ICICI Bank to go slow on customer acquisition

After years of heady growth on the back of a retail lending wave, ICICI Bank seems to be taking a pause and is instead focusing on profitability rather than building up scale rapidly.

Chanda Kochhar, joint managing director and CFO of India’s second largest bank, said the bank has already achieved a formidable economy of scale and can afford to make the loan eligibility criteria stricter. “However, the bank is not consciously slowing down the growth rate,” she said.

The shift in stance is obvious as the bank’s mainstay, retail credit, has slipped to 5 per cent and the lender has no plans to go after volume anymore. “In short, lesser people are now eligible for loans,” Kochhar said in an interview.

For example, the bank has decided to prune its annual growth in credit card issuances to 15 per cent from around 25 per cent in the previous year. ICICI is the market leader in this segment having issued over 8.5 million credit cards. Not too long ago, the bank’s focus was to put more cards in the customers’ wallets and then offer various schemes to boost spending.

The focus now is to go slow on customer acquisition in the face of rising non-performing assets. Gross NPAs increased by 54 per cent in the first quarter of the current financial year compared to the same period a year ago.

The bank’s year-on-year loan growth rate has come down to 13 per cent by the end of June this year from 25 per cent in the quarter ending December 2007.

So, the order of the day is stricter credit appraisal and filtering out risky customers. Kochhar said, “Every increase in inflation and interest rate could have an impact on credit quality. We are watching it carefully.”

Kochhar also feels interest rates may not have peaked as yet, and she won’t be surprised if they go up further in view of the uncertainties over the future. “We can’t obviously predict the future but have to be vigilant,” she said.

The bank has already got out of the small-ticket loans (around Rs 20,000) in view of the increasing risk profile and poor repayment culture. Besides, the bank will go slow on further branch expansion.

ICICI Bank, however, expects loan growth to sustain at 15 per cent as corporate loan expansion is still robust. Indian companies have a comfortable cash position, are not highly leveraged and the profitability is still satisfactory.

So, Kochhar doesn’t see any problem as far as the credit pipeline is concerned. However, should input and interest costs go up further, the situation could become “more uncertain”. For example, no new project has come up in the last three or four months.

Acknowledging that the first three months of this financial year was the toughest for the bank, Kochhar said the core operating profit still grew by about 74 per cent and hence there is no reason for any undue worry.

To its credit, ICICI bank has been able to keep its operating expenses under check, which grew just 10.5 per cent y-o-y despite an increase in the number of branches. It was the first to publicly announce a freeze on promotions, cut in bonus payments and moderation of annual increments.

Asked whether the central bank went overboard with its concern for inflation by hiking the CRR and repo rates so steeply, Kochhar said as long as the country meets the 8 per cent growth envisaged by RBI, things should be alright.

The financial services industry generally grows at double the rate of GDP growth. So, a 16 per cent growth for us shouldn’t be a problem, she said.