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Why Chanda Kochhar believes ICICI shares should rise

ICICI Bank  has a huge potential for an improvement in its valuation, as the bank has managed a stellar performance on key metrics in recent times, says the bank’s MD and CEO Chanda Kochhar.

Over the past five years, ICICI shares have under-performed the broader market but Kocchar said she believes fundamantals are in place for valuations to improve.

In an exclusive interaction with CNBC-TV18’s Shereen Bhan, the bank chief talked about key investments that the bank has made in the last 15 years and how the time has come for it to unlock value from many of those.

Excerpts from the interview.

Q: What is your view on the bank’s performance?

A: As a chief executive officer (CEO), my job is to really focus on performance. Valuation is something that the market gives. So, I do not say that I will significantly improve the valuation but, I say that there is potential.

Q: But you believe there are fundamentals.

A: Yes, the fundamentals are all put in place. Today, we are operating at a deposit mix which is 75 percent retail. We are operating at net interest ,argins (NIM) of more than 3.3 percent. We are operating a return on equity (RoE) which is 15 percent. We have the ability to grow our business wherever we want to grow.

For instance, retail we are growing at 20-25 percent and all this at the back of such a healthy capital adequacy that from here on we can grow in the next few years without having to raise more capital which means all the profits that increase just go to increase RoE and not dilute equity and that is really big potential for valuation.

Q: Speaking of potential and speaking of the big levers that could provide this kind of upside to growth and you touched upon that, whether it is the securities business, the insurance business or the AMC business currently account for about 10 percent of your consolidated profits and value. What do you see the role of these businesses over the next 5-10 years?

A: When you look at consolidated profits now close to or a little less than 20 percent of the profits of the group really come from these businesses. So, it is very different again, till about 7 years ago we were only investing money in these businesses, today they are actually contributing back.

But the bigger upside as I said is the fact that the underlying value has actually not been fully valued and we hold 74 percent in a life insurance company that is the largest private sector life insurance company and similarly in general insurance.

So, the upside is huge. I don’t think one should put numbers at any point in time till one takes the step because every time the markets react differently but as I said there is a huge potential to actually unlock some of these investments.

Q: What could be the options that you could look in terms of unlocking value in some of these businesses?

A: Again we are in a position where we have multiple options available to us. So, if the ownership guidelines in insurance change and allow 49 percent foreign holding then we…

Q: [Interrupts] Which likely at the end of the winter session of parliament should be a done deal, from the looks of it at least at this point in time.

A: Yes, so we have the option of either offering a higher shareholding to our existing partners, we could have an option of having other foreign players depending on which way the rules are worked out. We could have an option of just listing and we are eligible for all of these options.

Q: What should be the most preferred option and have you begun conversations with the existing investors or potential investors in the hope that this bill will finally see the light of the day though it has been going back and forth since 1997?

A: No, we have not really begun discussions with any set of investors so to say. Of course with our partners we constantly talk about it because this bill has been talked about for very long but we haven’t decided which step to take because as I said it will all depend on which way the guidelines are working.

Q: So, once the guidelines are out and I am assuming that this will be a done deal because that is the sense that we get from the government from the finance minister. How soon would you be able to move on this front and take one of the multiple options that you are currently exploring forwards?

A: Well, if it is any of the foreign shareholders that is much quicker. If it is listing then it takes a little bit of time because you have got to prepare accounts and so on in that manner, but again if it is listing it actually need not wait for any change in the guidelines. So, what we are doing is we are in a way keeping the company ready to be able to take any step depending on the guidelines, but as I said if it is a foreign shareholding it can happen very fast, if it is listing maybe a couple of quarters.

Q: Once again, of the two which would you prefer or would you explore perhaps if the guidelines do change come the winter session of parliament and of course the foreign direct investment (FDI) ceiling is relaxed that would be the easiest and the most preferred option for you?

A: I would think it is also going to be more fair for our partners to wait till the time the guidelines are out because a guideline that has been talked about for so many years and if we think that it is actually going to happen we should wait and see in what form it happens and then mutually decide as two partners what are the steps.


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