Come May 1, Chanda Kochhar will step into the big shoes of K V Kamath as managing director and CEO of ICICI Bank [Get Quote], India's largest private sector lender. Kamath, meanwhile, has been appointed non-executive chairman, taking over from N Vaghul. Kochhar, 47, who has been appointed CEO for five years, takes over at a time when the banking industry faces unique challenges tied to the global financial crisis.

Kochhar had a busy day addressing a press conference and meeting colleagues and friends calling to congratulate her on her new assignment. She took time off to speak to Anirudh Laskar on how life will change and the bank's strategy going forward.

Excerpts:

Do you see life changing?

I think it will to some extent, because this is an even bigger responsibility. But my family is now quite used to seeing me this way. They are quite supportive. So I would be comfortable managing those work schedules.

You are taking over at a time when the environment is challenging.

One should not take a challenge as a scare. Leadership qualities are assessed during a challenging environment.

What do you see as the main challenges?

As a bank, we are very clear that we keep our capabilities intact across corporate and retail segments. The way the economy is evolving now, the momentum in some segments may start faster than the others. It is difficult to predict which one would start first. But the driving factors will really be the correction in interest rates. Because once interest rates correct, consumption and borrowings by individuals will start. Similarly, once companies go through the adjustments on their inventory and working capital cycles, the investment cycle will start. So, we will not push our growth ahead of these cycles; we will watch as these cycles move.

Which sectors do you expect to see a faster recovery?

The volatility in commodities, especially in certain metals, has been more than some others. For instance, prices of zinc and aluminium have not moved as much as steel. So, the pressure is a little different in certain sectors. The improvement in these sectors will depend on first, how the volatility has affected companies. Two, it not only depends on industry or the sector, but the position of the company engaged in that specific sector. This is because companies with very low levels of debt have the capability to start investing when the cycle starts. But highly leveraged companies have to conserve cash to keep servicing their debt obligations. For them, the cycle will start later. So, the speed of improvement is going to very sector and company-specific.

HDFC Bank [Get Quote] has the largest distribution network in India, and growing fast. Given that you have slowed down your growth plans, do you see competition building up for the number one slot?

Their branch network and our branch network are currently at around 1,400. We have a licence to open another 580 branches. I don't think I would change our pace just because of what our competitors are doing. Our pace will depend on what we think is the right strategy, what we think are the right credit parameters, and what we think are the right interest rates. Positioning depends on that. We are much, much larger than any other private sector bank today, and I don't really see the position changing.

Overseas expansion has been integral to ICICI Bank's strategy. How do you intend to handle that in this environment?

The growth rate in the overseas business, too, has been calibrated. We were growing at 70-80 per cent over the past few years, but it is going to be much lower this year. We have not gone to any new geography this year, and are focusing on consolidating our businesses in the geographies in which we are present. We are focusing on raising retail deposits in those locations and have been expanding our franchises in the UK and Canada in a big way to ensure that. Our overseas operations will continue to contribute around 25 per cent to revenues and profits even this year.

You said bulk deposits you raised in the past are impacting your cost of capital. So, is the past strategy slowing you down now?

That growth rate was relevant in that environment, when consumer spends and borrowings were growing at that rate, and it was a falling interest rate scenario. In the current environment, customers themselves are spending less and fewer customers are able to afford loans because of high interest rates. So, our rate of growth had to be calibrated. The current calibration is more because of the environment and not because the past was wrong.

Do you see yourself back to that high-growth rate phase six to nine months down the line?

The bank will come back to the high-growth rate phase. But when and how fast it will happen depends on how the environment evolves and how the momentum picks up. It will also depend on how our deposit base moves up because we want to use the time to increase retail deposits and reduce wholesale deposits. When should we expect a cut in lending rates and will it be a 50-basis point reduction? Yes, it will definitely be at least 50 basis points cut. I would hope that systemically the rates correct even more, so that it gives every bank the opportunity to correct it even more. It will only be over a few months before we see some cut in rates.

A few months would mean some time in February or March?

I think, yes. Is it a conscious policy not to cut rates because you do not want to grow your business by more than 5 to 10 per cent? No, it is not because we do not want to grow. The interest rates are not based on our growth aspirations, but on our cost of funds. The cost of deposits has not yet come down in the system. Wholesale deposit rates have started correcting only over the last two weeks, so it has not really had any impact on the bank's cost of deposits.