Consumer Banking in India : The ICICI Experience

June 17, 2008

Contents
India: Consumer Banking Landscape
ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings for International Banking

Changing Consumer Demographics....

 Increasingly

affluent, with a bulging

middle class
 The

youngest population in the world

of population below 35 years of age

Consumer Demographic s of India

 65%

 Increasing  Higher

literacy levels

adaptability to technology is a continuing trend

 Urbanisation  Increasing

"consumption" mindset in

India

driven by a growing consuming class

2000: Per capita GDP US$ 500 2007: Per capita GDP US$ 1,000 2015: Per capita GDP US$ 1,500

Consuming class population estimated at about 260 mn1

35% growth

Consuming class population estimated at about 350 mn1

70% growth

Consuming class population estimated at about 600 mn1

From per capita GDP of US$ 1,000 to US$ 1,500: consuming population to grow manifold

1. Estimates based on NCAER data. Consuming class comprises middle and high income households

with an upward migration of incomes..

(households in million)

FY1996 Middle income High income

Middle income High income : :

FY2002 50 3

FY2010 Estimate 98 10

33 1

US$ 2,100 -11,670 per household p.a. > US$ 11,670 per household p.a.

Rising affluence and growth of the consuming class  NCAER data for top 24 cities in India shows migration to higher income levels growing at over 40% per annum

..and low market penetration..

Life Insurance Penetration
ife ins rance penetration &per capita (2006
6000 14.0%

Mutual Funds Penetration

M utual Funds as a % of GD 60% 50% 40% 30% 20% 10% 0% China Japan HK Korea India
Source McKinsey 12.0%

13.1%
5000 4000 Insurance per capita (USD) 3000 2000 1000 0
UK Japan Hong Kong US Singapore Korea M alaysia

10 8.3% 2 29

9.2% 7.9% 2 6 4.0% 161 1 90 19 3

China

10.0% Insurance penetration 8.0%

5.4% 4.1% 1 0 3.2% 1.7%

2.0% 6.0% 4.0%

21%

19%

19% 8%

4%

33
0.0%
India

Source: Swiss Re

Mortgages as a % of GDP

Retail Credit / GDP at 13% as compared to 60%* in Malaysia & 90%* in the US 113 mn people are likely to retire by 2016


Mortgage Market Penetration

80%
62%

60% 40% 20% 0% USA

49% 37% 38%

17% 7%

Need for retirement planning now

HK Europe Sing

China India

Source McKinsey

* At the end of 2005, Source IMF

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..offering banks a huge opportunity..

125. 00 100. 00 75. 00 50. 00 25. 00 2005 Ho u sin g Lo an s 2006 Cred it Card Au to Lo an s 2007 Oth ers

US$ bn 30% 40% 62 88

114

Robust growth in consumer credit in India  Across product segments Growth to moderate to 12-15% due to the large base effect

Source: Reserve Bank of India

7

..and resultant Economic growth

Rising consumption Rising income Multiplier effect Rising production

GDP growth India on a high growth trajectory with an average GDP growth rate of 8.7% over the last four years  Expected growth rate of 8-8.5% during FY 09


Contents
India: Consumer Banking Landscape

ICICI Bank: Consumer Finance Experience

Risk Management in Consumer Finance Learnings for International Banking

Retail finance: the ICICI experience

ICICI Limited : 1955 to 1999


One of Indias leading Financial Institutions



Single Product - Focused on project finance

Well recognised brand in the corporate segment No presence in the consumer segment

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Key challenges at the time of entry into consumer finance

 

Well entrenched competition Change in mindset required



Focus on decentralisation & empowerment Finding the right way to approach the market was a key challenge Low relevance for intermediaries and vendors

No experience in consumer finance



Lack of scale


 

High cost of funds Creating a retail organisation

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ICICI Banks consumer finance strategy

S t r o n g B r a n d
Multi product offerings Sound selling strategy Multi channel offerings Efficient operations The one stop financial shop Product differentiation Leveraging corporate & channel relationships Focus on cross selling Technology led delivery of products

Aspirations
Pan-India provider of full suite of retail products Market leadership & Scale

Superior service quality at optimum cost

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Establishing new paradigm in consumer credit distribution

Doorstep delivery
Agents taking product to the customer  Availability of credit at the customers home or office
 

Point-of-sale delivery
Strong channel partner network  Manufacturers, dealers, realtors  Availability of credit at point-of-sale of product

Enhanced customer convenience the key selling proposition

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and achieving economies of scale.

