ICICI Bank’s Mr Dependable

FOR A BANK THAT annually spends over ₹3,200 crore on advertisement and publicity, ICICI Bank’s 64-year-old CEO is conspicuous by his absence in public. Instead, Sandeep Bakhshi, a mechanical engineer by qualification, lets the numbers do the talking. Burying the ghosts of the financial impropriety scandal against Chanda Kochhar that rocked the private lender, Bakhshi has continued to deliver the goods for the bank, leading to his reappointment in 2023 for another three years.

When Bakhshi took the reins as managing director and CEO on October 15, 2018, the bank was at a critical juncture. With his steady hand and strategic vision, Bakhshi navigated the bank through a transformative period, steering it towards robust growth and stability. His tenure has been characterised by enhanced asset quality, strengthened retail loan portfolio, and improved operational efficiencies.

While every financial and efficiency parameter has seen a dramatic turnaround, the metric that truly captures the essence of Bakhshi’s understated leadership is the return on assets (RoA). In FY23, the RoA was 2.37% (standalone), a significant increase from the low of 0.39% in FY19, the fiscal year he took over from Chanda Kochhar. Under her tenure, the ratio had declined from 1.13% in FY10 to 0.87% in FY18. Simply put, a 2% RoA indicates that the bank is managing its risks effectively, balancing asset growth with profitability without taking excessive risks

Unsurprisingly, over the seven-year period leading up to FY24, there has been a palpable turnaround in investor perception of the bank as well. During the ‘lost decade’ from FY09 to FY18, the bank registered an abysmal 6.77% CAGR in PAT and a 3% CAGR return, partly due to the business environment and largely owing to the bank’s own internal issues. Under Bakhshi’s leadership, however, the figures have blossomed significantly. From FY19 to FY24, profit surged more than six-fold to ₹40,888 crore, while the stock compounded an impressive annual return of 23.48%.

Given the favourable macroeconomic conditions, coupled with a change in leadership and improvements in asset quality, ICICI Bank is positioning itself for growth and a potential revaluation. As of March 2024, ICICI Bank boasts a robust capital foundation, with a capital adequacy ratio of 16.33%, exceeding the regulatory mandate. Bakhshi has reoriented the bank’s advances from a legacy wholesale book to a healthier retail asset mix.

The balance sheet remains robust, bolstered by excess provisioning and capitalisation. With a high CASA ratio of 42%, the bank enjoys a funding cost advantage over its nearest competitors. “This advantage has enabled it to gain loan market share in prime categories and establish itself as the ‘worry-free’ choice for investors among Indian banking names,” mentions Santanu Chakrabarti, an analyst at BNP Paribas Securities. The CASA ratio, which represents low-cost deposits in current and savings accounts, acts as a catalyst for better margins by allowing funds to be deployed as loans at prevailing market rates.

Making The Cut

It’s not just the public markets that have raised a toast to the bank’s performance — a five-member jury, which deliberated on the Fortune India-Grant Thornton Bharat’s 2024 rankings, unanimously chose Bakhshi as the Banker of the Year.

The jury did take into consideration the twin regulatory setbacks that the bank recently faced. The Reserve Bank of India (RBI) imposed a penalty of ₹12.19 crore on the bank for non-compliance with loan-related norms, while the Securities and Exchange Board of India issued a warning regarding the aggressive outreach by executives to persuade ICICI Securities’ (I-Sec) shareholders to vote in favour of delisting the securities arm. “In the case of I-Sec, it was probably a case of pressuring shareholders a bit too much to vote for delisting. Beyond this, there haven’t really been any major concerns regarding governance,” says an analyst, speaking on the condition of anonymity.

The jury’s considered view was that the fines were related to operational matters and did not impact the decisive transformation of the bank through a turbulent phase. Furthermore, to ensure fairness, it’s important to note that ICICI Bank is not the only institution to have been caught in regulatory crosshairs: virtually every bank — regardless of size or ownership, whether private or public — has faced the regulator’s scrutiny over various degrees of violations.

