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HRM and Labour Laws

Topic- Chanda Kochhar, Success story of ICICI

Made by-Jugandeep Singh Bindra

Class- TY-A

Roll No.-3027

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ACKNOWLEDGEMENT

This project was a great learning experience and I take this opportunity to

thank my Human Resource Management and Labour Laws teacher

Mrs. V.Parimala providing me with a chance to work on such a topic.

I would also like to acknowledge that without her support and guidancethis project would not have been possible.

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Table of Contents

Chanda Kochhar- IntroductionPersonal Life 5Career 5Recognition 6Chanda Kochhar’s success story-

success of ICICI

7

A New Paradigm 8An Unfamiliar world 9Entry of Chanda 12Stopping blame game 13Bibliography 15

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headed ICICI's ―Major Client Group‖, which handled relationships with

ICICI's top 200 clients. In 1999, she also handled the Strategy and E-

commerce divisions of ICICI. Under Kochhar's leadership, ICICI bank

started the Retail business in July 2000 and emerged the largest retail

financer in India, in the next five years. In April 2001, she took over as

Executive Director, heading the in ICICI Bank.

2006–present

In April 2006, Chanda Kochhar was appointed as Deputy Managing

Director of ICICI Bank. She managed the Corporate and Retail banking

business of ICICI Bank. From October 2006 to October 2007, she handled

the International and Corporate businesses of ICICI Bank. From October2007 to April 2009, Kochhar was also the bank's Chief Financial

Officer (CFO), Joint Managing Director (JMD) and the official

spokesperson. She also headed the Corporate Centre of ICICI Bank. She is

also a director of different ICICI group companies. She is the chairperson

of ICICI Bank Eurasia Limited Liability Company and ICICI Investment

Management Company Limited. Kochhar is the Vice-Chairperson of ICICI

Bank UK and ICICI Bank Canada. She is a director in ICICI International

Limited and ICICI Prudential Life Insurance Company Limited and partof the Governing Council in The ICICI Foundation for Inclusive Growth-

Member.

Kochhar is CEO and MD of ICICI Bank from May 2009 for a period of five

years. She succeeds K. V. Kamath, who was CEO of the bank since 1996.

Recognition

Under Kochhar’s leadership, ICICI Bank won the ―Best Retail Bank inIndia‖ award in 2001, 2003, 2004 and 2005 and ―Excellence in Retail

Banking Award‖ in 2002; both awards was given by the The Asian Banker .

Kochhar personally was awarded "Retail Banker of the Year 2004 ( Asia-

Pacific region)" by the Asian Banker , "Business Woman of the Year 2005"

by The Economic Times  and "Rising Star Award" for Global Awards 2006

by Retail Banker International . Kochhar has also consistently figured

in Fortune' s list of "Most Powerful Women in Business" since 2005. She

climbed up the list debuting with the 47th position in 2005, moving up 10

spots to 37 in 2006 and then to 33 in 2007. In the 2008 list, Kochhar

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features at the 25th spot. In 2009, she debuted at number 20 in the Forbes

"World's 100 Most Powerful Women list". She is the second Indian in the

list behind the ruling Indian National Congress party chief Sonia

Gandhi at number 13. 

Chanda Kochhar's Success Story-Success of ICICI

Mrs. Chanda D. Kochhar

The 11th floor conference room in the South Tower at ICICI Bank’sheadquarters has witnessed many stormy meetings. Like the one inprogress on that warm April day in 2008.KV Kamath’s A-team-Chanda Kochhar, V Vaidyanathan, Madhabi Puri-Buch, K Ramkumar and Sonjoy Chatterjee — had assembled there, a day

before presenting the bank’s budget to the board. Kamath had told themthey ought to focus on reining in costs.

But a consensus seemed to elude the group. That was because Kochhar,widely tipped to take over from Kamath, was unconvinced. Everybody elsein the room reckoned Rs 7,900 crore in operating expenses was a fairnumber.

