Chanda Kochhar Slides

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June 17, 2008

Consumer Banking in India:The ICICI Experience


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Contents

ICICI Bank: Consumer Finance Experience

India: Consumer Banking Landscape

Risk Management in Consumer Finance

Learnings for International Banking


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Changing Consumer Demographics....

Increasingly affluent, with a bulgingmiddle class

The youngest population in the world

65% of population below 35 years of age

Increasing literacy levels

Higher adaptability to technology

Urbanisation is a continuing trend

Increasing "consumption" mindset inIndia

ConsumerDemographic

s of India


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driven by a growing consuming

class

1. Est imates based on NCAER data. Cons um ing

c lass com pr ises m idd le and high incom ehouseholds

Consumingclass

populationestimated atabout 260 mn1

Consumingclass

populationestimated at

about 350 mn1

2000: Per capitaGDP US$ 500

2007: Per capitaGDP US$ 1,000

35%

growth

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

Consumingclass population

estimated atabout 600 mn1

2015: Per capitaGDP US$ 1,500

70%

growth


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with an upward migration of

incomes..

FY1996 FY2002

Middle income

High income

33 50

1 3

Rising affluence and growth of the consuming class

NCAER data for top 24 cities in India showsmigration to higher income levels growing at over40% per annum

FY2010

Estimate

98

10

(households in million)

Middle inc ome : US$ 2,100 -11,670 per household p.a.

High income : > US$ 11,670 per household p.a.


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..and low market penetration..

Retail Credit / GDP at 13% ascompared to 60%* in Malaysia& 90%* in the US

113 mn people are likely toretire by 2016

Need for retirement planningnow

Life insurance penetration & per capita (2006)

33

1,617

34189

1,480

1,790

2,4562,829

5,140

13.1%

4.1%

8.3%

4.0%

9.2%

7.9%

3.2%

1.7%

5.4%

0

1000

2000

3000

4000

5000

6000

UK Jap an H ong Ko ng U S Sing ap ore Ko rea M alaysi a Chi na Ind ia

Insurance

percapita

(US

D)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Insurance

penetration

Source: Swiss Re

Life Insurance Penetration Mutual Funds Penetration

4%

21% 19% 19%

8%

0%

10%

20%

30%

40%

50%

60%

China Japan HK Korea India

MutualFundsasa%of

GDP

Source McKinsey

62%

49%

37%

7%

17%

38%

0%

20%

40%

60%

80%

USA HK Eur op e Sing China Ind ia

Mortgagesas

a%o

fGD

Mortgage Market Penetration

Source McKinsey

* At th e end o f 2005, Sour ce IMF


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-

25.00

50.00

75.00

100.00

125.00

2005 2006 2007

Housing Loans Credit Card Auto Loans Others

..offering banks a huge opportunity..

Robust growth in consumer credit in India

Across product segments

Growth to moderate to 12-15% due to the large base effect

62

88

114

40%

30%

Source: Reserve Bank of India

US$ bn


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..and resultant Economic growth

Risingconsumption

Risingincome

Risingproduction

Multiplier

effect

GDP growth

India on a high growth trajectory with an averageGDP growth rate of 8.7% over the last four years

Expected growth rate of 8-8.5% during FY 09


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Contents






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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 intoconsumer finance

Well entrenched competition Change in mindset required

Focus on decentralisation & empowerment

No experience in consumer finance

Finding the right way to approach the market was a

key challenge

Lack of scale

Low relevance for intermediaries and vendors

High cost of funds

Creating a retail organisation


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ICICI Banks consumer finance strategy

Soundselling

strategy

Multiproductofferings

Multichannelofferings

Pan-Indiaprovider offull suite of

retail

products

Efficientoperations

S

tron

g

Br

and

Leveraging corporate& channelrelationships

Focus on cross selling

The one stop financialshop

Product differentiation

Technology leddelivery of products

Superior servicequality at optimumcost

Aspirations

Marketleadership

&

Scale


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Establishing new paradigm in consumercredit distribution

Doorstep delivery

Agents taking productto the customer

Availability of credit atthe customers home or

office

Point-of-sale delivery

Strong channel partnernetwork

Manufacturers,dealers, realtors

Availability of credit atpoint-of-sale of product

Enhanced customer convenience the key selling

proposition


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Before 1995Particulars

6Branches/ Offices

3,000Customer Base

Single productProduct Portfolio

ATMs -

and achieving economies of scale.

Employee Base 1,000

Internet customers -

Now

>1,300

31 Mn

complex retail &corporate finance

products

~4,000

>40,000

18.3 Mn


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Usage

20081,2

7%Branches2

Usage

20001

94%

37%ATMs & POS

terminals 3%

21%Internet 2%

30%Call centre &

mobile banking 1%

Channel

1. Fo r s av in gs ac co unts .

2. Exc lud ing 5% o f t ransac ti ons p rocessed at

centralised o perations centres

by leveraging technology channels

ICICIDirect The Onl ine trading platform caters to morethan 1.4 mil l ion cus tomers hand l ing about 3,50,000 trades a

day


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with a focus on cross-sell

Deposits

Pvt. banking

Credit card

Debit cards

Bonds

Insurance

Loans

Mutual funds

Walk in

customers

Private banking

customers

Salary account

customers

Corporate

banking

customers

Customer service &sales force automation

Campaign managementsolutions Live data warehouse

To ach ieve market leadersh ip in

consum er f inance in India


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The ICICI Group today

Largest private sector life insurer

Largest private sector general insurer

Leading asset management company

Largest private equity & venture fund

Leading securities and broking company

Largest private sector bank in India

Conso l idated banking assets of

US$121 bn; market cap o f US$ 20bn

Largest consumer credit provider


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Contents






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Risk Management Practices

Robust Credit Assessment & Practices

Customer identification (KYC) a regulatoryrequirement

Stringent credit practices for customer assessment

Income documents used to assess ability to pay

Fixed Obligation to Income Ratio as % of monthlysalary a key parameter

Loan to Value ratios to ensure customer equity

Bureau checks - No lending to people with bad credithistory

Validation of information by physical and telephonicchecks

Upfront communication of Most Important Terms i.e.interest rate, tenure, etc..


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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 SafeBanking

Regulatory requirements

Risk weights on most retail assets higher than Basel IIrequirements

High requirements for general provisions

General provisions on unsecured loans at 2%


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Contents






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International Opportunity : Key Drivers

Use of technology to support

business growth at minimum

incremental cost

Agnostic approach: no mainframes Substantially lower technology costs

than global banks

LeveragingTechnology

Capital

Leveraging Indian skill and cost

advantages for globalcompetitiveness

Seeking ethnic familiarity and Indialinkage, but with internationally-benchmarked products and services

Leveragingthe Indiabase


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Our global presence

Canada

UAE

Singapore

ChinaUSA

UK

Sri Lanka

Bangladesh

Russia

South Africa

Bahrain

Subsidiary Representative Office

Mumbai

Hong Kong

Malaysia

Thailand

Indonesia

Belgium

Qatar

Overseas Branch

Largest internat ional balance

sheet among Ind ian banks

Germany


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