Corporate Legacy: Harbinger Of Change

For a manager and a techno-crat, K. V. Kamath achieved scale and success of the kind that even entrepreneurs can be envious of. There can be little doubt that the man was respected in the very top echelons of corporate India. For instance, it was Kamath who played peace keeper when disagreements between brothers Mukesh and Anil Ambani threatened to turn ugly and bitter. Then again, the man was hailed for nurturing a generation of women leaders in the banking sector. His successor is Chanda Kochar and one of his former colleagues at ICICI Bank, Shikha Sharma, now heads Axis Bank.

And yet, while he deserves all the praise, Kamath also left ICICI Bank at its weakest when he hung up his boots in 2009. As the numbers indicate, the slow and steady HDFC Bank led by a relatively low profile Aditya Puri, seems to have consistently outperformed ICICI Bank.

Ten years ago, the total income of ICICI Bank was way ahead of HDFC Bank. That gap has narrowed down significantly today. During the same time period, the market capitalisation of HDFC Bank has zoomed miles ahead of its rival. The numbers are food for thought for some who argue that Kamath is an infallible colossus.

When Kamath took over the reins of ICICI back in 1996, the project finance bank, saddled with a whole host of problems, began a slow transformation process from making large wholesale loans to companies to becoming a retail banking behemoth. In the process, Kundapur Vaman Kamath — known as KVK in banking circles — firmly entrenched retail banking and lending with the Indian masses.

The transformation of ICICI — the project-finance institution — was an uphill task as the institution was fighting to stay afloat with a huge, and widening, asset-liability chasm. It was then that a new chapter in ICICI Bank’s growth began.

Kamath shifted focus from an institutional credit firm to evaluating retail loans for homes, cars and other personal effects, thereby helping the masses realise their dreams. ICICI Bank designed systems and processes such that the masses could avail of loans in less time, against the weeks, it took to secure a loan before.

Under KVK’s leadership, between 2003 and 2006, the banking system as a whole significantly expanded retail credit, and retail loans accounted for a large part of the overall systemic credit growth.

Kamath believed that retail credit had robust long-term growth potential, driven by sound fundamentals, namely, rising income levels and a favourable demographic profile. At the same time, ICICI Bank realised that retail credit required a high level of credit and analytical skills and strong operations processes, backed by technology.

As a result, its retail strategy pivoted on a wide distribution network, comprising branches and offices, direct marketing agents and dealers and real-estate-developer relationships; a comprehensive and competitive product suite; technology-enabled back-office processes; and a robust credit and analytical framework.

Over the years, Kamath built an excellent retail franchise, which many of his peers in the banking industry, particularly public-sector enterprises were in awe of. As a result, ICICI Bank became one of the largest providers of retail credit in India. Its retail loans amounted to Rs 1,316.63 billion on March 31, 2008, constituting 58 per cent of its loan book.

But towards the fag-end of his tenure at ICICI Bank, the Lehman Brothers crisis ripped apart the banking business all over the world. Moreover, rising inflation also took a toll and retail credit growth slid from 30 per cent before 2007 to about 15 per cent post 2008. The second half of the 2008-09 financial year was seriously bruised by the global financial and liquidity crisis and loss of business confidence.

Changing Tack
Given the volatile operating environment, ICICI shifted focus to capital conservation, liquidity management and risk containment. At the same time, it continued to expand its branch network, focusing on broadening its low-cost and retail-deposit base while maintaining strict control on operating expenses.

Fiscal 2009 saw a further slowdown in retail credit growth in the banking system due to a volatile interest-rate environment, high asset prices and the impact of the economic slowdown on consumer spending. Retail credit growth of scheduled commercial banks then slipped from about 30 per cent in the past few years to about 15 per cent in fiscal 2008 and to less than 10 per cent in fiscal 2009.

As a result, ICICI Bank tightened lending norms and tempered disbursements, especially of unsecured retail loans. While it continued to be the largest provider of retail credit in India (its retail loans amounted to Rs 1,062.03 billion on March 31, 2009), in just a year retail loans shrank from 58 per cent to 49 per cent.

At the same time, it focused on increasing its share of low-cost deposits. Its current and savings account (CASA) deposits, as a per cent of total deposits, climbed from 26.1 per cent on March 31, 2008 to 28.7 per cent on March 31, 2009.

The 2008 Bug
The Lehman Brothers crisis took a huge toll on Kamath’s track record in terms of market perception coming at the fag-end of his career at ICICI Bank. The bank had very little exposure due to its overseas expansion, but market hearsay made the crisis look much worse. As a result, the bank’s market capitalisation plunged from around Rs 85,680 crore in 2008 to Rs 37,025 crore in 2009.

Many commentators still describe him as an exceptional banker. Kamath joined the erstwhile ICICI in 1971 on a salary of Rs 975. Born on 2 December, 1947 at Mangalore in Karnataka, he has an engineering degree from the Karnataka Regional Engineering College in Surathkal, and a postgraduate diploma in business administration from the prestigious Indian Institute of Management, Ahmedabad (IIM-A).

Much of the strategic gains in retail banking by ICICI Bank during Kamath’s tenure are not truly reflected in the figures. Profits grew a mere 16 per cent in ten years (since March 2006), against faster growth rates of some of its peers.

The bank’s base, however, was larger, back in 2006, with some of its erstwhile parent’s legacy loans reflecting in the higher base. Hence, the growth rates of the last ten years may appear a tad lower.

The consummate banker has worn many hats, even after his tenure as managing director at ICICI Bank ended. On 2 May, 2011, he was appointed non-executive chairman of the second-largest software exporter, Infosys.

In 2015, at the age of 67, Kamath was nominated by India as the president of the New Development Bank, a multilateral institution set up by BRICS (Brazil, Russia, India, China and South Africa). His understanding of project finance, as well as a six-year tenure at the Asian Development Bank, will play a crucial role in building NDB, which is the first such multilateral agency of emerging-market economies.

The NDB is envisioned as an alternative to the World Bank and is expected to fund infrastructure projects. It will be based in Shanghai, with India holding the first five-year presidency.

For his contribution to banking, Kamath received the life-time achievement award, which prompted one of his former colleagues, V. Vaidyanathan, chairman and founder, Capital First, who had worked closely with him for ten years, to say this about him in a tweet, “Truly a great leader; a great human being and statesman.”

View graphic: How The Slow & Steady HDFC Outperformed ICICI