K.V. KAMATH says that his next step will be to completely re-engineer the organisation’s processes

When it comes to the Indian fina-ncial sector, ICICI bank, and esp-ecially K.V. Kamath, have been at the forefront of defining corporate governance standards which have spread to a variety of sectors. The 17-member board of directors (which includes 12 independents) are a stellar cast - like S.B. Mathur, chairman, LIC, and steel baron L.N. Mittal. N.R. Narayanamurthy and Ratan Tata were previous members. The members of the board governance and remuneration committee and the audit committee are independent.

With such strong past directors, much of the heavy lifting of basic governance standards has already been put in. "Many of the practices that have become commonplace in the company today, such as independent directors, separation of functions and establishment of board committees were put in earlier," points out chief executive Kamath. "Our experience in adopting governance standards has been extremely positive. In the last year or so, there have been few incremental steps that have been taken in terms of governance. The caveat being the extra provisions that have had to be put in place because of the Sarbanes-Oxley Act, which applies to us, since we are listed in the US."

But that doesn't mean that Kamath's work is done. ICICI Bank may have a basic governance structure in place, but its faces big operational challenges. When they started out in 1995, India's private sector banks defined themselves with customer service. But it's one thing to offer good customer service when you have just a few hundred thousand customers, it's quite another to maintain the same levels when you have almost ten million customers, as ICICI Bank has currently. And that is the biggest challenge that it faces.

There are other challenges too. Because of the enormous growth in ICICI Bank's business (from assets of Rs 73,989 crore in 2001 to 140,913 crore in 2004), the issues of controlling the risks of such growth have come to the forefront. And for the past few years, most banks have propped up their bottomlines by the profits they generated from government securities. As interest rates began to rise earlier this year, those profits vanished or at the very least, they started to shrink. So they have to rely on their core business to generate that growth.

Kamath speaks of other hurdles: "The other issue is one of technology migration. Our customer base is currently equal to that of the three Singapore banks. Scaling up the technology to handle such large volumes is the core challenge we face." Another problem, bad loans, has shown improve-ment. As a percentage of net loans, net restructured loans of ICICI Bank were 16.7 per cent at year-end fiscal 2004 compared to 19.5 per cent at year-end fiscal 2003, and the total of other impaired loans were 3.9 per cent at year-end fiscal 2004 compared to 8.8 per cent at year-end fiscal 2003.

It has now begun to implement the Japanese '5-S' system of managing quality. "The aim is to completely re-engineer the processes in the organisation," says Kamath. He says that ICICI
Bank is about a year from reaching level five.