ICICI Bank's CEO K.V. Kamath: The transformation of ICICI is a total contrast to what's happened to the other two industrial banks, IFCI and IDBI. Far from loss-making and struggling, ICICI is the biggest player in retail banking with 12 million customers

Imagine if you not just had to drive a 75-feet turnpike trailer to work every day, but also slalom test it on the way. Kundapur Vaman Kamath doesn't have to imagine. The CEO of ICICI Bank has been doing just that ever since he took over the reins of a state-owned industrial credit institution way back in 1996. In those eight years, he's put a lackadaisical and anachronistic entity through five gut-wrenching organisational overhauls-one of them involved reverse merging ICICI (Industrial Credit and Investment Corporation of India) with ICICI Bank in 2002. At most other industrials banks (think IFCI or IDBI), that would have been enough to leave things in a mess-talented employees gone, the remaining demoralised, and a fractured organisation feeling pain at every move.

Not at ICICI. Kamath's makeovers haven't just changed ICICI beyond recognition, but made it the industry's meanest fighting machine. Very fast and very furious. Take a look. Over the last nine months, India's second largest bank has added 10,000 retail customers every single day, taking the tally to 12 million. In January a year ago, its retail presence was limited to 600 cities. Today, it spans 1,500. With a retail portfolio of Rs 50,000 crore-the largest of all banks in the country-it leads in every segment it has a presence in-credit cards, car loans, home loans and personal loans, among others. It may not be the biggest-indeed, that's not one of Kamath's targets-but it's real big and, in the ring, nobody moves like it does. "Now," quips Kalpana Morparia, the bank's Deputy Managing Director, "the challenge is ourselves."

Agreed that it's going to take the bank's rivals some time to catch up-if they do, that is-but where does ICICI go from here? Most likely, global. Last year, it set up offices in Canada, China, Singapore, the UK and the UAE. Now, the board has approved setting up of offices in Kenya, Indonesia, Thailand and Malaysia. The strategy is to follow domestic clients that are globalising, and on the retail front, tap the affluent non-resident Indian (NRI). The business focus is on getting trade finance flows, garnering more of correspondent banking relationships, and assisting in remittances and other products for NRIs.

No glass ceilings: Chief Executive K.V. Kamath with Executive Director Chanda Kochhar (left), and Kalpana Morparia, Deputy Managing Director

At home, having built critical mass with 12 million customers and a 30 per cent share of retail banking, ICICI's plan is to focus on operating efficiencies and get more business out of existing customers. That'll be done either by selling more products to the existing customers or doing higher value business in each product category. Says Chanda Kochhar, the bank's Executive Director: "Whether a bank has edge over its rivals will depend on its operating costs and credit quality," implying that there's little differentiation to be gained in lending or borrowing rates of a bank.

In corporate banking, ICICI is looking at widening its offerings by, for example, adding investment banking and private equity through its group companies. The idea: Boost fee-based income. In the agricultural sector, seen more as a necessary evil by banks, ICICI is experimenting with innovative initiatives. In the tobacco belt of Andhra Pradesh, for instance, it has set up internet-based ATMs (automated teller machines) that not only allow dispensing of loans, but also sale of products such as life and general insurance. Sometime in the future, the bank sees these initiatives turning into big opportunities (remember C.K. Prahalad's bottom of the pyramid theory?).

As for Dalal Street, it already believes that the bank is a winner. ICICI is the eighth most valuable company on BT 500, and last year alone the bank's stock surged some 41.6 per cent-significantly higher than BSE Sensex's 16.5 per cent gain, or the Bankex's 39 per cent jump. Says Rajiv Gupta, Joint Managing Director, DSP Merrill Lynch: "Entrepreneurship of the management in figuring out the opportunity in consumer banking very early, internal conviction to go ahead and the execution of that strategy sets it apart."

It's All About Systems

In a way, Gupta puts his finger on what really makes ICICI one of India's best managed companies. Like we've mentioned elsewhere in the issue, a best managed company is not about financial performance alone. Sure, it's a very important component of it, but it has its limitations when it comes to assessing the future of a corporation. After all, financial information is simply point in time data. It tells you how well the company performed last quarter or the last year. To understand a company's long-term prospects, one has to dig deeper and look at its DNA-the build blocks of its corporate existence, if you please.

At ICICI, it breaks down into three large components: information technology, people and execution. All three are inter-linked, but the people component comes first because the other two, understandably, flow from it. No surprises, then, that Kamath, who worked with ADB (the Asian Development Bank in the Philippines followed by a stint at Indonesia's Bakerie Group) before rejoining ICICI, spends most of his time on hr-related issues. It could simply be "picking up the phone and calling or sending e-mails (to)", says Kamath, the 150 or so who make up the top general manager-to-joint-and-deputy-managing-director band. By spending an inordinate amount of time on his people, Kamath's attempt is to build an organisation with multiple layers of competency. The business or the customer must not suffer because of a lack of competent employees. Ergo, there's an elaborate training and grooming process that the bank follows, where young super performers are set up with ever bigger challenges and goals to accelerate their own learning and rise within the organisation. As Kamath told a Business Today-A.T. Kearney team (which included this writer) that interviewed him as part of step-three of the study (see How We Identified India's Best Managed Company on page 122), the bank must either get young people to work for it or get the older more experienced employees to think young.