Particulars Before 1995 Now
complex retail & corporate finance products >1,300 ~4,000 >40,000 31 Mn 18.3 Mn

Product Portfolio Branches/ Offices ATMs Employee Base Customer Base Internet customers

Single product

6 1,000 3,000 -

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by leveraging technology channels

Channel Branches2 ATMs & POS terminals Internet Call centre & mobile banking Usage 20001
94% 3% 2% 1%

Usage 20081,2
7% 37% 21% 30%

ICICIDirect The Online trading platform caters to more than 1.4 million customers handling about 3,50,000 trades a day

1. 2.
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For savings accounts. Excluding 5% of transactions processed at centralised operations centres

 with a focus on cross-sell

Deposits Pvt. banking Credit card Debit cards Bonds Insurance Loans Mutual funds

Customer service & sales force automation

Campaign management solutions

Live data warehouse

Walk in customers

Private banking customers

Salary account customers

Corporate banking customers

To achieve market leadership in consumer finance in India

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The ICICI Group today

Largest private sector bank in India Largest consumer credit provider Largest private sector life insurer Largest private sector general insurer Leading asset management company Largest private equity & venture fund Leading securities and broking company
Consolidated banking assets of US$121 bn; market cap of US$ 20bn
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Contents
India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience

Risk Management in Consumer Finance

Learnings for International Banking

18

Risk Management Practices



Robust Credit Assessment & Practices

Customer identification (KYC) a regulatory requirement  Stringent credit practices for customer assessment

     

Income documents used to assess ability to pay Fixed Obligation to Income Ratio as % of monthly salary a key parameter Loan to Value ratios to ensure customer equity Bureau checks - No lending to people with bad credit history Validation of information by physical and telephonic checks Upfront communication of Most Important Terms i.e. interest rate, tenure, etc..

19

Risk Management Practices (Contd..)



Strong Credit Policies  Non existence of negative amortization products / interest only products  Portfolio controls using risk analytics  Collection processes & policies Focus on Customer Service  Compliance with Banking Codes and Standards Board of India (BCSBI)  Alternative mechanisms for dispute resolution DISHA  Customer education on Safe Banking Regulatory requirements  Risk weights on most retail assets higher than Basel II requirements High requirements for general provisions  General provisions on unsecured loans at 2%

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Contents
India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance

Learnings for International Banking

21

International Opportunity : Key Drivers



Leveraging the India base

Leveraging Indian skill and cost advantages for global competitiveness Seeking ethnic familiarity and India linkage, but with internationallybenchmarked products and services Use of technology to support business growth at minimum incremental cost Agnostic approach: no mainframes Substantially lower technology costs than global banks

Leveraging Technology Capital

 

22

ICICI Bank: Low cost technology as competitive advantage

I spend pe acco nt

ICICI Bank
ICICI Bank spending as

Indian ave age

nits pe acco nt

ope top a tile

sia aci ic ave age

So ce: Mckinsey
23

Leveraging Technology in UK & Canada



Direct banking model: Easy-to-use, completely online banking account

Strategy: Leveraging the experience of having executed a successful internet banking strategy in India
 

Account opening forms processed in India All treasury-related back-office operations are done out of Mumbai

Cost effective and scaleable customer acquisition and servicing model



Raised US$ 7.4 bn of retail deposits

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ICICI Bank Remittance services



Inward remittances facilities into India from over 40 countries worldwide

 

Leveraging state of art technology Wide product with low cost and innovative online as well as offline channels ICICI Bank pioneered online money transfers through Money2India.com Instant transfer products launched from ICICI Bank overseas branches/ subsidiaries 24X7 customer service accessibility through email and phone Plans to extend remittance expertise in over 30 non-India remittance corridors

 

ICICI Bank awarded the Asian Banker Award for Excellence in Remittance business in Asia Pacific region

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Our global presence

Canada
USA

UK Belgium

Russia China Hong Kong

Germany Bahrain

Bangladesh Qatar Malaysia UAE Thailand Mumbai Singapore Sri Lanka Indonesia

South Africa

Subsidiary

Representative Office

Overseas Branch

Largest international balance sheet among Indian banks

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In summary


Consumer finance opportunity in India strong

  

Strong consumption cycle Growing consuming class Rising incomes

ICICI Bank identified retail banking as an opportunity for growth

  

Focus on customer convenience Developing and leveraging technology channels Achieved market leadership in consumer finance in India Leveraging technology for direct banking services Replicating customer orientation in NRI services and remittance business

International banking as the next growth horizon

 

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Thank you

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