Chanda Kochhar says she is now totally focused on three segments: home, automobiles and infrastructure project financing, not necessarily in that order.
The managing director and CEO of India's second largest bank is already walking the talk by organising roadshows all over the world to showcase upcoming highway projects.
Excerpts from an interview with Shyamal Majumdar.
ICICI Bank seems to be quite bullish on infrastructure project financing. Given the shortage of bankable projects, what makes you so optimistic?
There has been a lot of movement in the power and the road sector of late and I see huge funding opportunities there. For example, not many road projects in India have been financed by a diversified base of investors. So, you need a little bit of facilitating environment to kickstart these projects. I think that phase has started.
You see, it's no rocket science if India has to grow at 9-10 per cent, there has to be a much larger investment in infrastructure.
And it's not just the push; it's also the demand pull that is going to create the demand. For example, when an average Indian moved from a per capita income of $500 to $1,000, there was an increase in aspiration in terms of how often he buys a car or a two-wheeler, or how often he changes his mobile phones.
It's the next stage now: as the per capita income moves from $1,000 to $1,500, the average Indian will start demanding better roads, more power, etc, and, more importantly, he will be willing to pay for this. So, there is a huge growth driver for infrastructure.
On a very conservative estimate, I am sure that at least $100 billion of investments will be done from now till 2012 -- that is the next two and a half years.
These projects are not at a far-thinking stage, these are projects where the planning, conceptualisation etc have already taken place and will definitely see the light of day. In some sectors, they are already very bankable.
Our estimate is that power projects for at least 25,000 Mw will get implemented by 2012, and they are bankable. In roads, if we do some of the changes in terms of contracts, processes, procedures and so on, we can easily make them bankable.
But ICICI Bank has missed out on several of the ultra mega power projects.
That's probably a misconception. ICICI Bank has been a leader in infrastructure financing and will remain so. We set up a dedicated infrastructure financing group more than 15 years back and continued with it even though India went through some years when no infrastructure investments took place.
You are right; there may have been one or two of the larger power projects in which we were absent.
But that's because either the interest rates were not very competitive, or some of the conditions like contracts, etc were not fully firmed up when we did our appraisal. But year on year, we have been the largest syndicator and fund provider for infra projects -- be it power, roads, the logistics projects around railways, telecom, airports, etc.
What are the changes you are suggesting to make the road projects bankable? What's the response?
We are organising roadshows all over the world and working with the minister (Kamal Nath) and the National Highways Authority of India to talk about the very ambitious plans that they have. The Indian road network is already the second largest in to the world, second only to the US.
And there is a realisation that the rest of the infrastructure can be as effective as the effectiveness of the road projects. It's a fact that though huge development has taken place, not many have come forward to finance these projects in the past, due to several bottlenecks.
You will see a very big pick-up in road projects from November; you will see a very large number of projects actually go out for bidding.
The last three months have been spent on discussing what all needs to be rectified to make the projects more bankable and to showcase the opportunity to a much larger set of investors.
So what exactly are the changes that are coming to make this possible?
Without getting into the specifics about the exact announcements the ministry will make very soon, I can say three things: First, land acquisition has been the most time-consuming factor that has led to delays and cost-overruns in the past.
The idea is that the government will acquire a very large part of the land before the project is given out to prospective investors.
Second, there were some very restrictive clauses in terms of who can bid and who can't etc. The terms could now be made much wider so that a larger set of investors can come in.
And third, the covenants involving day to day work -- how to resolve disputes, how to terminate contracts etc were earlier very one-sided. They will be made much more fair.
But where will the money come from to fund such mega projects? The corporate debt market isn't deep enough; pension, insurance reforms are still pending; and Indian banks don't have that kind of capital.
Indian banks are equipped, but it's true that there is a need for many more facilitation measures for availability of more long-term funds.
Till that happens, we have to heavily depend on foreign flow of funds to meet the shortfall in funding. On the corporate debt market, the draft guidelines on the corporate bond market will go a long way in deepening the rupee debt market.
