ICICI Bank Ltd India’s largest private sector lender by assets is restructuring its retail strategy to curb the current slowdown in consumer spending.
Till now the bank’s consumer business model was mainly targeted to aggressive growth in its loan book. But, as Asia’s third largest economy has slowdown and consumers are focusing more on saving than spending, ICICI Bank has started trailing retail deposit liabilities instead of loan assets.
For this the bank has also set up a task force headed by the executive director V. Vaidyanathan to control expenses and reduce waste. Another most important part of the bank’s strategy is to bring back the customers back to its branches. It has almost stopped calling the prospective customers on the phone to offer loans, but it will depend on branches to send short messaging service and emails to seek business.
Vaidyanathan informed, “We see robust activities in the liabilities market now. Until recently our savings account base has been growing at over 30% year-on-year. Our CASA (current and savings accounts) has grown from 18% a few years ago to 28% of the liability base. We plan to take it to 35%”.
According to government prediction India’s economy is to grow 7.1% in the fiscal ending March, the slowest rate in six years. But banks have become cautious on lending to consumers because of fear about a possible increase in defaults as employers are freezing or cutting salaries and put hiring on hold.
According to analysts loan collection and asset repossession have also become difficult. An anonymous banking sector analyst at a Mumbai-based brokerage said, “A few bad customers are hurting all borrowers”. “Hence, in such an environment the bank focuses on high-income category customers who are the least prone to default and litigation (rather) than the marginal middle-class customers who are the first to be hit by the changing economic environment.”
Vaidyanathan pointed out, ICICI branches are being recast to carry out the change. He added, “Branches don’t just do servicing; they now do relationship management. The systems and physical layout of the branch is being changed to accommodate this new requirement”.
In a year’s time ICICI Bank branch network has increased to 1,400 from 750 and will be adding around 2,000 branches in the next one year. To get customers back to branches, the private sector bank has launched a program called “Just Step In”. Vaidyanathan added, “It’s an investment for the future. We feel, therefore, there is more work to do on the cost front, to neutralize the impact of branch expansion”.
Explaining about the expense control exercise as “reallocation of resources to the new growth areas” and “merger of structures”, he told the bank has reduced the number of people who act as mediators for selling loans.
Vaidyanathan pointed out, “We don’t make outbound calls any more. Over the past one year the bank has stopped telecalling. We have been using the alternate channels like branch, short messaging service and emails”. The bank has reduced outbound calls by 95%.
In the retail loan segment, ICICI Bank has slowed down on unsecured loans such as credit cards and personal loans and is focusing more on secured loans such as mortgages and auto finance.
Vaidyanathan added, “We love mortgages and auto loans in particular. These are long-term businesses. Considering the stiff underwriting standards, these will ride out any credit cycle”.
As per his information on an incremental basis, unsecured lending is only 3-5% of the overall loan book has sharply come down from 19% earlier. In 2007 when interest rates were rising ICICI Bank began tightening its credit norms in 2007.
Vaidyanathan informed, “We dropped a few unsecured products along the way”. Bank is also firming up its credit card base and encouraging customers to use debit cards more than credit cards. Vaidyanathan is sure that card diffusion will increase and “electronization is an unstoppable phenomenon,” but acknowledge that “at this point in time we are cautious on credit cards, and pushing spends on debit cards instead”.
Thus bank’s debit card volumes have moved up from Rs 250 crore per month to about Rs400 crore per month due to focus on increasing the usage of debit cards, while credit card spending is still at Rs1,000 crore per month.
Vaidyanathan informed to help its customer’s bank has started an education series and this has helped reduce customer complaints by 50%.
He further added, “There is a huge change in customer expectations. Customers that were borrowing to meet their present needs are now looking to save for their future. They now need financial planning services which we are also encouraging”.
Vaidyanathan informed the new branches are being opened up by the bank are being spread across rural and semi-urban areas, to tap the local population for deposits. They are also looking for opportunities for government business such as tax collection and salary accounts of public sector companies to strengthen the bank’s already strong presence in sectors such as information technology and related services.
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