Two months before Covid-19 crippled the world, the top 100 executives from ICICI Bank were at an offsite. The theme was #2025. New MD & CEO Sandeep Bakhshi had been in the corner office for only 15 months and there was a lot of uncertainty around ICICI Bank—India’s second-largest private lender in terms of assets—back then; yet, the brief from the top management of the Mumbai-headquartered bank was clear: What do you think your customers would demand from the bank in the year 2025?
The retreat emphasized the bank’s digital chops—its channels and analytics backbone were fully digital, employees used digital tools extensively and its customers were tech-savvy—but a big question loomed. How do you satisfy customers’ fast-changing needs of instant gratification, contactless banking and zero wait times? The answer was, of course, technology. The Covid-19 lockdown provided a fillip to the bank’s resolve to develop a new architecture for future-proof banking. Today, ICICI Bank uses interoperable digital infrastructure for digital sourcing and accepting documents digitally. Plus, it takes the entire bank to customers via curated products and services, front-end apps, ecosystem hubs, and branches and managers fully equipped with analytics and pre-approved loan limits. There are also digitally available relationship managers—both humans and bots—working together to service customers 24×7. “Technology should not be seen in isolation. It is here to support the bank’s strategy and help the bank to drive business,” says Executive Director Sandeep Batra.
While ICICI Bank is still on its technological transformation journey, it is already reaping the benefits. In the BT-KPMG Best Banks and Fintechs Survey 2021-22, it has emerged as the Bank of the Year—for the third year in a row. “We will continue to make investments in technology, people, distribution, and building our brand,” Bakhshi, 63, had said at a recent investor conference. In the past four years, ICICI Bank—under Bakhshi—has revamped its HR policies, teams, and work culture along the lines of ‘One Bank, One Team.’ This translates into ‘One ROE’ for the shareholders as well as investors. Its ROE or return on equity has jumped from single digits—when Bakhshi joined—to 16.6 percent now. The stock has seen its price multiply 2.6 times in the same period.
Since Bakhshi walked into the corner office, the bank’s net profit has gone up by more than seven times, while the share of safe and secure retail assets has moved from 45.5 percent to 52.9 percent. And its net non-performing assets (NPA) have declined from 4.8 percent to less than 1 percent. The bank has built a strong balance sheet in terms of provisioning ratio and capital adequacy in this period. It has also been able to hold on to its share of low-cost current account and savings account deposits that are at 44.5 percent now after slipping marginally since Bakhshi took over.
Technology, certainly, is a key focus area. ICICI Bank’s spends on tech have surged from 5.6 per cent of its operating expenses three years ago to 9.1 per cent in H1FY23. “The bank is the front runner in tech adaptation, while its peers are playing catch-up,” says Manu Rishi Guptha, Founder & CEO of MRG Capital, a portfolio management firm. But how is ICICI Bank harnessing technology to grow its businesses?
The Digital Engine
A good example is the bank’s MSME business. ICICI Bank is expanding its SME and business banking operations, which make up 4.4 percent and 6.7 percent of its loan book, respectively, as of September 2022, via its business banking mobile app InstaBIZ. Launched in 2016 as iBizz, the app provides solutions for the self-employed, SMEs and the merchant ecosystem. It also provides secured working capital, overdraft on bank fixed deposits, etc. The bank has revamped the InstaBIZ app over the years, and its investment is paying rich dividends—the app saw 195,000 registrations from non-ICICI Bank account holders by September 30, 2022. In fact, ICICI Bank has won the Best Bank in Innovation award from the jury for the InstaBIZ initiative, which has over 1.3 million active users.
ICICI Bank’s retail banking vertical is also firing on all cylinders, powered by tech. Its mortgage lending business accounts for 63 percent of its retail loans, with the total book being Rs 3.18 lakh crore. In November 2022, the bank completely digitized the mortgage lending process. ‘iLens’, its state-of-the-art platform, enables seamless on-boarding of customers with minimum data punching, digital credit assessment by tapping into various data sources through API integrations, and video KYC for verification. In addition, it includes a built-in customer interface that allows borrowers to track the status of their loan applications in real time, as well as digitally complete additional paperwork and fee payments. What’s more, even those who have never had an account with ICICI Bank can make use of iLens.
ICICI Bank says iLens will soon be used for auto and personal loans. Incidentally, auto loans, with a book of around Rs 72,618 crore, make up 14.3 percent of the retail loan mix. In addition, iMobile Pay, the bank’s front-end mobile app that has 330 features, is also attracting non-bank customers. ICICI Bank mines this data to cross-sell products. Today, payment services, accounts and cards services are the top use-cases for the bank’s customers, while non-bank customers use the app for UPI, payment services, etc. Till December 2022, 8.7 million non-ICICI Bank customers had registered and explored the iMobile Pay app.
Meanwhile, personal loans, the second-largest contributor to the retail business with a share of 14.7 percent and a loan book of Rs 74,335 crore, is growing at a fast clip. And credit cards—with a share of 6.6 percent of its retail loans mix and a card base of 10 million—is expanding by using a co-branded model with retail giant Amazon’s Amazon Pay and travel portal MakeMyTrip.
Another thrust area is large corporations. The bank offers more than 20 industry-specific digital solutions that are tailored to the needs of corporate clients. This includes digital banking solutions, channel partners, dealers, vendors, employees; and curated services for promoters and the senior management. It also offers 360-degree coverage for corporations by offering solutions like supply chain management, export-related requirements, treasury management, etc.
ICICI Bank expects its tech spends to remain high in the near future. “You can’t survive in the current digital phase without technology,” says Batra. What else is in store? “We are working on lightening [the load of] the core banking solution (CBS),” he says. For instance, if a customer wants a bank statement, there will be no need for it to be routed through the CBS. Batra adds that the next-generation delivery model demands more real-time intelligence about the customer.
“We are shifting from product-centric IT architecture to a customer-centric one. At the back-end, we are working towards a single view of a consumer across financial relationships to execute real-time data analytics,” he explains. The other piece is start-ups. The bank is following a partnership model by investing in start-ups; it has invested in 19 start-ups so far.
In the past, ICICI Bank had seen higher NPAs due to its exposure to corporate loans; but the mix is skewed towards retail now. “The retail loan book is secured as it is based on proprietary data, in addition to bureau checks and well-priced in relation to risk,” says Jitendra Upadhyay, Senior Equity Analyst at Bonanza Portfolio Management, which offers portfolio management services. Under retail, the unsecured loans are steadily rising. “The higher diversification within retail and strong underwriting ensure that delinquencies are kept to a minimum,” says Ajit Kabi, Banking Analyst at LKP Securities, a financial services firm.
Investors are making the most of ICICI Bank’s turnaround. Financial services firm Elara Securities says that even now, of all lenders, ICICI Bank has the highest profitability potential to sustain steady earnings momentum in the case of exigencies. “The bank is still under a growth phase…We believe there is still scope for higher valuation,” says Kabi of LKP Securities. That is certainly music to investors’ ears.