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.
Get more details from: Bloomberg.com