the macro comes with a lag on the corporate asset quality side," she says by way of explanation.
"So the positives also have to finally translate into action for each project, then they have to translate into projects taking of, then they have to translate into cash flows being generated from the projects which are stuck today and then only will you see the positive impact on asset quality," she says.
And the tricky part for banks is that they can never be sure of where the nasty surprise may spring from.
"I would not say that in general there would be one big sector that will come in for restructuring or NPLs, I think the situation today is more company specific, it is more group specific and therefore the situation could be different for different companies," says Kochhar.
Click on next page for the interview transcript
