Opportunity sizing: Domestic retail market (1/3)

ICICI’s contribution in Housing loans to reach $70 mn in 2006

  Year
Domestic Retail (Exhibit
6a) Base year 2002 2003 2004 2005 2006
Housing Loans            
2001 Market size            
Market Size ($ bn) 6.38 8.46 11.20 14.85 19.67 26.06
Annual Growth Rate 32.50% 32.50% 32.50% 32.50% 32.50% 32.50%
Incremental Market Size ($
- 2.07 2.75 3.64 4.82 6.39
bn)
Share in Incremental Loans   11% 11% 11% 11% 11%
ICICI's Share 3% 3% 3% 3% 3% 3%
ICICI's Loan Size ($ bn)   0.42 0.72 1.12 1.65 2.36
ICICI's Incremental Loans ($
  0.23 0.30 0.40 0.53 0.70
bn)
Spread 1.80% 1.80% 1.80% 1.80% 1.80% 1.80%
Fees 4% 4% 4% 4% 4% 4%
Assumption: ($ mn)
Contribution 10.33 16.68 25.09 36.23 50.99 70.55
Annual growth rate assumed to be 32.5%; given to vary between 30-35% in Case
Opportunity sizing: Domestic retail market (2/3)
Contribution from Auto finance will also close in on $50 Mn in 2006
  Year
Domestic Retail (Exhibit
6a) Base year 2002 2003 2004 2005 2006
Auto Finance            
Market Size ($ bn) 1.81 2.31 2.94 3.75 4.78 6.10
Annual Growth Rate 27.50% 27.50% 27.50% 27.50% 27.50% 27.50%
Incremental Market Size ($
  0.50 0.63 0.81 1.03 1.31
bn)
Share in Incremental Loans 20% 20% 20% 20% 20% 20%
ICICI's Share 16% 16% 16% 16% 16% 16%
ICICI's Loan Size ($ bn)   0.39 0.52 0.68 0.88 1.15
ICICI's Incremental Loans
  0.10 0.13 0.16 0.21 0.26
($bn)
Spread 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%
Fees 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Assumption:
Contribution ($ mn) 12.79 16.10 21.22 27.76 36.09 46.71
Annual growth rate assumed to be 27.5%; given to vary between 25-30% in Case
Opportunity sizing: Domestic retail market (3/3)
Contribution from Credit cards to sky rocket to $170 Mn

  Year
Domestic Retail (Exhibit
6a) Base year 2002 2003 2004 2005 2006
Credit Cards            
Market Size (mn cards) 5.00 6.13 7.50 9.19 11.26 13.79
Annual Growth Rate 22.50% 22.50% 22.50% 22.50% 22.50% 22.50%
ICICI's Current Share 5% 5% 5% 5% 5% 5%
Incremental Size (mn)   1.13 1.38 1.69 2.07 2.53
Share in Incremental Size 15% 15% 15% 15% 15% 15%
Number of ICICI cards (mn)   0.42 0.63 0.88 1.19 1.57
Income per card ($) 31.91 31.91 31.91 31.91 31.91 31.91
Contribution ($ mn) 7.98 13.36 19.96 28.04 37.94 50.06
Total Contribution ($ mn) 31.10 46.14 66.27 92.02 125.01 167.32

Assumption:
Annual growth rate assumed to be 22.5%; given to vary between 20-25% in Case
Following the Indian diaspora
Historically, banks have expanded abroad by first going to customers with strong ties to the
home country e.g. HSBC

Opportunity: Retail
• 20 million NRIs/PIOs worldwide (2001)
• Growing at 10% over the next 5-10 years
• 10% of the world’s remittances are sent to India ($15 bn out of $150 bn annually)
• Public sector banks enjoy trust but lack technology and product innovation
• Foreign banks provide services to HNI customers but lack deep branch network in India
• Nonbank players are major competitors
• Opportunities to cross-sell products like housing loans
• Diversification