The debate went on, until abruptly, Kochhar stood up and said: ―With thiskind of numbers, we won’t have a bank to run next year.‖ That said, she

called the meeting to a close.

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 A couple of hours of brainstorming later without Kochhar, theyreassembled in the same room. ―We don’t have an answer,‖ executivedirector and group HR head at the bank K Ramkumar recalls the teamtelling Kochhar. ―What is the number we ought to be working on?‖

Without blinking, she said ―Rs 6,500 crore‖. For a few moments, there was a stunned silence in the room. Essentially,she was telling them to maintain operating expenses at the previous year’slevel. For people working in an entity that always grew at 35  – 40 per centeach year, this sounded like hara-kiri. The next day, Kamath nodded inapproval and smiled at the numbers. What in the devil’s name, theywondered, was going on? What, indeed!

A New Paradigm 

For as long as most people who have followed ICICI can remember, thebank has remained married to one mission: Aggressive growth. That iswhy when news started trickling out that a divorce is inevitable, we had toask Chanda Kochhar — who has since taken over from Kamath as theCEO and managing director, if this is indeed the case. Quite honestly, itwas impossible to miss the firmness in an otherwise temperate voice.―Growth,‖ she said, ―can mean various things. It isn’t just about growingthe balance sheet.‖ 

To seasoned ICICI watchers, this is the kind of language that qualifies forblasphemy —  the kind of thing an outsider with no clue of the bank’sinstitutional history would say. But then, we all know Chanda Kochhar is,The Insider. She’s seen it all: How her predecessor KV Kamathtransformed ICICI from a crumbling development financial institution(DFI) to India’s most visible universal bank; how he grew its balance sheetfive fold in less than a decade; and how he commands fanatic loyalty fromthe troops. But everything Kochhar is executing right now may seem to beat loggerheads with what her mentor believed in.

Over the next one year, she intends to grow the balance sheet by just fiveper cent — an unthinkably low number during the Kamath years. Butnow, she is battening down the hatches on two of Kamath’s biggest bets — planting the ICICI flag outside India and aggressively wooing rural India.For some time to come, Kochhar promises there will be no sabre rattlingon either of these fronts.

 And remember the credit card and personal loan businesses? Kamathgoaded the bank into war with global giants Citi and StandardChartered and eventually toppled them a few years ago. One of the first

things Kochhar did after taking over was to tell her colleagues to back off from these verticals and cut losses.

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Then there was this period when Kamath told a whole generation of Indians why visiting a bank doesn’t make sense. Use ATMs instead, heurged. And to sell a credit-starved country all that a modern bank couldoffer, he recruited an army of direct selling agents (DSA).

It was his way of getting around infrastructural deficiencies that couldotherwise hamper ICICI’s growth plans. 

Since the time Kochhar has taken over though, the emphasis at ICICI is toget people into branches.

Folks at the bank used to working at its giant headquarters in BandraKurla Complex in Mumbai are being redeployed to run branches. And 70percent of ICICI’s DSA operations have been wound up. By next year, thebank may no longer rely on any outsourcing for business acquisition and

collections.

Why, you wonder, is Kamath’s protégé talking in a tongue different to his?Equally puzzling, why does Kamath approve of where she is taking thebank to? What changed?

An Unfamiliar World

Last September, soon after Lehman Brothers collapsed, ICICI Bank faced

an unprecedented crisis. Speculation mounted that its exposure to Lehmanheld enough potential to wreck the whole bank. Edgy traders hammeredthe stock down and nervous depositors queued up outside its premises totake their money back. ―It hurt us enormously when nobody believed ourexposure was limited to $81 million,‖ recalls Ramkumar.

To manage the crisis, a war room was set up and the mantle fell onKochhar to lead the exercise. ―It taught me a couple of things,‖ she says.―One, if there is a challenge, your shoulder ought to become broader andyour back straighter. Confidence is important. Two, you have to be the

sponge that absorbs stress. Else, it passes down to the team and theycannot function efficiently.‖ 

Be that as it may, much agonising and introspection later, the teamconcluded there were indeed a few problems on their hands. Mainly, intheir attempt to innovate and stay ahead of everybody else, they hadgotten too damn aggressive. Or at least that is how the world perceivedthem now.

