The head of India's ICICI Bank is transforming her business with conservative lending and tactical cost cutting. But that doesn't mean she isn't also wildly ambitious.
FORTUNE -- In February of 2008, Chanda Kochhar, then chief financial officer of India's ICICI Bank Ltd., shocked her lieutenants by demanding a radical reversal in strategy. In effect, she wanted to give the fast-growing bank a temporary makeover, toning down its exuberance and muscular image, recasting it as a cautious plodder. Executives, who were demanding their regular budget increases of 30% (in line with ICICI's growth rate), grumbled. But Kochhar reckoned that the swelling defaults on credit cards and consumer loans would become far worse, and that it was time to retrench. "If we increase expenses 30%, we won't have a bank to run," warned Kochhar in a calm but firm tone. "There's no purpose continuing with this meeting. Come back when you freeze your budgets at exactly the same numbers as last year, to the rupee."
By embracing caution at the right moment, Kochhar -- who became CEO of the bank in early 2009 -- skillfully guided ICICI (IBN) through the financial crisis that crippled rivals around the globe. Now India's largest private bank is once again on a strong trajectory for growth in a nation where banking is a go-go industry that benefits from a burgeoning middle class demanding mortgages, checking accounts, and credit cards at a pace U.S. bankers can barely comprehend. Total assets now top $91 billion, up from $21 billion a decade ago.
Kochhar, 49, has expanded not by taking on more risk, but by building a base of loyal customers and shunning the pell-mell marketing of credit card and personal loans to newcomers that so endangered the franchise just three years ago. "She is a person of few words who doesn't give enthralling speeches about a vast strategic vision," says K. Ramkumar, chief of human resources. "You bring her a plan, and it's all about details: 'Cut this, and beef that up.' It's all about execution, setting a few simple goals and relentlessly pushing to achieve them."
Kochhar's turnaround of ICICI has earned her many accolades, including the No. 5 spot on Fortune's International Most Powerful Women list, and earlier this year she served as co-chair of the World Economic Forum annual meeting in Davos, Switzerland. She joined the bank in 1984 as a management trainee. Her diligence and operational prowess caught the eye of K.V. Kamath, ICICI's longtime CEO, who became her mentor and advocate. (ICICI has an excellent track record of promoting women; the CEOs of domestic rival Axis Bank and J.P. Morgan in India are alumnae.)
Kochhar says her mother was a powerful role model. Her family is Sindhi, a Hindu group whose members lost their land and wealth when they fled from Pakistan to India following India's bloody partition in 1947. After her father died when Chanda was 13, her mother worked as a designer in a clothing boutique to support her three children. "She went from being a housewife to a determined career woman," recalls Kochhar, speaking with Fortune in her dark-paneled office in Mumbai. "It was a silent experience in how someone can resist buckling under pressure. She was the role model who helped me build tenacity and willpower."
There's no question that India's overall growth contributes mightily to ICICI's success. In this nation of 1.2 billion, some 20 million computer programmers, nurses, and teachers are joining the middle class each year. Today its ranks have swelled to 150 million, and a McKinsey & Co. study forecasts the numbers will grow to 583 million, or 40% of the population, by 2027. It's virtually an economic law that as folks earn disposable income for the first time, they increase spending on upscale items, including banking services; at the same time, Indians are embracing credit cards. That's a big shift for a culture that traditionally frowned on borrowing. (Make no mistake, Indians are still far more careful about major credit decisions than Americans. They typically make 30% down payments on homes, for example.)
But Kochhar isn't just riding India's coattails. She has put a major emphasis on profitability at ICICI. For the fiscal year ended in March, ICICI earned $1.2 billion, a 28% increase over the previous 12 months. Its return on assets, a crucial measure of profitability, has jumped from less than 1% in 2007 to over 1.3%, compared with less than 1% last year at J.P. Morgan Chase (JPM) and Wells Fargo (WFC). Its market cap of $21 billion trails State Bank of India -- a government-controlled behemoth with three times its assets -- by just $5 billion. "ICICI now ranks with the best-in-class banks for margins and efficiency," says Pathik Gandrota of IDFC, a Mumbai financial services firm. Kamath, Kochhar's predecessor, was one of the first banking executives in India to understand the changing face of the Indian consumer, and in 2000 he tapped protégé Kochhar to head retail banking operations. "The other banks weren't focused on consumer lending, and we were," says Zarin Daruwala, who heads corporate banking at ICICI. "It took them until 2004 to catch on." The economic environment helped immensely. Incomes were rising swiftly, and falling rates made loans increasingly affordable. Between 2001 and 2007, mortgage rates dropped from 18% to 9%. For ICICI, the growth was explosive. In those six years its credit portfolio swelled at an annual pace of 40%. By 2007 its consumer loans made up two-thirds of its total book, vs. 5% six years earlier.
