October 2018. ICICI Bank Ltd. employees were called in for a town hall at the lender’s headquarters in Mumbai.
It was a time of turmoil at ICICI Bank, which had just seen Chanda Kochhar resign under a cloud. Sandeep Bakhshi, an old-timer but not one of the more visible faces of the bank, had been appointed to replace Kochhar.
As employees entered the town hall, they noted a subtle change. No seats were blocked up front for the new chief executive as they typically would be, said a bank official who attended the event. The practice remains in place even today. Bakhshi does not mind even if he has to sit in the last row, if he arrives late, the official quoted above said on the condition of anonymity.
This change could very well have been a gimmick but in his three years as chief executive of the country’s second-largest private lender, Bakhshi has remained virtually unseen and unheard while driving quiet change at the bank. He will remain at the helm of the bank for the next two years, after the Reserve Bank of India approved Bakhshi’s reappointment till October 2023.
Hemindra Hazari, an independent banking analyst who has tracked the sector for long, points to the marked difference in management style between Bakhshi and his predecessors. Bakhshi and team believe in doing their work quietly and this is a refreshing change, he said.
One Bank, One Team, One Goal
Beyond the messaging, there have been visible changes in the way the bank functions.
Hierarchical structures have given way to a flatter organisation, bankers have more freedom to experiment within the business goals set for them, and standardisation have given way to customisation. All this to ensure that individual strengths are leveraged to the advantage of the team.
Bakhshi often uses the analogy of a cricket team, said the executive quoted above. If a player gets a century but the team loses, what is the point of that personal milestone? It really drives home the point that personal victories are important, but you cannot lose sight of the bank’s broader objectives, this person said.
Walls have been pulled down figuratively and literally with open office structures being encouraged. This was very welcomed by teams across the board, since managers felt more connected with their teams, said a second bank executive, who also spoke on the condition of anonymity.
The bank has also attempted to become more regionally diverse.
The second executive quoted above explained that under the previous dispensation, the attempt was to standardise the products as much as possible. But Bakhshi realises that each town may have its own product requirements.
As such, regional heads have been given the freedom to customise products, this person said. This is a good way to let regional heads take more ownership of their decisions, the executive added.
Alongside, younger leaders are being encouraged to bring new energy into the bank. That’s not to say that the more experienced managers are being pushed aside.
There has been a change in the culture of the bank which is important to note, said Hazari. “Typically when a new leader enters, people loyal to the previous leadership step out. In Bakhshi’s case, he has managed to retain top talent.”
Alongside softer cultural changes, Bakhshi had much to fix on the business front.
When he took over, the bank’s gross bad loans were at over 9%, and earnings were volatile. The focus over the past three years has been to clean-up the book and shift towards higher yielding businesses and products.
Across the corporate credit vertical, the bank, like most other private lenders, has moved towards high quality borrowers. Over 73% of the corporate loan book consists of companies rated A- and above, as on June 30. This category contributed 62.5% as of March 2018, before Bakhshi took over.
Retail and small business lending now dominates ICICI Bank’s advances, constituting over 75% of the bank’s domestic loan book. Bakhshi thinks the bank must focus on higher yielding retail products, within the guard rails of risk, the second executive quoted above said.
After a period of consolidation, the bank returned to growth and has seen a steady rise in advances and deposits even amid the pandemic. Much of this has been led by the retail segment.
More products are also being pushed digitally now.
In the quarter ended June, 60% of the bank’s incremental fixed deposits by volume and over a third of the home loans sanctioned by number, were through digital channels.
Apart from this, the bank is also actively promoting “stacks”, where all of its services to a certain business segment are bundled for customers to use. This allows for lending, liability and transaction products to be sold together to a customer, helping the bank capture a larger share of their wallet.
The second executive quoted above said Bakhshi is also proponent of open banking, which ICICI Bank has been promoting over the last year.
Most key financial performance metrics have improved over the past three years. Bad loans are down, operating profits are up and return on equity has improved.
“Under the leadership of Sandeep Bakhshi, the bank has seen a major transformation across business and financial parameters,” said brokerage house Emkay in a note dated Aug. 25. The bank has built strong provisions and capital buffers and is raring to go for growth with a clear focus on sustainable profitability, the brokerage said.
ICICI Bank’s stock, since Bakshi took over on Oct.15, 2018, has gained 128% compared with the 68% rally in the benchmark NSE Nifty 50 index.
Most of the gains in the stock has come only in the last 10-12 months, said Amit Khurana of Dolat Capital. “It is because the new management’s clean-up policies started showing results only about a year ago. The stock performance is testament to the current quality of the book and the relatively better asset quality at ICICI Bank.”
It is not just investors that are talking about ICICI’s transformation, but also competitors.
An official at a large private bank, on the condition of anonymity, said even though ICICI Bank’s retail lending portfolio has seen strong growth, the retail liabilities franchise is where the bank is beating the street. The bank has managed to bring its book back into shape and is now eyeing strong growth, this banker said.
ICICI Bank has also seen industry-leading growth in the credit card segment, where it jumped in to fill a void left by HDFC Bank Ltd., when the regulator imposed restrictions on the latter. ICICI has gained 157 basis points in market share between November 2020 and July 2021, according to a report from Macquarie Research dated Sept. 2, 2021.
But historically, ICICI Bank is known to have slipped on every “banana peel” faced by the banking sector, the peer banker quoted above said. During the Covid-19 pandemic, the asset quality has held well, but only time will tell if this a temporary phenomena or a permanent fixture.
“The push on retail is a major concern. You can’t just place all your bets on one part of the business, it needs to be balanced growth. We will have to see how things play out on this retail blitz,” he said.