It also sensitised the team to a type of risk they hadn’t factored in before  

 — reputation risk. Until then, as bankers, they had only understoodmarket risk, credit risk and operations risk. In some part, this was the

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outcome of yet another controversial sequence of events in the bank’shistory. Just before this crisis played itself out, the team had battledanother.

Starting 2007, the bank came under fire in the media for allegedly usingstrong arm tactics to collect credit card dues. ―We perhaps misjudged thepower of public perception around collections. And that impaired ourability to collect money,‖ says Ramkumar. It finally forced the board, ledby chairman N Vaghul and Kamath to dismantle the entire network of collection agents.

―As a challenger, being seen as aggressive is fine. But the moment you area leader, being aggressive is often seen as someone who infringes on otherpeople’s rights. That is not a perception we want to live with,‖ says

Ramkumar. To that extent, the team concluded, unbridled aggression — aleitmotif of the Kamath era — had to be buried.

While it is tempting therefore to assume all of what ICICI is going throughnow is a function of the Kamath-years that would be missing the pointentirely. The point is Kamath has this uncanny knack of seeing thingsahead of others. Before anybody else did, he figured that the world was setto change dramatically.

 And that if ICICI had to survive the long haul, it would have to slam thebrakes on growth and reassess the assumptions on which it was built.That it would hurt was obvious to him. Which is why, in a signal of solidarity with stakeholders, he declined to accept 300,000 stock options atRs 400 each, for which he was eligible in December 2008. The teamfollowed suit.

When he had rolled his sleeves up about ten years ago, India’s 200 millionstrong middle class needed credit to buy cars, homes and everything else.The 8-10 percent economic growth gave them the appetite to go in for bigticket loans.

Which is why, by 2007, 65 percent of ICICI Bank’s retail assets weremeant for this market. The downturn challenged these assumptions. Andthe bank’s existing credit models, built on data from the past, was nottuned in to these changes.

Even as these changes were unfolding, inflation was moving up. In turn, itcompelled the central bank to tighten interest rates. Through all of 2007and 2008, the RBI pushed up interest rates repeatedly. For ICICI, thatproved disastrous and exposed another chink in its armour — an over

reliance on higher cost bulk deposits. Traditionally, most commercialbanks monitor a ratio called CASA. This indicates the percentage of 

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current and savings accounts to total deposits. A higher CASA ratio meansthe bank has access to cheaper funds. This allows it to earn highermargins when it lends.

The problem can be traced back to 2002 when shortly after the reverse

merger between ICICI and ICICI Bank, Kamath realised he had only twooptions: One, without a branch network to challenge the might of publicsector banks, he could stay content with a niche strategy, much likeforeign banks. Two, he could go for scale by overlooking the CASA ratio inthe short term and focus instead on picking up wholesale deposits at aslightly higher rate. He chose the latter. It made perfect business sense aswell in a low interest rate regime. So, while industry benchmarks were at33 per cent (one third of all deposits coming via CASA), ICICI Bank wouldtouch 30 per cent at the best of times. And when the crisis hit home in

October last year and depositors made a run for their money, CASA levelsdropped to an alarming 26 per cent.

 And if all of this wasn’t enough, the unsecured loans business (largelycredit cards and personal loans) started to bleed. Blame it partly on a badmacro-economic environment. And partly on the fact that ICICI’scollection arms, for reasons described earlier, came under intense publicscrutiny. At Rs. 9,900 crore, of which almost 80 per cent came from theretail business, the bad loans gave ICICI a dubious sobriquet: It had thehighest NPA levels for any Indian bank.

