In the February 27 edition, India Knowledge at Wharton published an interview that Michael Useem, director of the Center for Leadership and Change Management at Wharton, conducted with K. V. Kamath, CEO of ICICI, India’s largest private bank. In this companion interview, Useem speaks with Chanda Kochhar, who will replace Kamath as ICICI’s CEO on May 1. Both conversations took place during the recent World Economic Forum meeting in Davos, Switzerland. Below is an edited transcript of that interview.

(Kochhar is a keynote speaker at the Wharton India Economic Forum in Philadelphia on March 21.)

Michael Useem: As you take over ICICI Bank on May 1, in the middle of a worldwide financial storm, what will be your priorities?

Chanda Kochhar: My priorities are going to be to play a very balanced role in the sense that I have to keep an eye on the challenges in the environment. At the same time, I have to keep an eye on the optimism that is there for India. So I have to take, for some time, smaller steps so that the bank moves through the challenging times, but at the same time keep some of our capabilities and abilities ready. Because I think the opportunity for India will come back much faster than it comes back for other parts of the world.

Useem: One of the mantras at the annual World Economic Forum this year was to look for opportunity in crisis. Do you see any special opportunities for the bank in this crisis?

Kochhar: Given what is happening to the global financial services sector, Indian banks have to play a much bigger role in funding the growth of India. Let’s not forget, we need to create infrastructure in India. In that sense, it’s an opportunity. It’s upon us now to gear ourselves up to make the most of that opportunity.

Useem: You played a critical role in building up ICICI’s retail services. Last time I looked, retail was something like 60% of your revenue — so it’s a big piece of what the bank has become. Do you have plans or thoughts about rebalancing the bank’s priorities? In particular, do you see retail continuing to play a 60% to 65% role, or are you looking to add in, maybe strengthen, other services?

Kochhar: Some rebalancing will indeed happen. What’s important is that we see each year what the opportunities are, and make use of the opportunity. By the end of the year, you’ll get a resultant mix of what different businesses contribute to the portfolio.

In the past five to seven years, the growth of India has moved on the basis of consumption growth. That is growing the business of banks in India. The next couple of years, funding projects, funding infrastructure, funding corporate could be the next growth opportunity. That will automatically lead to some amount of rebalancing in the portfolio.

Useem: Looking back on your experience in building retail, was there a secret to your success?

Kochhar: I think the secret of success was combining, one, a very big strategic vision and backing it up with a huge amount of institutional capabilities. Successful strategic vision lay in the fact that we visualized the retail business to be much bigger, ahead of what others thought it to be. So it was, for the country, a very small business. But the end result is that this is going to be a big growth opportunity. So we planned for a large network, for large back-office operations, because we were planning for what the business was going to be five years hence, which many people don’t emphasize.

Useem: Observers on the topic of leadership often note that to lead well you need a vision, you need a strategy. But equally, you need a way to make it happen. Call that execution. Could you explain how you executed around building the bank in retail? What were the two or three most critical aspects of the platform?

Kochhar: I think one aspect was that we changed the distribution format in India. We could never have competed with banks that have a large branch network. So we really have to bring to India forms of distribution on the basis of technology, whether it’s ATMs, or Internet banking, or call centers and so on. So we appointed a lot of agents who could take the products to the customers. We had our technology channels, which could reach out to the customers so that the dependence on branches became less so.

Second, we relied on user technology. Because we said, again, this is something that we can create as our core competitive strength, which the incumbents may or may not have. We created scale by use of technology, both in the front-end channels and in our back-end operations, and made sure that the cost of technology was minimal.

The third focus was on risk management. As we were growing retail, and it was a huge growth phase, it was very important to keep our quality under control. Therefore, it was not just distribution, not just back-office operations, but also the risk-management practices. And these we learned together, supported by technology.

Useem: The record of the bank and the record of your own career are to take on one new area, one new kind of technology, after another. You’ve gone into areas where you had no experience. Tell us how you felt about entering into an area for which you had no experience.

Kochhar: Well, it was a very challenging decision, even in my mind, especially in the area of setting up the retail business for the bank. Because this was about ten years ago. So we had been in investment or merchant banking for 15 years, and you don’t find people shifting from investment banking to retail banking very easily. It was a new business for me. It was also a new business for ICICI Bank, because ICICI, until then, had not known about retail. And in a way, it was at the very recent stage for India itself, because retail was very small for the country.

