Thursday, February 7, 2013

Why ICICI Might Overtake HDFC Under Chanda Kochhar’s Leadership

ICICI Bank (BSE: 532174, NSE: ICICIBANK) records double the annual revenue and 50% more profits than HDFC Bank (BSE: 500180, NSE: HDFCBANK), but when it comes to market capitalization, HDFC Bank is way ahead by around Rs. 20,000 crore, making it the most valuable Indian private sector bank. Market has so far valued HDFC Bank ahead of ICICI Bank, due to its consistency and superior Return on Equity. On the consistency front, ICICI Bank is no match, as according to some reports, HDFC Bank has been registering 30% year-on-year quarterly net profit growth for the last 53 consecutive quarters. And on the RoE front, so far the strategies of the two banks have been quite different with HDFC Bank relying on a much smaller equity base. But the recent quarterly results for Q1, Q2, & Q3, as well as yearly charts are suggesting that fortunes are changing for ICICI Bank. And much of the credit for that goes to Chanda Kochhar who has almost completed a dramatic turnaround at the largest private sector lender, post the global financial crisis which had hit it badly. Going forward too, some of Chanda’s strategies like accommodating large scale project finance might come to ICICI Bank’s help as the power and infra sectors turn around.

Chanda Kochhar’s clarity of vision on the Indian growth story was recently evident at WEF Davos, when she met every negative question on India with irrefutable fundamentals of India.

Despite being afflicted by what is still a large corporate lending book, the ICICI Bank Chief reassured everyone that Indian banking’s projected weakness of overexposure to corporates is only a temporary phenomenon. According to her most of these large-scale lending has happened to pivotal sectors like power and infra, and there would soon be a time, when such sectors turn around.

While admitting that such sectors are currently appearing overleveraged, Chanda expressed confidence that it is only a matter of time before such projects turn cash-flow positive, making the leverage appear not only safe and manageable, but a tremendous growth opportunity for lenders too.

In fact, such exposure is one core area where India’s largest private sector lender has been in stark odds with the country’s most valuable lender, HDFC Bank, which has always been shy of large scale project finance.

At Davos, Chanda also articulated on why she remains bullish on the Indian banking and financial sector as a whole - India remains grossly under banked still, with banking sector growth being at 2.5-3 times of GDP growth.

She should know as Chanda Kochhar is Indian banking’s turnaround leader. She assumed the apex role in the aftermath of the global financial crisis when everyone was predicting doomsday for ICICI Bank due to its high global and corporate exposure. But Chanda, back then too, had only words of reassurance, as she knew that ICICI Bank could always rebound on correcting the strategy.

For the next couple of fiscals, she guided for flat growth to investors, even while internally she set the huge machinery of ICICI Bank to work to convert both the loan book and deposit base to a more retail oriented one.

Chanda was the perfect person to do that at ICICI Bank, as years earlier, despite being really a corporate banker, she was entrusted by the ICICI Board to jumpstart their retail business. Under her vision, the systems and products that ICICI introduced went on to become model products for every private and public bank to emulate later.

An extremely hardworking person, this globetrotter is known to fly to US after a day’s work, do back-to-back meetings in New York, and fly back that night to India, so that she loses only one day with her family, thanks to the time zone difference. Also a spiritual person in her own way, she is known to find peace by chanting her favourite hymns, once in car or air.

Anecdotes about Chanda’s enthusiasm and earnestness in every job that she undertakes are legendary, with some describing that she still remembers each and every question that KV Kamath and team asked her during her campus interview.

Her capabilities are also said to have been noticed instantly by the top management, when they visited a branch where she was working, and was surprised by a unique way in which she had reorganized the whole office, despite not being in charge of that duty.

Chanda Kochhar’s big test would come when ICICI Bank comes out of the consolidation phase that India is going through and it tries to grow further in competition with state-backed models like SBI and private models like HDFC and Axis.

Despite being an all around backer of the recent reforms by Government, Chanda also sounded a cautious note at Davos when she said that all projects should move forward constantly at the ground level, and that much more needs to be done by the policy makers and implementers to ensure that all necessary clearances and linkages are given in time.

Nobody knows better than Chanda that without that level of proactive attitude, all banks including ICICI won’t come out from the woods.

Her silver bullet for the Indian economy to rebound is household savings being encouraged to be invested in productive assets for the nation, and not non-productive assets like gold and land.

No comments:

Post a Comment


Recent Posts Widget