These numbers drove home another lesson: Unsecured credit is perhapsnot the best way to build customer relationships. Consider HDFC Bank, its fiercest competitor with which it shares an interesting relationship.When ICICI faced a run on its deposits, Aditya Puri, the MD at HDFCBank, sent out an email to his people asking them not to poach or acceptdeposits from ICICI’s clients until the crisis was over. But that isdigressing. The credit card base HDFC Bank caters to largely comprisescustomers from its branch banking business. This means, it has access totheir credit history, and therefore they have a decent handle on a

customer’s credit worthiness. 

ICICI, on the other hand, acquired customers using a network of outsourced agents whose revenues were linked to the numbers of clientsthey got in and not their credit worthiness. Not surprisingly, they threwcaution to the wind and up saddled ICICI with customers the bank wouldmuch rather not have. It was a vicious circle. ―The cost of acquisitions andcollections for low transaction items and small ticket loans was alsobecoming unsustainable,‖ says Sandeep Bakshi, deputy MD and retailhead at ICICI Bank. Not only did the cost of maintaining the direct

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channel jump as volumes grew, but the pressure on collections added tothe costs as well.

Simple back-of-the-envelope calculations showed that each time acustomer rolled over his credit card dues, the bank earned a 20 per centinterest. So even with credit losses of around 8 percent, the bank still stoodto gain a hefty spread. But very soon, this neat little equation was turnedon its head. Losses began to mount. And a larger number of people beganto default on their dues. ―It was unsustainable,‖ says Chief FinancialOfficer N.S. Kannan. All of this wasn’t apparent initially.  

Through this period, insiders say there was hell to pay. In a sharplycompetitive culture, the blame game had begun. And fingers were beingpointed at the retail business.

Entry of Chanda 

Beginning end-January, soon after the board took a call on ChandaKochhar as Kamath’s successor, she initiated a detailed review of thevarious businesses the bank is into. And over the next four months, shestarted putting a plan into place to build a new template for ICICI thatlooked at variables beyond the balance sheet. ―I knew I had to help peopleunderstand the other dimensions of growth and the logic behind it,‖ she

says.

Kamath knew his successor was in for a tough haul and would need thetime to settle down and gain the confidence of the team. Which is perhapswhy, two months before he stepped down, he made sure he came in a half hour late to work and left an hour earlier in the evening. And immediatelyafter he stepped down as CEO, he took six weeks off from the bank tospend time with his daughter and grand children in Seattle. It was hisway of providing space to the new leader.

In any case, he had primed Kochhar for the job well in advance. That nodput Kochhar’s plan to hold operational expenses at previous year’s levelsfirmly in the saddle and stoked a chain of events over the next couple of months.

 Vaidyanathan was given charge of pruning costs on the retail side of thebusiness. Every Friday evening, about 20 senior managers wouldbrainstorm in his room on how it could be done. The ground rules wereclear. Nothing was sacrosanct. He told them, they could question anything.If they thought his travel schedule, or that of anybody else, imprudent, it

would well be within their rights to raise the flag and call for a review.

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Stopping Blame Game 

In July last year, Vaidyanathan and Ramkumar addressed seniormanagers in the retail business. ―For the first time, we stood up andadmitted publicly we failed in areas like unsecured credit and rural

banking,‖ says Ramkumar. ―We got punished for setting business goalsahead of capabilities. But as leaders in ICICI Bank, it is okay to stand upand say we are human, that we don’t lack character. It was done withoutany embarrassment.‖ 

Both exercises paid off and blunted the edges off a blame game that couldhave spiralled out of control. If any traces remained, the crisis stoked byLehman’s collapse in September buried all differences. ―It was the bestthing that could have happened,‖ says Ramkumar. The team cametogether under Kochhar. The first thing it did was to start pulling out of lending. But more recently, after she moved to the corner office in May, afresh team and a new strategy are making its presence felt.