So I think I saw in it, after a little bit of building, an opportunity to really expand my horizons and create a perspective which then made me a total banker. Of course it meant that I learned everything from scratch. It also meant that there was a vast experience in the country to learn from. So one was learning on the basis of what one was implementing. So what I had to do was to hire a team that knew more about the retail business than I did. Though I was their leader, I had to have no ego, but to accept that I was learning from them, while offering my perspective. We put together the domain knowledge of the new retail team with my leadership perspective and rolled out the business. The thought was to keep planning and make our strategies, rather than saying, “Oh, what has somebody else done?” Nobody else had done what we were attempting to do.

Useem: Bank stocks all over the world have had a tough quarter. Many U.S. investment banks have dropped into the single digits in terms of the value of the shares. ICICI itself has lost significant market value. Part of this, worldwide, is the loss of confidence in banks by the investing public. What are your thoughts about restoring investor confidence in ICICI and financial services more generally? What will it take?

Kochhar: I think it will take two things. One, we, as bankers, have to continue to focus on performance, because finally, it will be the performance that will speak. And there is no shortcut to that. Second, the communication with your stakeholders has to be even more frequent, more clear, more transparent, more detailed.

Useem: How will you get in touch with your various stakeholders, including, of course, your employees?

Kochhar: Sometimes you use multiple channels for the same set of stakeholders. As far as employees are concerned, clearly I like to communicate with them, since we are more than 40,000 people. I like to communicate either through e-mail or through video conferencing, which we do very often, and stream out videos and interviews. But more than that, I believe in traveling to my branches. We have more than 1,400 branches in India, and we are present in 18 countries outside of India. And I believe going to the branches, chatting with the employees who are running the branches on a day-to-day basis, because it keeps me close in contact with what’s happening at the bank at the ground level, and, second, makes them feel that here is a person who wants to understand clearly what’s happening.

As far as investors and customers are concerned, I make it a point to answer each and every piece of mail that comes to me. In today’s environment, no customer hesitates to write to the CEO if they think they have to communicate something. So I make it a point to reply to each one of them. For every one of them I may not have an answer right away, because if they have an issue, that issue has to be looked into. But at least the response was for me to say that we will look into it. And then I have my office look at these issues or questions or complaints, or whatever it is, and then get back to them. So I think they feel that there’s at least some responsiveness.

As far as investors are concerned, in today’s scenario, any movement or any part or any humor or any question or any news puts questions in the minds of investors. Again, whether it’s a phone call or whether it’s e-mail, you should be prepared to keep clarifying to them. It’s no use getting irritated by why they have so many questions. I think when the environment is so volatile, they do have questions. So it’s important to be responsive and tell them clearly what the situation is.

As far as the regulator is concerned, the most important message should be, in environments like this: We believe in abiding by the rules, not just in terms of the letter, but also in terms of spirit. Because you’re in an environment like this, I think the regulators want to make sure that the banks are implementing their strategies as they should be. And that’s the confidence that you need to build with the regulator. And that comes, of course, in terms of contact. You have to be in touch with them.

Useem: Let me conjure up three moments in which you are communicating with your stakeholders. I’d like us to imagine that you are now, let’s say, in New Delhi, and you’re talking with somebody in the regulatory world of the nation’s capital, and the regulator says, “We have confidence in you, but we do worry, after the failures at Satyam, about the governance of companies. So can we be confident,” the regulator might say, “that you have the right board in place to work with you to ensure that your strategy is being pursued in the best possible way?” How you would pick up on that kind of question?

Kochhar: I suppose one way is to tell the regulator that even before the regulator tells us. We ought to have looked internally. And if we have done that as an organization, which we, indeed, have, then I have answers to give to the regulator. It’s always important for an organization to be self-regulated, in any case.

You should have some of these governance practices and other practices coming out on your own, because beyond that point, laws have been made. And every time, a regulator cannot be like a policeman to just start enforcing it. You have to understand that it’s in your interest to follow that. And therefore, I think many of these things you ought to have done yourself before even the regulator asks you to do it.

Useem: Along the same lines, you’re now meeting in New Delhi with an international investor, maybe in Mumbai, maybe an investment manager from Barclays, or an investment manager from Fidelity or Vanguard in the U.S. They say, “Ms Kochhar, when you take over on May 1, should we come into your stock? Should we hold it? Are you a good, long-term investment for us?”

Kochhar: Oh, I say that it’s a very good long-term investment for you. I’d actually buy more. Because look at the valuations in India today. I think the valuations have come up substantially. If you look at the multiples, whether it’s in terms of price to earnings, whether it’s in terms of multiples to book value, our bank’s stock is available at a very good price. And since there is a long-term story for India, therefore there’s a long-term story for ICICI Bank. It’s a good time not just to hold, but to buy.

Useem: Tell us briefly the long-term story for India and ICICI’s place in it.

