Turnaround czar: How Sandeep Bakhshi has transformed ICICI Bank

Sandeep Bakhshi has restored ICICI Bank's brand equity, strengthened its balance sheet, and delivered profitable growth at a turbulent time in its history

Sandeep Bakhshi took over as managing director (MD) and chief executive officer (CEO) of ICICI Bank at a very turbulent time. More than the business dimension, the challenge was one of perception: the bank was seen as having poor standards of corporate governance, and the person at whom fingers were pointed was none other than the then chief executive, Chanda Kochhar.

It was alleged that a company related to Videocon Group chairman Venugopal Dhoot invested Rs 64 crore in NuPower in 2010 and later the proprietorship of the company was transferred to a trust owned by Deepak Kochhar for Rs 900,000, after Videocon Group received a loan of Rs 3,250 crore from ICICI Bank in 2012. NuPower Renewables is a company promoted by Deepak Kochhar — Chanda Kochhar’s husband — in 2010.

ICICI Bank tried to brush aside the charges initially, but later appointed a retired judge of the Supreme Court to probe the matter. Chanda Kochhar decided to go on leave until the probe was over, and Bakhshi was appointed chief operating officer in June 2018. Four months later, in October that year, he was appointed MD and CEO. The Reserve Bank of India (RBI) approved a three-year term for him.

Bakhshi hit the ground running. Aware of the perception challenge, among the first things he implemented was a change in the human resource policy. For example, he changed the weights of some parameters in the performance appraisal process. The overall targets were not changed but the appraisal process was overhauled. He also tweaked the reporting structure, created synergies between product and distribution channels, and empowered leaders, particularly those on the ground and customer-facing frontline workers.

The bank rewarded 80,000 frontline employees — who reached the branches to serve customers despite a draconian lockdown — with an 8 per cent pay hike during the Covid-19 pandemic year.

Under Bakhshi, ICICI Bank adopted the twin principles of “One Bank, One RoE” (emphasising the need to maximise the bank’s share of the target opportunity across all products and services), and “Fair to Customer, Fair to Bank” (emphasising the need to deliver fair value to customers while creating value for shareholders). The culture of the bank began cha­nging, and this helped change perceptions. Impro­vements in business and operating parameters were to follow. (RoE is return on equity/shareholders’ funds.)

Changes were initiated on the business side, too. Ea­rlier, business was driven more by processes than by feed­back. The focus was more on targets than on whether a particular product was acceptable to customers. After Bakhshi took over, feedback was given pri­ority over targets, and often these were set after receiving feedback on products. The new principles were implemented across the ICICI group.

This meant that certain products of the bank were withdrawn because, while good for the bank, they not have been so for clients. 

“ICICI Bank has been the best performer in the banking sector, as it delivered 80 per cent/42 per cent returns over FY21/FY22 YTD. Its market capitalisation ranking within the BFSI space has improved to two, from five in FY18,” Motilal Oswal Securities said in a report.

“Stability of the top management has helped improve its operational performance. Mr Sandeep Bakhshi’s appointment as CEO has brought stability, which enabled value creation and drove re-rating, as the bank delivered 31 per cent CAGR in m-cap since FY18-21 vs 7 per cent over FY10-18,” the report added.

When Chanda Kochhar took over the reins of ICICI Bank from KV Kamath in 2009, she had to course-correct, as the bank had burnt its fingers while aggressively pushing retail lending. Kochhar, whose forte was project finance, focussed on corporate loans. However, this sent bad loans ballooning, as economic growth slowed. Result: another course correction was in order when Bakhshi took over.

Retail loans, accounting for 60.1 per cent of the bank’s total loan portfolio as of March 2019, increased to 66.7 per cent by end-March 2021. Even during the pandemic year of 2020-21, the bank’s retail loan port­folio grew by almost 20 per cent. More importantly, the retail portfolio has turned more profitable than it was earlier.

“Our aim is to achieve risk-calibrated growth in core operating profit through a 360-degree customer-centric approach, tapping opportunities across ecosystems, leveraging internal synergies, building partnerships and decongesting processes,” Bakhshi had told analysts while summarising his approach.

“Margins will remain stable at 3.94 per cent, with higher marginal cost of funds offset by lower liquidity/changing loan mix. ICICI does not target any loan growth level, rather the focus is to generate strong and granular PPOP (pre-provisioning operating profit) growth,” Edelweiss Securities said in a report.

Retail loans have become much safer now, compared to two decades back, with the help of credit bureaus, and as a result of the improved repayment culture of the middle class. A large proportion of the bank’s retail portfolio comprises secured loans.

In the unsecured segment also, ICICI Bank has increased its presence ra­pidly in the credit card segment. New launches, tie-ups and co-branding have boosted credit card sales.

“ICICI did not have anything negative to report from a perspective of fees from credit cards and payments business,” YES Secu­rities said in a re­port while com­m­en­ting on the bank’s Oct­ober-December FY22 earnings.

“There were three key factors behind the ramp-up of credit card spends. Firstly, the bank is direc­ting its spend to important aspe­cts, such as card activation and rewards. Second­ly, the Amazon Pay co-branded credit card has been good for the bank due to its low risk, high spends, good cross-sell and stickiness. Lastly, the commercial cards portfolio is being built up,” the report said.

Under Bakhshi, ICICI Bank has both cleaned up the balance sheet, and strengthened it. For example, even as the bank has a loan-loss coverage ratio of about 80 per cent, it is carrying an additional provision of Rs 7,480 crore — 1 per cent of its loans.

The change in the bank’s performance has not gone unnoticed by the banking regulator. The RBI — which has not hesitated to deny extensions to quite a few bank CEOs over the past few years — granted a two-year extension to Bakhshi last year, much before his first term ended in October 2021.

“Under the leadership of Mr Bakhshi, the bank has seen a major transformation across business and financial parameters. The bank has steered well through the pandemic, building strong provision/capital buffers, and is raring to go for growth with a clear focus on sustainable profitability,” Emkay Global said in a report after the RBI approved an extension for Bakhshi.

“We expect the bank to reclaim its decade-best RoE (return on equity) of 15 per cent/16 per cent by FY23E/FY24E, led by better growth and strong core profitability. Mr Bakhshi has brought in long-awaited management credibility/stability,” Emkay said.

Bakhshi has been with the ICICI Group since 1986, having handled varied assignme­nts across the group in ICICI Limited, ICICI Lombard Gene­ral Insurance, ICICI Bank and ICICI Prudential Life Insurance.

He grew up in a defence services family and attended several schools and colleges across Ind­ia, before completing his man­­agement studies from XLRI in Jamshedpur.

Bakhshi’s cha­llenges have not ended. He is 61, and if permitted, he will have nine years more (private sector bank CEOs can work until 70, according to RBI guidelines) to drive the second-largest private sector len­der to greater hei­ghts, navigating challenges mainly emanating from a world which is increasingly beco­ming digital. 

Realising the importance of digital banking, ICICI Bank incre­ased its non-employee expenses by 20 per cent year-on-year to Rs 4,590 crore in the October-December quarter. The increase is primarily due to retail business- and technology-related expenses. Technology expenses were about 8.4 per cent of the bank’s total operating expenses in the first nine months of FY22. The bank believes leveraging digital technology is core to its business.

“We have a wide physical distribution network and our best-in-class digital platforms provide seamless onboarding and transacting experience for customers. We continue to innovate, invest in technology and drive analytics to get deeper insights into customer behaviour,” Bakhshi said in one of the analyst calls, indicating his vision for taking ICICI Bank forward.