Chanda Kochar found a place in Fortunes list of 50 most powerful business women in the world four years ago in 2005. In fact,she was then credited with having increased the banks customer base from 2 million to 14 million in just four years and replacing Citibank as the market leader in credit cards. She made it to ICICI Banks five-member executive board way back in April 2001,having worked her way up gradually since she joined the bank in its project finance department in 1984. The top team led by K.V. Kamath who has now passed on the baton to Kochar changed the face of retail banking in India. Today,as India feels the heat and impact of a global slowdown,ICICI Bank has consciously decided but critics say forced to adopt a low-growth strategy. It is no longer lending aggressively,and in fact,does not expect a growth in its balance sheet during the year. She spoke with P Vaidyanathan Iyer on what holds for ICICI Bank and the Indian economy in the coming days. Exerpts:
Q: ICICI Bank has slowed down this year,while others continue to grow their balance sheets…
CK: Interest rates at todays levels are not affordable to customers. Retail loans growth will pick up only on the back of fundamentals once there is a correction in interest rates,real estate prices,etc. ICICI Bank has not grown this year. Our balance sheet is almost constant. Fresh disbursals are at last years level. This is because a large part of our current balance sheet comprises retail loans. And credit quality during a downturn in the economy may not be very good.
Q: So,should the Reserve Bank have cut rates further? Do we need more monetary measures to revive consumer interest and the economy?
CK: A lot has been done on the monetary side. We cannot undermine the monetary measures taken till date,in terms of liquidity and giving direction to interest rates. Yes,what is needed is a correction in lending rates. The interest rates on government securities have corrected in the last quarter by 320 basis points. The wholesale deposit rates have dropped by 200-250 basis points. But retail deposit rates have corrected by only 100-150 basis points. That too has happened only in the beginning of January. Now,we expect to start seeing improvements in the retail lending rates. It happens with a lag.
Q: What about the fiscal side then?
CK: Two things have happened the government has put a lot of purchasing power in the hands of people and has also given the industry some protection on the import duty front. It could have boosted direct spending,but perhaps concerns of fiscal deficit held it back. I think,direct investment in infrastructure would have helped.
Q: The government and the RBI seem to be doing their bit. But,real estate prices continue to be high,isnt it?
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CK: That is the problem. The issue is real estate prices should correct. Today,they (developers) have holding power and are living in the belief that the economy will turn soon. What they do not realise is the earlier they cut prices,the earlier the economy will revive. Some correction has started happening. But,much more is required.
Q: But banks too have not cut rates aggressively to revive customer interest…
CK: Though liquidity has eased,the cost of funding continues to be high for banks. I reckon that the lending rate should be at least 2 percentage points lower than what it is today. That will be affordable then to customers. Banks have reduced it to the extent their cost of funds has dropped. All said and done,for the system as a whole,cost of funds has not yet come down. Lending is a function of interest rate too. If rates drop,lending will go up. The second issue is banks are not sure how Indias economy will pan out. So,there are worries about credit quality whether new loans will turn bad.
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