Kochhar: The long-term story for India comes back to the two basics that drive India’s growth. One is consumption, and the second is investment. India has such a large young population base that the consumption growth is going to come back. I think the important factor for bringing that back will be the correction in interest rates and correction in inflation. Inflation has already corrected. I think over three to four months, interest rates should correct substantially, which will then increase borrowing power. So, over a period, this story has to come back.

The other is investment. As I said, India needs infrastructure. Currently, there’s a fault in this. Indian companies have put their new projects on hold, because they’re grappling through their own inventory buildups. But gradually, as domestic consumption starts, and as capacity utilizations start improving for the companies, they will find some stability. And after that, they will start thinking of new projects. I’m not saying this will happen in two months or three months. But gradually, as stability comes back, then the confidence of getting into the investment mode will come back. So, these are the two parts of the sum. ICICI Bank [has] a certain role to play in both these parts. We have a very strong retail franchise. As consumption comes back, and as interest rates come down and loans become more affordable, we will go back to making the retail franchise grow. And as the investments come back — we have been very large infrastructure financiers in the country, so we will start playing that role.

Useem: I’m going to focus now on your own ascent to the position of chief executive. Of all the challenges that you face personally, that the bank faces, that the company faces now, what worries you most?

Kochhar: I won’t really [consider] anything as a worry. Currently, the priority for me, for the bank, would be risk containment, property conservation and liquidity management…. We have to be agile enough as a bank to change course to this mode of operation [during these times]. In India, we have all been used to very fast rates of growth. And therefore, to change to this mode for a certain point in time requires a huge mindset shift. But I think, as I said right in the beginning, that we have to recognize that currently, for some time, for a bank to remain sound, it’s important to focus on liquidity management, property conservation and risk management.

But at the same time, I will not get so bogged down that I make everybody feel that the world has come to an end. No, it’s not come to an end. Actually, for India, as I said, things will start coming back much faster than they [will] come back to the rest of the world. And we have to keep our retail franchise, our corporate investment banking franchise alive with energy during that period, so that when the opportunity comes, we’re [ready to go] back on the road.

Useem: Are you taking any specific steps to anticipate becoming chief executive? Are you initiating, for example, conversations with top people in the company?

Kochhar: One important thing is a huge interaction with the regulators, to understand their mindset, how they think the environment [is], and therefore, how they would want to see the banks in this environment — and to [let them know] that we are here as a responsible bank.

Second is a huge amount of contact with the employees — as I said, not just the senior management team, but even at the operating level — to give them a chance to come forward. We are sitting on a set of opportunities. And you may not see that opportunity arising today, tomorrow [without doing this].

On the other hand, we need to keep the investors comforted [in terms of] whatever questions they have. Because, again, they are [experiencing] a time when they felt that this bank was in a huge growth pattern, and now they are not seeing growth. So, again, to tell them that while a balancing act is currently required, as the growth comes back in the economy, [they’ll] see this bank bouncing back faster than most others.

I’m also having detailed meetings with a lot of the CEOs of the global banks, especially to learn from them what should be done as a CEO and what should not be done as a CEO. I’ve had a few [of these meetings], and I plan to have a few more before May 1. I must tell you, though, I’m very overwhelmed by the kind of response I’m getting from them. These have been big global CEOs running big global banks at certain points in time, either currently or recently. And they’re so happy to share their experiences. And some of them, of course, turn around and say, “Maybe we can tell you more what not to do than what to do.” And I think there’s a lot to learn from them in terms of what to do and what not to do. I’m finding that is a very valuable experience.

Useem: I have one final question. ICICI chief executives often hold that position for a number of years. The current CEO, Mr. Kamath, has served for more than a decade. The day will come when you step down as well. And thinking ahead to that day, what would you like to be, in a sense, your legacy?

Kochhar: Of course, I want to have a long time ahead of me. But what I would like to do, whenever I look back, is to [ask myself], “Do I have the sense of satisfaction that, during my tenure, I was able to make an impact on not just the organization, but all the banking sector in India? And, I would say, on the banking sector globally?”

Because, in a way, this is very important timing. It may be challenging timing. But, as I said, one has to find an opportunity in every challenge. And the opportunity that I’m seeing is that, currently, [regardless of] whatever is happening globally, India is one of the few countries that’s growing fast, and one of the fastest-growing countries. So, this is a time when the world is looking at India, and India’s growth.

Useem: It is.

Kochhar: And ICICI Bank is a very important bank. So I have a big role to play in that sense — to say, “Can I make an impact in shaping India’s growth, and therefore, in a way, impacting the world economy?” And, “Did I play that role, one, in a proactive manner, and two, in a responsible manner?”

Useem: You’re about to take on a very large leadership role. I want to close by saying best wishes. Thank you very much.

Kochhar: Thank you.