Consumer banking in India and the ICICI experience

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

3

Changing Consumer Demographics....Increasingly affluent, with a

bulging middle 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 in India

Consumer Demographics of India

Consumer Demographics of India

44

…driven by a growing consuming class…

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

Consuming class

population estimated at

about 260 mn1

Consuming class


about 260 mn1

Consuming class


about 350 mn1

Consuming class


about 350 mn1

2000: Per capita GDP

US$ 500

2000: Per capita GDP

US$ 500

2007: Per capita GDP US$ 1,000


35% growth

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

Consuming class


about 600 mn1

Consuming class


about 600 mn1



70% growth

5

…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 shows

migration to higher income levels growing at over 40% per annum

FY2010Estimat

e

98

10

(households in million)

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

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

6

..and low market penetration..

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

113 mn people are likely to retire by 2016 Need for retirement

planning now

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 J apan Hong Kong US Singapore Korea Malaysia China India

Insu

ranc

e pe

r cap

ita (U

SD)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Insu

ranc

e pe

netra

tion

Source: Swiss Re

Life Insurance Penetration Mutual Funds Penetration

4%

21% 19% 19%

8%

0%

10%

20%

30%

40%

50%

60%

China J apan HK Korea India

Mutu

al F

unds

as a

% o

f G

DP

Source McKinsey

62%

49%

37%

7%

17%

38%

0%

20%

40%

60%

80%

USA HK Europe Sing China India

Mort

gag

es a

s a

% o

f GD

P

Mortgage Market Penetration

Source McKinsey

* At the end of 2005, Source IMF

7

-

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…

Rising consumpti

on

Rising income

Rising production

Multiplier effect

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

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Contents





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Retail finance: the ICICI experienceICICI Limited : 1955 to 1999

One of India’s 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

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 Bank’s consumer finance strategy

Sound selling

strategy

Multi product offerings

Multi channel offerings

Pan-India provider

of full suite of retail

products

Efficient operations

S t r o n g B r a n d

• Leveraging corporate & channel relationships

• Focus on cross selling

• The one stop financial shop

• Product differentiation

• Technology led delivery of products

• Superior service quality at optimum cost

Aspirations

Market leadershi

p&

Scale

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Establishing new paradigm in consumer credit distribution…

Doorstep delivery

Agents taking product to the customer

Availability of credit at the customer’s 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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Before 1995Particulars

6Branches/ Offices

3,000Customer Base

Single product

Product 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. For savings accounts.2. Excluding 5% of transactions

processed at centralised operations centres

…by leveraging technology channels…

ICICIDirect – The Online trading platform caters to more than 1.4 million customers handling 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 management solutions

Live data warehouse

To achieve market leadership in consumer finance 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

Consolidated banking assets of US$121 bn; market cap of US$ 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 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 equityBureau checks - No lending to people with bad

credit historyValidation of information by physical and

telephonic checksUpfront 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 “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





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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

Leveraging Technology Capital

Leveraging Indian skill and cost advantages for global competitiveness

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

Leveraging the India base

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ICICI Bank: Low cost technology as competitive advantage

IT spend per account*

0

100

200

300

400

500

600

700

ICICI Bank Indianaverage

Europe (topquartile)

Asia Pacificaverage

Source: Mckinsey

* ICICI Bank spending as 100 units per account

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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

UAE

Singapore

ChinaUSA

UK

Sri Lanka

Bangladesh

Russia

South Africa

Bahrain

Subsidiary Representative Office

Mumbai

Hong Kong

MalaysiaThailand

Indonesia

Belgium

Qatar

Overseas Branch

Largest international balance sheet among Indian banks

Germany

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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

International banking as the next growth horizon Leveraging technology for direct banking services Replicating customer orientation in NRI services and

remittance business

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Thank you

Consumer banking in India and the ICICI experience

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Transcript of Consumer banking in India and the ICICI experience