ICICI 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

ConsumerDemographic

s of India


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driven by a growing consumingclass

1. Estimates based on NCAER data. Consuming

class comprises middle and high incomehouseholds

Consumingclass

populationestimated at

about 260 mn1

Consumingclass


about 260 mn1

Consumingclass


about 350 mn1

Consumingclass


about 350 mn1

2000: Per capitaGDP US$ 500

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

Consuming

class populationestimated atabout 600 mn1

Consuming

class populationestimated atabout 600 mn1



70%growth


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with an upward migration ofincomes..

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 income : 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

U K J ap an H ong Ko ng U S S ing ap or e K or ea M al ay si a Chi na I nd ia

In

s

u

ra

n

c

e

p

e

r

c

a

p

ita

(

U

S

D

)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

In

s

u

ra

n

c

e

p

e

n

e

tra

tio

n

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 IndiaM

utualFundsasa%o

fGD

P

Source McKinsey

62%

49%

37%

7%

17%

38%

0%

20%

40%

60%

80%

USA HK Euro pe Si ng China Ind ia

Mortgagesas

a%

ofGD

Mortgage Market Penetration

Source McKinsey

* At the end of 2005, Source 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

Rising

income

Rising

production

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

Stron

g

Br

and

Leveraging corporate& channel

relationships 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 product

to the customer Availability of credit at

the customers home oroffice

Point-of-sale delivery

Strong channel partnernetwork

Manufacturers,dealers, realtors

Availability of credit atpoint-of-sale of product

Enhanced customer convenience the key sellingproposition


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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. For savings accounts.2. Excluding 5% of transactions processed at

centralised operations centres

by leveraging technology channels

ICICIDirect The Online trading platform caters to morethan 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

bankingcustomers

Customer service &sales force automation

Campaign managementsolutions

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 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 Boardof India (BCSBI)

Alternative mechanisms for dispute resolution DISHA

Customer education on Safe Banking

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 costadvantages for globalcompetitiveness

Seeking ethnic familiarity and Indialinkage, but with internationally-

benchmarked products and services

Leveragingthe Indiabase


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ICICI Bank: Low cost technology ascompetitive advantage

IT spend per account*

0

100

200

300400

500

600

700

ICICI Bank Indian

average

Europe (top

quartile)

Asia Pacific

average

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 onlinebanking account

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

Account opening forms processed in India

All treasury-related back-office operations are done out ofMumbai

Cost effective and scaleable customer acquisition andservicing 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 Excellencein 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

Malaysia

Thailand

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

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