Can ICICI Bank reverse a decade's underperformance? (2024)

Credit for the turnaround rightly goes to CEO Sandeep Bakhshi, who has been with the group since the mid-1980s, with stints in ICICI Ltd, ICICI Lombard General Insurance, ICICI Bank and ICICI Prudential Life Insurance. A safe pair of hands, the low-key Bakhshi was brought in as CEO in October 2018 as part of a management overhaul, after the bank's former CEO was ousted following corporate governance issues.

Bakhshi steered the bank out of that controversial phase and tweaked its business strategies. The payoff can be seen: In the December quarter of FY22, ICICI Bank reported its lifetime best net profit of ₹6,194 crore and a return of assets (RoA) of 1.9%. Its net NPA ratio declined from 0.99% on 30 September, 2021, to 0.85% at 31 December, 2021, which is the lowest since 31 March, 2014. NPAs have also come down drastically. Focus is on growing core operating profits and keeping credit cost below 25% of pre-provisioning operating profit (PPOP).

ICICI Bank is currently in news for the maximum exposure of Rs. 7,089 crore in the ABG Shipyard case. State Bank of India (SBI) has alleged that a portion of the loans given to the company, among India’s largest and profitable ship-makers once, that is undergoing bankruptcy proceedings, were diverted to purchase properties by “related parties" linked to its promoters. Investigating authorities are in the process of questioning ABG Shipyard’s former chairman and MD, Rishi K. Agarwal for “defrauding" a consortium of 23 banks of Rs. 22,842 crore— India's biggest alleged bank fraud till date. However, the loans had turned non-performing years ago, and ICICI Bank’s exposure is provided for in its books.

What’s Bakhshi’s secret sauce? Following market leader HDFC Bank, ICICI Bank under Bakhshi has increased manpower for undertaking credit assessment on the basis of intelligence gathered at the local branch levels in the case of loans for small firms, as against the chiefly processes-relying loan approval approach followed by most lenders in the country.

The bank also evaluates performance differently now. It has stopped tracking performance against targets for sales of specific products such as business from savings accounts opened and mutual funds and insurance policies sold. The bank has turned agnostic towards loans given to retail borrowers or small firms etc, and no longer hands out targets to branches. The freedom to choose the product mix to sell, depending on the specific scope of the geography and market conditions the branches cater to, has been delegated to local managers. The bank now focuses on PPOP growth, a measure on which it is outperforming its large private sector peers.

ICICI Bank now has a leg-up on almost all liability side metrics and looks set to grow this advantage over competitors, says a BofA Securities note. It also notes that the lender’s big retail portfolio is no longer a deficiency, and in fact increases the scope for better growth over the next decade.

Next, can Bakhshi lead ICICI Bank into reversing a decade of underperformance?