Take Sonjoy Chatterjee who heads the corporate and internationalbanking business. Until very recently, corporate banking relied on feesfrom large merger and acquisition deals. Inherently though, this is alumpy business. When the deal pipeline evaporates, fees follow. To getaround the hump, he added a new dimension: Transaction banking. Inother words, for all the major clients ICICI services, it now manages their

non-fund based businesses as well such as forex requirements and openingletters of credit. In the past, it rarely pitched for such businesses. But now,it does aggressively. Because what it does is provide a layer of predictability to the income stream from corporate. ―Using our clout with large corporate clients, we will actively push for such business now,‖ saysChatterjee.

In part, this was possible because ICICI has just got the licences to openanother 580 branches, over the 1,453 it already has. Of these, Kochhar hasearmarked 20 for special status as mega branches. These will serve

corporate customers as well. In some ways, this is how Axis Bank, StateBank of India and HDFC Bank function.

In the past, ICICI preferred to centralise operations while branches weremanned by younger staffers. The outcome was poor turnaround time. Thebranch staff had little control over the outcome.

In the new dispensation, a premium is being placed on the branches. Veterans from headquarters are being deployed to head them. Aconsiderable amount of authority is being vested on them to solve

customer issues at the branch itself. At the same time, the bank is

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targeting the government sector, and even stock market participants toopen current accounts to improve the CASA ratio.

The new branch licences are also a reason to wind down the directmarketing channel, a move that brings with it considerable pain. Thechannel was built over the years with assiduous wooing of partners. Butnow that the relationship has to be terminated, there is angst in thesystem.

―We had to give the better agents sufficient notice, so that they could findalternative employment,‖ says Ramkumar. ―Where there was friction, wehad to tell them firmly we had no obligations.‖  

The branches are now the pivot for any retail lending. ―They are the face of the brand in geography. So we need to ensure we get our best people to

man them,‖ says Sandeep Bakshi. As things stand, these branches willtake anywhere between 18-36 months to stabilise.

Her biggest challenge is to meet market expectations. So far, to keep itshigh growth strategy intact, the bank has had to raise funds from themarkets several times. Yet at 7.8 percent, the return on equity (ROE) hasbeen poor. As a result, its market value took a beating.

In his interactions with analysts, Kannan, the group CFO, has promisedan ROE of 15 percent over the next three years. That will be tough.

Kochhar knows that as well and admits she doesn’t know how thenumbers will eventually add up. But the roadmap, she says, is clear.

Part one of the plan involves pushing through the ambitious branchexpansion plan without adding to operating costs. Which means, in thecurrent fiscal, Kochhar will be focussed on looking at each item of theprofit and loss account and balance sheet; and perhaps restructuring it.She believes she has the time on her hand to do it right now because creditgrowth is moderate. When growth kicks in, which Kochhar reckons will benext year, the bank will be in a better position to capitalize on it. Andfinally, in the third phase, focus on unlocking value from subsidiaries.

―There is no alternative,‖ Kochhar says. ―In a way, these are hugestructural changes. But we have to implement it. I think the actual resultsof this will not show for a couple of quarters. But I know from internalreviews we are in the right direction.‖ 

Kannan says he has built a dashboard for his senior colleagues, whichcaptures the key metrics. Every fortnight, the performance is reviewed. Any course correction in strategy and tactics are then implementedquickly. ―A lot of building blocks are now in place. I am very confident that

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people will start seeing the facts a couple of months from now,‖ saysKochhar.

By all accounts, it will be a delicate balancing act. ICICI is hard-wired tobe aggressive. Keeping that instinct at bay will take a lot out of her.

 Already, public sector banks like SBI are getting aggressive in the homeloan market. In the normal course, ICICI would have been right out there,slugging it out for the spoils and enjoying a bloody good fight. But thesearen’t normal times at the bank. For at least three quarters, Kochharneeds to prove to the rest of the world that the bank can put its house inorder, before it can go out there and do what it does best: Fight.

Bibliography

  www.ibnlive.in.com  www.wikipedia.com  www.icicibank.com  www.forbes.com