That's hugely welcome, but there is a clear need for more visibility on pension and insurance reforms etc.
Your private equity arm, ICICI Ventures is setting up an infrastructure fund.
Yes, definitely within this financial year.
Have companies resumed pending projects?
Yes, the investment pipeline, which was put on hold for the past few months, has started moving again.
There may not be a big pick-up in credit immediately as many companies are replanning the projects. Financial closures will happen after that and disbursements will take place only after that -- the entire process will take another six months. But the good news is that the process has started.
The confidence has come back and companies are reasonably sure about what their cash flow would be like in the next two-three years. Earlier there was uncertainty, nobody was sure how even the next month will pan out. That uncertainty is gone.
Are you worried about the sharp contraction in credit growth? Or are you confident that the second half growth will make up for it?
All I can say is that the run rate will be good, though I am not sure about making up. In times like these you should look at trends sequentially, how you get to a trend which is good.
But the pick-up will definitely happen because of two things: the housing demand will come back from the third quarter. As we speak, we are seeing the difference. People are now more confident about their jobs security, they feel interest rates have bottomed out and real estate prices have corrected enough.
You see unlike other countries where you need stimulus to create demand, in India millions of people want to buy homes and they can afford one. It was just a question of confidence. I think in Q3 itself, we will see a sharp pick-up in home loans. The project financing demand will start coming from the fourth quarter.
But many say the interest rate spike has the potential to spoil the party.
Not really. Yes, interest rates have kind of bottomed out, but they will increase gradually once the credit demand picks up. That's not such a bad thing; in fact, it's quite a healthy balance. In any case, the liquidity position is quite strong and I don't think the interest rate hikes will be that big to spoil the party.
Do you think the worst is over as far non-performing assets are concerned?
Definitely. On secured retail loans like housing, car loans etc, the NPA level was pretty stable even in the most difficult times. As far as unsecured retail loans like credit cards, personal loans, everybody saw their NPAs going up.
They are still higher compared to the level a couple of years ago, but I think they have peaked. On corporate NPAs, some more restructuring still needs to be done. But I am not expecting any NPA surprises. These are long-term viable projects, which have gone through some amount of pain. That's all.
So when do we see growth coming back to ICICI Bank's balance sheet?
Instead of the balance sheet, I am looking for growth in specific businesses like housing, car and infrastructure and project financing. We have been leaders there and want to continue to grow in these areas. Even in the current quarter, you would see growth.
At the same time, we want to wind down on the unsecured side. What happens to the balance sheet is a net effect of the two. But I am reasonable sure of seeing some growth in our balance sheet in the second half of this year as the areas on which we are focusing will grow reasonably well.
Would you put a number to that growth?
It's better to avoid putting a number in an uncertain environment. But the big message is the growth in areas where we want to grow should be higher than the reduction in our unsecured loans.
A host of private banks have joined the capital-raising queue. Do you have any plans?
No. Our capital adequacy is 17 per cent; our Tier 1 capital position is also quite healthy for the next few years.
What about subsidiaries?
The requirement of capital there is very little. In fact, our general insurance company (ICICI Lombard) may not require any capital this year and the life insurance venture (ICICI Prudential) wouldn't require a very large amount of capital. So we have enough.
You are going in for a huge branch-level expansion; you are getting out of the areas you were strong in earlier? Isn't that a completely new language for ICICI Bank?
Yes, it is a big task. We will have 580 more branches by the end of this year and the process has already started. We are not going to add to our 36,000 employees, so the existing manpower is being retrained and reskilled on branch-level operations.
We are retraining more than 4,500 people, of which 1,500 have already gone through the process.
It's a huge change in the way we have worked in the past, but it's a change that is suited to the current environment. Our people know that we are very focused on the kind of areas we want to grow; so that helps in communicating the message.
Our people know that at the end of the exercise, they will have a balance sheet that is ready for the next phase of growth -- a balance sheet with 33 per cent CASA, lower unsecured assets, and much tighter credit provisioning and cost control. As growth in the economy returns in a big way, we will be ready to ride that growth.
Image: Chanda Kochhar