To be sure, ICICI didn't escape the 2008 financial crisis. The bank had been paying higher interest rates than its state-owned competitors by relying on retail and corporate term deposits, a strategy that curbed profits but worked fine as long as corporate term deposits held steady. As the global crisis hit India, big customers started withdrawing term deposits en masse to meet operating expenses. Rates on those wholesale, or "bulk," funds jumped to 13%.
Because of its high cost of funds, ICICI became the biggest player in the highest-rate, and as it turned out, most dangerous part of the market: unsecured lending for credit cards and personal loans for everything from vacations to the kids' tuition. In 2008, just as the rates on deposits spiked, budgets were tightening for India's consumers. The regular raises and bonuses from the boom stopped, and many people were simply carrying too much debt. Pushing the cards and personal loans were the overzealous sales agents hounding customers at every shopping mall. Many Indians packed half-a-dozen credit cards. At the time, credit rating agencies were in their infancy, so banks took the borrowers' word for the state of their finances, practically inviting them to exaggerate their incomes.
Nor could ICICI recoup much on the bad debt: The collection agencies it hired routinely harassed borrowers on the phone and pounded on their doors. The belligerent tactics caused such a rash of bad press that the government threatened to revoke the agencies' licenses. Millions of credit card holders simply stopped paying. At the peak, ICICI suffered losses of 15% on both credit cards and personal loans, making its default rates the worst in the industry.
Kochhar's austerity plan of flat budgets helped keep the bank from plunging into deep losses, but ICICI faced another crisis -- this one an unpredictable trauma that wasn't the bank's fault. ICICI held around $80 million in bonds in Lehman Brothers through a British subsidiary. When Lehman failed in late September of 2008, rumors flew that ICICI was endangered. In southern India, where customers had been burned by the failure of consumer finance companies, thousands of depositors lined up in front of ICICI branches and ATMs to withdraw cash.
Kochhar and her staff handled the crisis with the skill Johnson & Johnson (JNJ) showed in the Tylenol affair. ICICI rented virtually all the armored trucks in India to ship cash to branches that ran dry. Security guards spent nights sitting on big bags of rupees. ICICI opened branches for 24 hours to make sure depositors got their money. If an ATM ran out in one part of a city, the local staff would bus folks to a fully loaded branch or ATM nearby. A statement reassuring depositors from the minister of finance helped greatly. Most of all, it was Kochhar's approach of calmly assuring customers that ICICI had the money, and would do everything possible to help them get it if they wished, that halted the run on the bank in just a few treacherous days.
Kochhar may be unflappable, but she's anything but dull: Every weekend she goes to the INOX, a multiplex in Mumbai, to catch the newest Bollywood film. In the office she shows an uncanny ability to identify a winning plan, then pursue it doggedly. "Kamath was a 'popcorn maker' in terms of ideas -- they were always popping up," says HR chief Ramkumar. "Chanda's specialty is channeling and executing ideas. Most leaders get bored once their ideas are selected. Chanda never gets bored with executing."
These days she's executing a plan of disciplined expansion. On the cost side, she's reduced operating expenses more than 10% by renegotiating leases on hundreds of branches, and even renting apartments for traveling execs, at one-fifth the price of staying at a hotel. ICICI is growing without expanding its workforce of 60,000. She's also substantially lowered funding costs. Since 2009, ICICI has raised the share of its deposits in checking and corporate cash accounts from 29% to 42%. Those funds cost an average of 2%, vs. 9% for the term deposits they replaced. At the same time, she's totally changed the emphasis on lending. ICICI has shrunk its book of credit card and personal loans, and is building its far safer secured lending portfolio of mortgages and car loans. And she's returning to her retail roots, making branches, not the door-to-door sales agents that are common in India, ICICI's main attraction. Kochhar is building 500 branches a year and adding more through acquisitions, including last year's purchase of the Bank of Rajasthan in northern India. The biggest threat to ICICI isn't rival Indian banks but U.S. and British players with big resources and ambitions. Right now, the chief regulator, the Reserve Bank of India, is pondering whether to allow foreign banks to launch subsidiaries that would be as free as domestic banks to open new branches. If that happens, the field will become far more crowded and competitive, potentially dimming ICICI's prospects for growth.
If such competition worries Kochhar, it doesn't show on her face, which wears a seemingly placid expression. "I take all the stress on myself so everyone else can work without stress," she says, expressing a near-spiritual approach to management. She's now pledging to make ICICI one of the top 20 banks in the world within 10 years. That's an incredible ambition that would require multiplying its $90 billion in assets about 15-fold, but ICICI shareholders can at least be assured that Kochhar will attack the goal with her trademark blend of cool and grit.
This article is from the October 17, 2011 issue of Fortune.
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