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"Our focus is to become a Universal Bank..."

Jun 2, 2000

Kalpana Morparia, senior general manager of ICICI, one of the most aggressive financial institution in the country today has played a major role in transforming the company from being a financial institution to a `one-stop shop' providing an array of financial services right from project financing to retail products.

She is actively involved in the planning, resource mobilization, asset liability management, treasury function and is a old hand at framing legal documents. She was actively involved in the incorporation of the various subsidiaries and group companies of ICICI.

In a revealing interview to equitymaster.com, she talks about ICICI's `click and brick' strategy, the transformation phase of ICICI in turning itself into a universal bank and its innovative `relationship centric approach' towards banking.


EQM: How do you think, the rising inflation and uncertain interest rate movements will have impact on ICICI's spread?

Ms. Morparia: ICICI's interest spread is insulated against the fluctuation in interest rate and inflation rate. This is because we price our loans on a cost plus basis. Cost is determined on the day when the money actually gets lifted. The relationship manager computes the cost of loan for the customer by taking into account the cost of funds of the company (sourced from the treasury department) and the risk associated with the customer (from the risk computation department).

However lower interest rates means some times more business for the company. The impact on spread due to lower interest rates will happen on our drive to grow on more quality products. For example project funding which contributed high to our total loan portfolio few years back has high interest spread due to high implementation risk involved. So on a risk-adjusted basis there is no fall in the interest spread but on the growth basis there might be fall.

The interest rates currently have bottomed out. We might see stable rates with the tendency to slight increase towards the 2nd half of the current year. The inflation data is little tricky. After doing the inflation analysis during the current period, I feel the situation is not as bad. The Central Bank has lot of tools for maintaining inflation.

EQM: ICICI is gearing up to become a Universal Bank with its unique brand equity.What kind of services would you be providing in this area and how far has the concept been implemented by the company?

Ms. Morparia: ICICI is making a paradigm shift from a development banking institution operating on a single product portfolio to offering all kind of financial services under one roof. We have capitalised on market opportunities to stretch the boundaries of our business and are leveraging on technology to evolve innovative products and offer value-added products to our clients.

In the wholesale banking division, the company provides services in the areas of corporate finance, project finance, commercial banking and investment banking.

There is more demand for customised products with the opening up of the economy. People want solutions, which are tailored, to them. ICICI has an edge over the other player in the market since investment bank and foreign bank have product knowledge but they may not have imbedded customer knowledge and the knowledge on local regulation. Our focus is on structured products group, securitization, short-term working capital products and channel financing. Our target customers in the wholesale banking are leading corporates, mid cap companies and small businesses.

ICICI has developed relationship centric approach to wider the growth rate in its corporate relationships. The company provides a large number of services to maintain its corporate relationships. With the same corporates the company can expand its existing business. Consider the example of a company, which has account with ICICI. Same corporate relationship gives opportunity to ICICI to open payroll and saving bank account for its employees. The company can also market its retail loan products to them and could provide other services.

Coming to the retail banking division, the idea of the company is to have common corporate identity. The division is handled by the common agents (of ICICI and ICICI bank) who cross sell the products. ICICI has strong retail identity and it is ranked second in retail financial services after State Bank of India. In the retail banking division ICICI offers products and services like deposits and bonds, credit cards, loans and depository services.

EQM: ICICI has been trying to reduce its non-performing assets (NPAs) year over year by taking stringent measures. Which sector contributes highest to the total NPAs?

Ms. Morparia: We are increasingly diversifying our portfolio to reduce risk and volatility of earnings stream. The percentage contribution from manufacturing project finance has been considerably reduced to 41% of the total loan portfolio in FY00 compared to 73% in FY97. On the other hand the contribution from corporate finance has been increased to 26% from 9% during the same period. The retail financing also contributes a marginal 1% to its total loan portfolio (In value terms Rs 5 bn).

We are focussing on improving our asset quality by adopting US GAAP, which is much more stringent standard requiring higher provisioning even though all our assets are fully backed by collateral securities. ICICI has formed a Special Asset Management group to restructure its loan portfolio and for recovery of its loans. As a result of this measure net NPA ratio in FY00 declined to 7.6% from 8.1% in FY99. Iron and Steel sector contributes highest to our total NPAs. The loans in the cement sector are recovering faster as the industry is on a growth path.

EQM: How is ICICI placed in the competitive scenario?

Ms.Morparia: Our competitive position we have classified into six different parameters of technology, size, human resources, product range, speed and customer intimacy. We have compared ICICI vis a vis public sector banks (PSU), private banks and foreign banks.

For the PSU banks neither size nor the customer intimacy is constraint. But speed, product range and customer relationship could become problem for them. For the private sector banks customer intimacy is standalone and their size can not be compared with that of public sector banks. ICICI and IDBI banks are different because of their parent. However they have latest technology, customer relationship management and speed at which their business is conducted. Foreign banks are excellent in terms of customer intimacy, speed, human resource management and technology but they lack in terms of size and product range.

ICICI is comparatively better placed among the financial institutions and among the banks. The company has large branch network, wide product range, superior customer intimacy and innovative technology.

EQM: But as far as the retail products are concerned foreign banks are also becoming very aggressive

Ms.Morparia: I am talking about the full range of products. So can they offer services like project finance, working capital finance and investment banking. ICICI can provide the whole range of financial services with its existing infrastructure under one roof.

ICICI is a good investment proposition as it is the one which offers stable business returns year over year. The twin planks of technology and transparency have been well rewarded by the market. The company's market cap has increased more than 3 times in the last one year.

EQM: What percentage does retail loan and housing loans contribute to total loan portfolio?

Ms.Morparia: The percentage contribution from home loan is growing with the demand from retail picking up. Home loan contributes 35% to total loan approvals. However the contribution from retail loan is marginal 1% since it is just started.

EQM: What sort of growth rates are you estimating for the current fiscal in disbursements and approvals?

Ms.Morparia: We have targeted around 20% growth rate in disbursals and approvals.

EQM: When the payment gateway of ICICI is likely to get operational and how exactly it functions?

Ms.Morparia: The payment gateway is likely to become operational within one month. In our B2B initiative we have targeted 1,000 clients initially with their suppliers and distributors. The company is developing open loop payment gateway. Consider this example, Hindustan Lever has a whole host of dealers and suppliers on its side. Today the company handles the work with dealer through cash management services where they get the same day credit for the cash deposited by the dealers, which is taken care of by banks. Instead of that we thought of creating a loop between suppliers and dealers where the entire debit or credit takes place online and your accounts gets reconciled. These dealers again in turn become potential clients for ICICI to offer credit products. ICICI has 100 such clients, which can turn into 1,000-2,000 relationships.

EQM: Who are the three most influenced people in your life?

Ms.Morparia: Most of the people I admire most are the ones I have worked with. Mr N. Vaghul the Chairman of ICICI, Mr. K. V. Kamath, the MD & CEO and Mr. S. H. Bhojani. I have learned a lot from them in the past 25 years.

EQM: Which books you like to read the most?

Ms.Morparia: I like reading lot of fiction books. My favourite authors are Jeffery Archer and Robert Ludlum. The only non-fiction writer I like reading again and again is William Shirer's, `The rise and fall of third Reich'.


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