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Interview Of ICICI's CEO Mr K V Kamath

Discuss Interview Of ICICI's CEO Mr K V Kamath within the Personal Interviews ( PI ) forums, part of the CAT, XAT, MAT, CET, JMET and other Indian MBA Entrance Exams category; Hi all.. This is a quite old interview (May 2004).. but then too, too informative.. -------->>>>>> Friends,Mr K V Kamath, ...



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Interview Of ICICI's CEO Mr K V Kamath
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Thumbs up Interview Of ICICI's CEO Mr K V Kamath - January 22nd, 2006

Hi all..

This is a quite old interview (May 2004).. but then too, too informative..


Friends,Mr K V Kamath, Managing Director and CEO of ICICI, was the
first one to articulate and implement an aggressive retail strategy.
Under his leadership, ICICI transformed itself from a project finance
company to a retail lending powerhouse.

Mr. K V Kamath took over as the Managing Director and CEO of ICICI in
May 1996, an institution where he began his professional career in
1971. A mechanical engineer with a MBA from IIM Ahmedabad, Mr. Kamath
also had long and fruitful stints with the Asian Development Bank and
the Bakrie Group of Indonesia. He is on the governing board of
various educational institutes including IIM Ahmedabad, National
Institute of Bank Management, Manipal Academy of Higher Education,
Entrepreneurial Development of India and member of the Managing
Committee of Assocham and the Economic Times Editorial Advisory Board.

In an exclusive interview with Nirmal Jain and R. Venkataraman of
India Infoline, Mr. K V Kamath says," I will use competition to raise
the bar for myself."

Congratulations on your excellent Q2 results. With this, most of the
analysts would have been convinced about your retail strategy and
profitability. A cause for concern remains high proportion of
treasury and equity gains.

Our equity gains have been on our historical portfolio. When we first
met 3 years ago, I was candid in saying that we got caught on the
wrong side of the commodity cycle. There are still gains left on my
equity book and I benefited from debt to equity swaps in some cases.
Now I am benefiting from the upswing. We are active treasury players,
and stable gains can be repeated quarter on quarter.

If you look at my current position, my old portfolio is healthy and
its health is no longer a cause of concern. In fact, analysts no
longer ask questions regarding NPAs (smiles). The new business driver
is clearly the retail portfolio growth. I have a unique strategy
regarding my retail portfolio. We have the ability to complete the
retail asset cycle i.e. originate and then sell down the asset. This
enables me to keep my balance sheet also light. Clearly our retail
asset sell down will accelerate in the coming quarters. So far asset
sell down that has taken place is mostly from our corporate book, but
going ahead we will see the retail asset sell down accelerate.

Even if my net interest income and treasury income comes down, the
ability to grow the retail side of business will keep my profits
intact. All drivers of the retail business are in place. I have
invested in technology and have already set up a distribution set up.
Most importantly, I already have market share and will continue to
grow this. Technology enables me to scale up at no incremental cost.
For instance, 12% of my transactions take place through my call
centre. I have implemented an IVR and as more and more transactions
switch to IVR, my transaction costs come down. 11% of my transactions
take place on the internet and this also enables me to keep
transactional cost down. Each area of technology platform is in
place. Intense competition in telecom sector is enabling me to keep
that communication costs down.

Are your systems in place to grow the retail portfolio and service

Our technology spending is over, systems are in place. Now I can
exploit technology to reduce costs wherever possible to improve
profits per transaction. This allows me to keep costs under control,
so that my operating expenses do not increase in direct proportion to
volume. For eg, my current 2 wheeler loan intermediation is only 2.5%
whereas all my competitors talk about a 7.5% cost. Over time,
technology will enable me to squeeze this even further. This gives me
a big margin to play around.

You were a pioneer in articulating a distinct retail strategy and
then implementing the same aggressively. Now everybody wants to do
the same thing. Will not competition impact your ability to grow?

I welcome competition because competition forces me to be on my toes.
I will use competition to raise the bar for myself. When you talk
about competition, you should realize that competition is still at
least three years away. There are different aspects of setting up and
growing any business. First of all, we should understand the business
with its related checks and balances. Then implement a distribution
infrastructure, then a disbursement and a collection system. Follow
this up with a MIS. Each of these activities takes time and money.
You need time to set up a pilot plant, and then replicate and scale
up. So, I have a comfortable three years lead and in that time,
because of economies of scale, my own costs will come down. So, I
have a margin of safety which I can use to keep competition at bay.
Anyone who wants to take me on will have to sacrifice both time and

In fact, most of the banks who want retail exposure are buying my
retail assets, instead of setting up the entire chain. I have
successfully demonstrated that model. In retail, duration is a big
issue because the retail asset buyers have different duration needs.
A mutual fund wants short term paper, a bank/ corporate wants medium
term paper, whereas insurance and pension funds want longer term
paper. Because I have the ability to originate, structure and place
paper, I can securitize my retail asset portfolio better by slicing
it to suite to the individual tastes of the buyer.

