India’s second-largest lender plans to curb new loans to preserve capital - said Chanda Kochhar

Chanda Kochhar, ICICI Bank Ltd.’s new chief executive officer, said India’s second-largest lender plans to curb new loans to preserve capital, bucking the central bank’s call for credit growth to revive the economy.

“In the coming year, the growth rate for us would be pretty moderate” on loans, Kochhar, who takes the helm at the Mumbai-based lender tomorrow, said in an interview in her office. “In times like these, you have to conserve capital, you have to maintain liquidity and you have to contain risk.”

Reserve Bank of India Governor Duvvuri Subbarao told banks to increase lending by at least 20 percent to drive an economy growing at the slowest pace in six years. Kochhar, 47, takes the top post at ICICI following a year in which the bank’s advances dropped 3 percent, compared with a 17.5 percent gain in India’s total bank credit, and the stock posted its worst year on record.

The slump in loans may make it harder for ICICI to revive earnings after posting the steepest fall in quarterly profit in more than six years for the three months ended March 31. The bank set aside more funds for bad debt and curbed loans and overseas operations to avoid defaults during the quarter.

“The bank remains in a transition phase and further restructuring/downsizing is expected to impair medium-term profit outlook,” Prabodh Agrawal, an analyst at IIFL Research in Mumbai, said in a note on April 27.

Agrawal forecasts ICICI’s loans are likely to drop by 5 percent to 10 percent in the year that started April 1, and net income will decline 17 percent. He recommends clients reduce their holdings in the bank.

Changing Deposit Mix

“What we are concentrating on is to change our deposit mix” to reduce the cost of funds, said Kochhar, currently chief financial officer of the bank. “In a volatile scenario like this, its important that we reduce the reliance on bulk and wholesale deposits and increase our proportion of current and savings accounts.”

The bank aims to increase current and savings account deposits as a proportion of total funds to 33 percent, from 28.7 percent as of March 31, said Kochhar. That increase will take at least a year for the bank, which plans to add 580 branches to extend its network to about 2,000, to accomplish, she estimated.

First Bank Employee

Kochhar, a 25-year veteran, became the bank’s first employee when the parent company decided to set up a lender in 1993. She built up ICICI’s retail lending operations, where loans climbed 20-fold under her leadership, ICICI has said. She was appointed to the board in 2001.

India’s central bank has cut its key rate by 425 basis points since October to the lowest on record to encourage banks to lend. Subbarao on April 21 forecast that India’s economy will grow 6 percent in the year that started April 1, the slowest pace since 2003.

“There is an urgent need to boost the flow of credit to all productive sectors of economy,” Subbarao said in the central bank’s annual monetary policy report.

ICICI, whose stakeholders include Temasek Holdings Pte and the Singapore government, aims to instead tighten norms for credit cards and most unsecured personal loans, and use deposits to pay down debt, Kochhar said. The bank has subsidiaries in the U.K. and Canada, through which it mainly offers overseas loans to Indian companies.

Run on the Bank

ICICI’s deposits shrank 11 percent in the 12 months to March 31 after it racked up the biggest losses among Indian lenders tied to the global financial crisis, leading to a brief run on the bank in September and more withdrawals as depositors grew concerned about its financial strength and shifted to state-run lenders.
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Millions of new customers of State Bank of India in 2008-09

Leveraging the huge distribution network of parent State Bank India (SBI), SBI Life Insurance covered 13 million new lives during financial year 2008-09. The new business premium of the company rose by 12 per cent over the previous year to reach Rs 5,386 crore.

US Roy, managing director and chief executing officer, SBI Life Insurance, said, “We will continue to focus on enhancing the all-round quality of our business. Despite the prevailing slowdown, we outpaced life insurance industry’s growth rate.”SBI Life also witnessed changing customer preference towards traditional products with inflows in unit-linked insurance policies (Ulips) accounting for just over 60 per cent of total new business premium collected.

Ulips have been driving growth rate of insurance companies for the past two-three years. SBI Life Insurance accounts for 15.46 per cent of marketshare among private sector life insurance companies as per the Insurance and Regulatory Development Authority (Irda) report February 2009.

With changing customer interest, SBI Life now has a balanced mix of business of market-linked and traditional products in the company portfolio. The company launched couple of new products in the last quarter of the financial year. The total assets under management of the company grew by 43 per cent to Rs 14,964 crore.
To fund its expansion plans SBI Life will infuse additional capital of
Rs 500-600 crore in this financial year. At present, SBI Life has Rs 1,000 crore equity.

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ICICI Bank consolidated net profit rose 17.66 per cent to Rs 748.44 crore during the quarter-ended March 2009

ICICI Bank, the country’s second largest bank, today said that its consolidated net profit rose 17.66 per cent to Rs 748.44 crore during the quarter-ended March 2009 as its expenses fell more than the decrease in income.hion, food, travel, sports, health...
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On a standalone basis, the private sector lender’s net profit dropped over 35 per cent to Rs 743.76 crore during January-March 2009, as against Rs Rs 1,149.84 crore during the corresponding period in 2007-08. The fall was on account of an 11 per cent decrease in income and a 14.46 per cent rise in non-tax provisions which were mainly related to bad debt.

While net interest income went up 2.9 per cent to Rs 2,139 crore at the end of the fourth quarter, other income declined by over 29 per cent due to lower corporate fee income and reduced third-party distribution and low disbursals, which impacted retail fee income. Treasury income was, however, 30 per cent higher at Rs 214 crore.

While the economic downturn has affected loan disbursals of most banks, ICICI Bank saw a 3.24 per cnet drop in the size of its loan book to Rs 2,18,310.85 crore at the end of March 2009, as against Rs 2,25,616.08 crore at the end of the previous financial year.

Its asset base shrank 5.13 per cent to Rs 3,79,300.96 crore at the end of March 2009 from Rs 3,99,795.08 at the end of March 2008.

The bank’s deposit base contracted 10.67 per cent to Rs 2,18,347.82 crore at the end of March 2009 from Rs 2,44,431.05 crore in March 2008. This was a result of the bank’s reluctance to raise high-cost bulk deposits. It, however, managed to increase the share of current account and savings bank account (Casa) balances in the total deposit base. At the end of March 2009, the Casa ratio improved 226 basis points to 28.7 per cent, from 26.1 per cent in the previous year. During the fourth quarter, the bank’s Casa ratio improved by 130 basis points.

In an investor presentation, ICICI Bank said raising the Casa ratio and rebalancing its funding mix will be a thrust area for which it intends to leverage its network of branches. Besides, lending would be selective — it intends to go for selective lending and “proactive management of the existing portfolio”.

Read more from: Business Standard.com