Opportunity: Corporates
• International acquisitions and investments (600 subsidiaries of Indian companies in UK)
• Shift in revenue sources: from India to international sources
• Leverage existing relationships– following existing (strong) network of corporate customers
NRI deposits
Total NRI ICICI's Income  Remittances have the
Year
Deposits share ($mn) highest potential; NRI
2001 23.07 0.50% 0.72 deposits smaller but
2002 23.80 1.50% 2.23 significant
2003 24.56 2.00% 3.07  Different market
2004 25.34 2.50% 3.96
segments,
2005 26.14 3.00% 4.90
2006 26.97 3.50% 5.90 geographies- blue
collar vs white collar;
Assumptions: US/UK vs GCC
1. Growth rate of NRI desposits (overall) =3%  Can use technology to
2. Margins are between 0.5-0.75% (assumed 0.625%) reduce branch
3. ICICI’s share increases to 3.5% in 5 years investment
 Opportunity Sizing: Remittances market

Year
  2001 2002 2003 2004 2005 2006
Total Remittances Market ($
15.00 16.50 18.15 19.97 21.96 24.16
bn)
Market Growth 10% 10% 10% 10% 10% 10%
Share Capture by ICICI   3% 5% 7% 9% 10%
Average Transaction Size ($)   250 250 250 250 250
Number of Transactions
  1.98 3.63 5.59 7.91 9.66
(mn)
Revenue per Transaction ($)
  12.50 12.50 12.50 12.50 12.50
(@5%)
Income ($ mn)   24.75 45.38 69.88 98.83 120.79
Opportunity sizing: Corporate lending and trade financing
Treasury and corporate lending

Income from trade finance

Follow the Indian corporate ?
Large Indian corporate houses expanding abroad require loans to subsidiaries, trade finance, non-
fund based business such as letters of credit…

Require:
 Existing relationship
 Technology

Present Value of expected incomes

Corporate lending
Trade finance PV
NRI Deposits
Remittances
0.00 50.00 100.00 150.00 200.00 250.00 300.00
International expansion decision
ICICI should go ahead with International expansion due to following reasons:

High Growth potential

Both NRI services and BPO services have large potential market size and growth rate

Early mover advantage

ICICI could pre-empt competition in foreign locations by attaining large market share in early years

Leverage technological capabilities

ICICI could leverage its technological capabilities to gain competitive advantage in this space

Diversification opportunity
International expansion through either of NRI or BPO services provided ICICI with an opportunity
to diversify its business
Potential success factors in International expansion
Technological advancement
o ICICI has superior technology than other banks who tried abroad stint
o Technology is critical in most International locations to provide good service

Organization structure and culture

Lean organization with quick credit decision taking ability

Optimal pricing
From the lessons learnt, ICICI could price the products better for high market share capture

Marketing
Unlike other banks who had limited success in International expansion, ICICI can market its products aggressively to form large customer base

Product innovation
Backed by technology and its quick decision taking abilities, ICICI could come up with innovative products, say in NRI services

Alliance with local partners

ICICI could enter into partnership with local banks for
o Better understanding of customers and their requirements
o Reduction of regulatory risk
Third-party BPO platform

• Few existing domain • Income dependent on

experts in the market international banks’
• Superior technological acceptance of
expertise compared to outsourcing (exchange
other banks rate risk)
• Costs may be less as • Banks historically have
compared to setting up in-house operations
branches abroad
Estimated revenues from third-party BPO unit
Countries we would like to invest in
• US
• UK
• GCC
Thrust Areas
Remittances
• It is a lucrative market as seen from the PV of cash flows
• We can concentrate on US and GCC for starting off its remittances offering
• In GCC, especially competency is needed in terms of physical presence and branches from where money can be
deposited to be transferred to India
• ICICI can look to partner with Gulf companies for money collection on that side and leverage its domestic circuit for
delivery here.

NRI Deposits
• With a growing India diaspora (10%) and a high GDP growth in India, higher interest rates in India (12.5%) as
compared to the low interest rates in the west (2-3%), the market can be captured quickly
• Further, with ICICI’s core competency in technology, it can make platforms for tech-savvy white collared NRIs and
workers to transfer money electronically into their ICICI INR accounts
• NRI Deposits have a huge potential and can act as a cheap source of funding by (benefit of 0.5% to other sources)
the booming domestic loan market.

Corporate Finance
• With large volume of trade with US and UK, corporate banking is another lucrative option to be looked at. This is true
for the non-oil sector.
Thank You