Linked to that is ICICI's enviable it and execution capabilities. It is possibly the most intensive user of it in the business, and its "90-day principle" (see Key Differentiator) is the envy of the whole industry. It has done what at the time of execution seemed like unorthodox. It was the first to set up ATMs at petrol stations to tap the well-to-do segment of car owners; it was also the first to woo banking customers with ready-to-use ATM cards and cheque books. That explains why it has the most ATMs (1,800 of them) in the country today and an increasing share of the total retail deposits pie.

BEST PRACTICE

Young and reckless: ICICI Bank boasts one of the youngest senior leadership teams in the world It has to be succession planning. The institution may be 50 years old, but it views youth as its key strength. "Either you should have young people in your team or have experienced people who can think young," says K.V. Kamath, CEO, ICICI Bank. Kamath considers his 'young leadership team' a global differentiator. Grooming young managers, however, means having in place robust succession planning. At ICICI Bank, that's driven top down. The process runs through the organisational hierarchy, with the performance management system being the foundation of the entire process. Performance appraisal is done by a superior two levels above in the hierarchy, and the strengths and weaknesses of each individual are identified. Kamath personally knows top 150 people well-their strengths, weaknesses and skill profiles. The same runs through the entire organisation to M1 level. The strategy is to build layers of competence. Once the fast trackers are identified, the bank gives differential compensation and monitors their performance. Managing and grooming 'young leadership team' is not an easy task. To address soft skills and leadership development needs of young leaders, hr runs a four-day leadership development capability programme. This is followed by advanced e-learning modules that each of these leaders has to complete at specified time intervals. The top performers are "stressed" to take on more responsibilities. In the process some may fail, and the bank provides exits for those who cannot cope, but it ensures that the bank has a pool of talent at all times. Ideally, Kamath says, the team of young leaders below board level should comprise people in their 30s who have been "stressed" out. That is, people who've been pushed to achieve greater things at a relatively young age. "We need to mould these people to take on higher roles and responsibility," says Kamath. The upshot of Kamath's succession strategy: ICICI Bank has one of the youngest senior leadership teams in the world.

It's not always big innovations that fetch customers at ICICI. Street-smartness pays too. Consider this instance. When ICICI started doing cash management for best (Mumbai's public transport system), it would be overwhelmed by the amount of coins collected at the end of the day. Ironically, best itself had limited use for them, since its big expenses such as salaries were paid via cheques. So what did the bank do? It actually created a network of people who would trade coins for currency notes at small establishments such as the Udipi restaurants, vegetable vendors and grocery shops in places like Dadar and Borivali. All that the bank had to pay this network was a small commission. Says Madhabi Puri Buch, Senior General Manager: "If the customer has a problem that can be solved with trucks and vegetable vendors, it is a service we will deliver."

Believe it or not, the bank's back office is run like an assembly line. It's easy to see why. With 10,000 customers signing up every day, there's tremendous stress inflicted on the bank's infrastructure. To keep the system from being overwhelmed, it employs a hub-and-spoke model, with a central office surrounded by 18 regional back offices or, what Kochhar calls, factories. These do account opening, issuing of credit cards, ATM cards, cheque books and so on. Once again, using it, the regional offices scan and transmit cheques to the central office, obviating the need for physical transfer of cheques. It not only speeds up the process, but also allows the bank to increase headcount much slower than the increase in transaction volumes.

The IT strategy is based on a "high-tech, high-touch approach", notes Morparia. As an example, she points to the State Bank of India, the country's biggest bank that has 9,039 branches but doesn't provide cutting-edge solutions. The foreign banks, on the other hand, have the technology but not the reach, she says. ICICI's edge, then, is its ability to marry high-technology with high reach. Where needed, it even couriers receipts for transactions.

But in chasing higher retail business at a blistering pace is ICICI running the risk of compromising with its asset portfolio? No, says Kochhar. She points out that net non-performing assets (NPAs), or bad loans, in the retail business are mere 0.7 per cent of the advances. (The overall NPA for the bank is 2.3 per cent-lower than the industry average of 2.9 per cent.) The way ICICI manages to achieve such low NPAs on a rapidly growing base is by decentralising distribution, but centralising risk control. In other words, potential customers are roped in by one set of people and their credit-worthiness is checked by a different set.

As the bank turns to growing its business outside India, it will inevitably rely on its learnings here. Also expect organic growth to be the strategy, since Kamath has already said that he doesn't see much merit in acquisitions. That's global banking wisdom turned on its head, but Kamath is unfazed. After all, he's done just fine playing by his own rules.