The Banking and Strategy Initiative

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ICICI BANK: A cultural meme withdraws

The bank results are out and the writing is on the wall for some of the erstwhile leadership in Indian Industry as well as the Global Banking firmament. We finally delve into analysis and discuss the way forward for investors and partners in India’s growth. Similarly, we will do in-depth pieces on US Banking, global developments in retail lifestyle and the way forward for Goldman Sachs, J P Morgan and others.

Today’s Banking institutions need stricter capital monitoring, predictable business streams, a depth in distribution and customer trust. However without adequate leadership, these can easily be misunderstood for credit clampdown, decimation of Treasury and investing functions, hankering for government subsidy and playing the blame game.

ICICI Bank has been one of the pioneers in banking in India, getting together with HDFC Bank to deliver benefits of private sector ownership and belief in innovation, values and a mission in the nineties and some oughts. But with Mr Kamath stepping down, this has become passe for the bank. The Leadership crisis of 2008, brought forth the traditional mindsets in the bank at the helm with Chanda Kochhar typifying the old guard that is neither in the mould of a traditional banker, nor capable of swinging deals for the bank with the regulators, the government and any stakeholders, current or new. Though we waited a year to say this, this has been public opinion at the banks stakeholders since the election of a new Chairman was completed.

Today ICICI lives with its legacy talent. In retail, it is quite notorious for the company it keeps and that may change for the better. However, in Chanda’s mind and that of many older generation babus, innovation is a sure ticket to unbridled aggression and failure. And that is not even the crime we are discussing here. Every piece of customer service, every ounce of growth for ICICI will be a hard-fought internal battle in these next 5 years esp, as the bank does not have many friends in the global arena either. The bank has shrunk its retail assets by 16% now, which is good because the credit quality was driven by sales quality and is very suspect. However, that is nearly not enough as in India, China and even Korea, it is still counter-intuitive to grow at a rate less than 30% and to constrain distribution growth. The bank must find a way to growth however without slipping into an ethical morass and allowing market pressures to compromise its mission, vision and values.

During the nineties, ICICI Bank was a leader in taking banking to the ever-growing consumer’ pockets offering credit cards , personal loans in retail and salary accounts, building ICICIDirect for the salaried professionals, and expanding its corporate and small business services. Today ICICI Bank has realized the follies of urban growth, and more than that, has firmly denied its mandate after the new leader was chosen. That means that in the guise of conservatism, the bank would be denying new opportunities, good credit and watching from the sidelines as players like HDFC build themselves with portfolio investments from FIIs, a loyal customer franchise and more open leadership. Internet Banking as a channel and the new rural banking platform may not allow pecuniary big brother opportunities for this desi concoction, nor a Kotak or HDFC.

Treasury Income, Securities Business and the other have become unwilling targets as they have historically run their business independent of the banks charter 🙂 lol. However, it seems almost as if she created a bland wall of crippling controls that will give her leewyay to shriek and shout down any and every big deal at the bank esp when it pertains to insurance, mutual funds, I-Sec advisory and other new business. These new developments also include shrinking corporate credit, slowly diffusing the NPL bomb and following the bank herd in promoting the Commercial and residential real estate sectors at its own books expense. Where earlier it had become a derigeur component of every Corporate’s international growth plans, today it fights smaller labels as it struggles in corporate relationships both in Credit thru the Bank and Capital Markets thru the ICICI Securities business. Where globally, banks plan to split the bad bank, ICICI Bank identifies all investing opportunities as risky, PE opportunities and arms itself to start a consolidation of its vairous components into the central franchise with Chanda Kochhar’s ‘stewardship’.

Axis Bank has shown the capacity for innovation but is distinctly smaller than ICICI, while ICICI cannot count itself as the megalith which gets usurped by the State Bank of India and now in a couple of years even HDFC Bank.

ICICI Bank is today back to ways that typify Chanda’s almost moronic troubles and tribulations, the latest being her denial of Treasury Income as a part and parcel of the Bank. IAS39 in its purest form or IFRS 11, and other such regulation have long since faced distinct resistance from Indian Bankers and Kamath may have missed the reason and her protegĂ©’s thoughts on the subject in ICICI Bank’s earlier avatar. The Treasuries business is not to be confused with Proprietary trading, but for the new leadership at the Bank, it is likely to be counted in the same breath. Securities related, Corporate Finance Advisory and MF and Insurance businesses are planned as in-house extensions of the bank once again where Internationally these are planned to be separated into different silos without predatory access that compromises retail deposits and equity at the center in the holding bank. Treasury Income was down at most banks in the final quarter of calendar 2009 but remains the most critical function of any bank.

HDFC and HDFC Bank on the other hand has a better track record in 2009 and will lead in 2010. Chanda’s tactical insecure utterances and clampdown will cause more than a random glitch at the bank’s Mumbai headquarters. It’s rural and SME segments are also unlikely to show the resilient growth that was so characteristic of India in the nineties and which will now be passed with the baton to other banks like HDFC and Axis Bank. Deepak Parekh’s stepping down from HDFC Bank however seems much smoother for the markets and Keki Mistry and Aditya Puri are made of sterner stuff that does not shy away from promoting growth. The highways mandate with Kamal Nath is but one example of what ICICI Bank was expected to deliver for the country, there are unfortunately none other this year, when most growth seats have been taken on the round table.

If I made some sense, do write in.

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