ICICI Bank makes strategic shift to corporate loans

ICICI Bank India’s second largest private sector lender has decided to refocus on corporate loans as its sees bigger opportunities in this segment. Therefore it has decided to go slow on its retail assets expansion though after three years it has seen fast growth in the segment.

As a result, consumer loans, mortgages and auto loans, which collectively accounted for about 69% of ICICI’s total loan book two years ago, have now come down to 58%, and are set to go down further.

The shift stems from India’s second largest private sector lender believing that there is a bigger opportunity in corporate loans.

Whereas, some banking experts believe that ICICI who has been an aggressive consumer lender all these years, has experienced bitter end in the retail segment due to growing non-performing assets or NPAs in such loans. While Chanda Kochchar, joint managing director and CFO of ICICI pointed out that it is not possible to keep growing at the bank’s previous scorching pace, especially when its base is expanding.

In an interview given to Mint Kochchar said, “The growth rate of consumer credit will come down from 35-40% to 12-15% this year”.

She said growth in consumer credit will be in accordance with the industry, but its growth for corporate credit will be higher than the industry, or more than 20%. She explained that the main focus of the bank will be on retail liabilities instead of assets, which means the bank will be aggressively mopping up retail deposits and not go for retail loans because retail deposits cost less than wholesale deposits, which in turn can bring down the cost of deposits and add to the profitability of ICICI.

Currently the bank has already pushed up the share of current and savings accounts of its total deposits to 26% from 22% of its total deposits by focusing on retail deposits.

A bank is not paying any interest on current accounts and pays 3.5% on savings accounts.

“Three years back, our corporate credit book was growing at 5%,” said Kochchar. “(For the) last two years, the growth was around 12-15%. Now, we could grow at even 25%. The high consumer spend in the last few years created huge demand, and Indian firms now want to invest big money. By our estimates, there is about $700 billion (Rs29.9 trillion) investment in the pipeline. If you include the working capital requirement of Indian firms and the money required for overseas acquisitions, banks’ corporate loan book should grow between 20% and 25% this year.”

Kochchar also confronted the market insight about growing NPAs in consumer finance in ICICI Bank.

“Yes, the total value of NPAs in consumer loans is growing, but this is because our portfolio of unsecured loans is growing,” she said. “Earlier, unsecured loans were 13% of our total retail loans and now they have gone up to 18%. But, the losses are moving within the accepted level.”

In March the net NPAs of ICICI raised to 1.49%, which is up from about 1% a year ago.