In­dia's ICICI treads cau­tiously on re­turn to growth path

The Pak Banker - - COMPANIES/BOSS -

Loans for mo­tor­cy­cles are a thing of the past at In­dia's ICICI Bank. So are credit cards for any­one other than ex­ist­ing cus­tomers. In­dia's sec­ond-big­gest bank, whose ag­gres­sive growth made it an in­vestor fa­vorite be­fore it was nearly brought to its knees dur­ing the fi­nan­cial cri­sis, has even be­come picky about lend­ing to power and in­fra­struc­ture projects, a core mar­ket.

With its once-sickly loan port­fo­lio on the mend af­ter sev­eral years of con­sol­i­da­tion that saw it lose mar­ket share, ICICI is look­ing once again to grow faster than the in­dus­try - though more cau­tiously this time around. "Growth for the sake of growth can get into as­set qual­ity prob­lems," said N.S. Kan­nan, ex­ec­u­tive di­rec­tor and chief fi­nan­cial of­fi­cer at In­dia's largest pri­vate sec­tor bank, with as­sets of $93 bil­lion.

ICICI aims to grow its do­mes­tic loans by around a fifth this fis­cal year, led by con­sumer loans and work­ing cap­i­tal, and will be es­pe­cially cau­tious with pro­ject fi­nance, Kan­nan said. In the last fis­cal year, ICICI pared back over­all loan growth to 17 from its ini­tial tar­get of 20 per­cent.

"For re­tail un­se­cured loans we have clearly tight­ened the fil­ters. We are very care­ful in pro­ject fi­nance and in iden­ti­fy­ing the projects that are wor­thy of fi­nanc­ing," said Kan­nan, who as­sumed his role in 2009 when Chanda Kochhar was pro­moted to CEO.

Eric Mookher­jee, fund man­ager at Shanti Ges­tion in Paris, said ICICI had lit­tle choice but to be much more cau­tious, which could hin­der growth if In­dia's flag­ging econ­omy re­cov­ers from its most slug­gish pace in nearly a decade.

"There's a lot of gloom about the In­dian econ­omy and if it turns out that In­dia is not able to re­cover then ICICI is in good stead, but if the econ­omy re­cov­ers they would have lost a lit­tle bit of lever­age," said Mookher­jee, who re­cently sold his ICICI stake and will re-en­ter at lower lev­els.

So far this year, ICICI shares are up more than a third - out­pac­ing 28 per­cent growth in bank stocks (.NSEBANK) - though they are still down nearly a quar­ter since the start of 2008, lag­ging ri­val HDFC Bank ( HDFCBANK.NS), In­dia's No.2 pri­vate sec­tor len­der, which is up nearly 75 per­cent, and the bank­ing in­dex's 6 per­cent gain. Its cur­rent mar­ket value is close to $20 bil­lion.

Still, ICICI's price-to-book ra­tio of 1.8 is the low­est among In­dia's four largest pri­vate sec­tor banks, and pales next to HDFC's 4.7. Of 48 an­a­lysts cov­er­ing ICICI, 42 rate it a buy. Kan­nan ac­knowl­edged it took time for some in­vestors to come around to its less-ag­gres­sive mind­set.

"Ini­tially, one of the push­backs we used to get from in­vestors was that your DNA is a growth-ori­ented DNA: So, will you be able to de­liver on the con­sol­i­da­tion agenda?"

ICICI still bears the scars of the fi­nan­cial cri­sis, when bad loans sur­passed 5 per­cent of to­tal as­sets in the year to March 2010. It has pared that to about 3.5 per­cent, still far above HDFC Bank's, which are just un­der 1 per­cent.

Af­ter Lehman's 2008 col­lapse, wor­ries about ICICI's over­seas ex­po­sure prompted a near-50 per­cent one-month drop in its shares and led some de­pos­i­tors to queue at branches to with­draw cash, forc­ing it to is­sue text mes­sages as­sur­ing that it was healthy and prompt­ing the cen­tral bank to de­clare it well-cap­i­tal­ized.

In 2007, con­sumer lend­ing ac­counted for more than 65 per­cent of ICICI's as­sets; it is al­most half that now, although it wants to grow that to 35-40 per­cent over the next cou­ple of years. ICICI was in­volved in some of In­dia's most no­to­ri­ous trou­bled cor­po­rate loans, in­clud­ing to King­fisher Air­lines, Air In­dia and GTL In­fra­struc­ture, but has been more hard-nosed in restruc­tur­ing terms than some of the state banks that lent along­side it.

It re­cently sold its re­main­ing ex­po­sure to em­bat­tled King­fisher at face value, although it took a hit af­ter con­vert­ing part of its debt to eq­uity. Other King­fisher cred­i­tors, mostly state banks, are still on the hook. "You should give us some credit for our abil­ity to re­solve," Kan­nan said from his 10th-floor of­fice in the sprawl­ing Ban­dra-Kurla of­fice park in sub­ur­ban Mum­bai. "King­fisher, for ex­am­ple, we could re­solve that as­set by selling it off. In tak­ing steps like talk­ing to pro­mot­ers (con­trol­ling share­hold­ers), talk­ing to lenders' con­sor­tium and pro­tect­ing our in­ter­ests, I think we have been above the curve."

ICICI ex­pects as­set qual­ity to im­prove. Its re­struc­tured loans more than dou­bled last year to 47 bil­lion ru­pees ($850 mil­lion), but it does not ex­pect to re­struc­ture much more.

Kan­nan also ex­pects the over­all group's re­turn on eq­uity - a mea­sure of prof­itabil­ity - to grow a cou­ple of per­cent­age points to 15 per­cent by next March. Its re­turn on eq­uity is the low­est of In­dia's top five banks, in­clud­ing Axis Bank (AXISBANK.NS) and HDFC, which have ROEs of 20.3 and 18.8 per­cent, re­spec­tively. ICICI sur­prised in­vestors two quar­ters run­ning with ro­bust prof­its and bet­ter as­set qual­ity. Its latest quar­terly growth was its strong­est in over a year. "If we want, we can al­ways grow faster, but growth should be sub­ject to risk and prof­itabil­ity.

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