But there is a rate war out there in the market place? How do you
plan to react?

Competition is reducing rates but we are not reacting to this, as it
does not impact my business in any way. ABN Amro, for instance
reduced rates on housing loans but if you scratch the surface, what
is the market they are talking about. They have only 8 branches and
hence a limited market.

To set up a distribution infrastructure, is not as simple as setting
up branches. If you simply set up branches, then you will be left
with running 4,000 individual housing finance companies. You need to
have a holistic strategy for distribution in place. Each player
should concentrate on areas of their strengths. For eg, the PSU banks
are doing a great job of collecting deposits whereas we are doing a
great job of distributing retail products.

Looking back, are you satisfied with the growth post merger?

I am extremely pleased with the way our merger has stabilized. I am
pleased to say that we have met the aspirations that we had at the
time of our merger.

Now that your merger with ICICI Bank has stabilized, are there any
M&A plans on the anvil.

Whom should I acquire? There is no emergency for me to acquire any
bank. There is no need for me to increase my distribution, in fact I
have not yet fully utilized my branch licenses. I have already set up
1750 ATMs and have tied up with others, which has allowed me to
increase my ATM strength to 4,000. Then why should I duplicate and
increase my cost. Nobody is offering me either reach, technology,
human resources or customers. PSU banks takeover is not on the cards
because of regulatory issues.

Rumors abound that you are looking to sell out your investments in
Federal Bank and South India Bank. What are your plans with these

These are our long term investments and we will exercise our rights
as shareholders to add value to our investments. We will drive this
from a board level by giving strategic inputs but not by running the
bank. As a shareholder, I have a right to expect value addition and
wealth maximization and I will take all steps to achieve this.

With the economy picking up, do you think project finance will make a
comeback and become a core activity?

No, project finance will not become a core activity for us. All well
managed companies are clearly using the capital market to fund
projects and expansion. Term lending is clearly passe.

Last time we met, you were amongst a handful who were optimistic
about the Indian economy. Your views now.

Yes, we are seeing a tremendous resurgence and growth in the Indian
economy. This time, economic growth is much more widespread. Business
confidence is also very high. I was talking to a two-wheeler
manufacturer promoter, and he was very confident about competing with
Chinese manufacturers on equal terms. RBI talks about GDP growth of
6.5-7%, but I think the actual numbers will be around 8-8.5%, if the
GDP is calculated properly. The entire industrial growth which we are
seeing now is the outcome of restructuring of the corporate sector
which took place over the last couple of years.

So in India, we have a problem with understatement of GDP, whereas in
China there is a problem of overstatement.

Not at all. In fact, in my travels in China, I get a ground feeling
that Chinese GDP will be 8-8.5%. In India, our banking sector is
better placed. We have a 4% NPA to GDP ratio and this is clearly
manageable. In fact, all banks in the recent past have used treasury
gains to offset NPAs. We have one of the cleanest banking systems in
the developing economies and this compares well with the developed
countries also. The economic growth driven by services is also
positive as in each area - whether you talk about research and
development or software or engineering design or call centers, we add
value. So, may be, ten years from now, we will turn back and comment
that this was an alternate path to replicate China's growth.

What are your views on the latest credit policy?

The monetary policy announced by Mr. Reddy is a continuation of Mr.
Jalan. It is just a broad paint brush and the actual nuts and bolts
of implementation has been kept outside the purview of the policy.
Broad signals have been given and all bankers have to read these
signals and develop their own framework. The Governor clearly
mentioned that GDP growth is higher at about 6.5 - 7% with a distinct
upward bias. Inflation is under control, with a clear downward bias.
Instead of doing anything dramatic, the RBI wants use a steady hand
to drive the economy.

What are your view on the Rupee Dollar rate?

I do not wish to speculate and comment on the Rupee Dollar rate, but
rupee will definitely appreciate against the dollar. We are seeing
tremendous forex inflows. India is currently getting almost $3bn per
month. By not making a direct statement on the foreign exchange
rates, RBI is clearly signaling that it is capable of handling such
foreign inflows. In fact, China is managing similar, if not higher
inflows and they are managing the foreign exchange rate also. The RBI
is not showing any inclination to reduce interest rates, though the
small savings interest rates should have been reduced.

Any message to your shareholders.

We clearly want to maintain a 20% return on net worth and that is my
single message to our shareholders.

Hope you would have enjoyed reading such an insight of ICICI

Best Regards,
Nikhil Gadodia
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