The strategic pivot towards retail has proven to be a cornerstone of the bank’s success. Recognising the profitability and lower risk associated with retail loans, which typically offer higher yields, Bakhshi directed significant efforts towards expanding this segment. In the initial years of his tenure, retail loans grew dramatically. As of March 2024, retail loans constituted 54.9% of total advances, amounting to ₹6.66 lakh crore, up from ₹2.89 lakh crore in FY19. This strategy of diversifying and de-risking the loan book has clearly paid dividends.

Within retail, the mortgage business accounts for a significant portion at 32.6%. Although the merger with HDFC has propelled HDFC Bank to the forefront as the leader in home loans, analysts believe ICICI Bank has held its own. “ICICI Bank has been performing well on its own—adding employees and increasing the customer count along with opening new branches. Consequently, the bank is expected to continue reporting solid double-digit growth in its mortgage business,” explains Nitin Aggarwal, analyst at Motilal Oswal Financial Services.

The Risk Mitigator

One of the notable achievements of Bakhshi is the significant improvement in asset quality. When he assumed leadership, the bank was contending with high levels of gross and net non-performing assets (NPAs) of 8.84% and 4.77% (March 2018). Through rigorous credit appraisal processes, proactive risk management, and strategic recoveries, gross bad loans drastically reduced to 2.16% by March 2024. Similarly, the net NPA ratio also saw a substantial decline from 2.06% to 0.42% over the same period.

Underscoring the effectiveness of Bakhshi’s approach in managing and mitigating credit risks, unsecured lending has moderated over the past six to nine months, particularly owing to concerns raised by the regulator. “We are seeing some pressure in the unsecured personal loan and credit card segments, but other retail segments remain strong, which is where ICICI delivered nearly 18% growth last year. We anticipate comparable growth this year, upwards of 17% or so,” says Aggarwal.

The bank’s strong capital base is also instilling confidence among stakeholders. Under Bakhshi, the bank’s Common Equity Tier 1 (CET1) ratio has increased from 13.66% in December 2018 to 15.60% in March 2024. This robust foundation has enabled the bank to pursue growth opportunities while ensuring financial stability.

Driven by a strategic emphasis on high-yielding retail assets and cost optimization, profitability metrics have shown significant improvement during Bakhshi’s tenure. The net interest margin (NIM) has risen from 3.23% in March 2018 to 4.53% in March 2024, a reflection of the bank’s increased efficiency in managing its interest-earning assets and interest-bearing liabilities.

Since Bakhshi took over, the share price has increased by 3.5 times. “Bakhshi has been quite successful in improving the morale of the team, especially since the stock was stagnant from 2011 until 2018. He has instilled confidence across the management cadre,” says Aggarwal. During his tenure, ICICI Bank’s market capitalisation surged to approximately ₹8.05 lakh crore, up from ₹2.01 lakh crore when he assumed charge. “An earnings boost from unwinding excess provisioning has also been a significant catalyst,” mentions Chakrabarti of BNP Paribas.

Keeping The Faith

Beyond financial metrics, Bakhshi has championed the adoption of advanced digital technologies and data analytics, which have streamlined operations and enhanced customer experiences. His initiatives include the digital sourcing of retail products and the expansion of the bank’s digital payment platforms.

Aggarwal believes the bank is now operating in a more holistic manner. Key strategic phrases such as ‘one bank, one ROE,’ and ‘Fair to customer, fair to bank’ have become central to their strategy. ‘Over the last three to four years, this approach, coupled with their enhanced skilled manpower and technological capabilities, has enabled them to grow the book at a very healthy rate,’ says Aggarwal. However, analysts expect the net interest margin, which reached 4.53% in FY24, to be range-bound for a few quarters — pending a rate cut — owing to rising retail deposit rates. “Nonetheless, profitability is expected to remain fairly healthy. We anticipate a sustainable ROA of 2.1-2.2% from the bank,” says Aggarwal.

The Street is drawing comfort from the fact that Bakhshi’s tenure has been about more than just navigating immediate challenges; it has focused on building a resilient organisation capable of adapting to a rapidly changing environment. Given this backdrop, any news regarding his tenure can significantly stir the hornet’s nest, as evidenced by a recent article about Bakhshi’s purported request for an early exit — a claim later denied by the bank. While sudden management changes led by regulators typically result in a de-rating of stocks, as seen with HDFC Bank and Kotak Bank, the future of ICICI Bank will only become clear after October 2026. Until then, it is expected to be business as usual.