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Consumer Banking in India : The ICICI Experience

June 17, 2008

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

Changing Consumer Demographics....


affluent, with a bulging

middle class

youngest population in the world

of population below 35 years of age

Consumer Demographic s of India


Increasing Higher

literacy levels

adaptability to technology is a continuing trend

Urbanisation Increasing

"consumption" mindset in


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
Life insurance penetration & per capita (2006)

Mutual Funds Penetration

Mutual Funds as a % of GDP

Insurance pe r capit a ( U S D )

13.1% 5,140 8.3% 2,829 5.4% 4.0%

2000 1000 0
UK Japan Hong Kong US Singapore Korea M alaysia

60% 50% 40% 30% 20% 10% 0% China Japan HK Korea India
Source McKinsey

9.2% 7.9% 2,456

4000 3000

10.0% 8.0%

Insurance pe ne t rat ion





4.1% 1,617 1,480 3.2% 1.7%

6.0% 4.0% 2.0%

19% 8%


1,790 189 34


Source: Swiss Re

M ortgages 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


60% 40% 20% 0% USA

49% 37% 38%

17% 7%

Need for retirement planning now


Europe Sing



Source McKinsey

* At the end of 2005, Source IMF


..offering banks a huge opportunity..

125. 00 100. 00 75. 00 50. 00 25. 00 2005 Housing Loans 2006 Credit Card Auto Loans 2007 Others

US$ bn 30% 40% 62 88


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


..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

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


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


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 Superior service quality at optimum cost

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


Establishing new paradigm in consumer credit distribution

Doorstep delivery

Point-of-sale delivery

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

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

Enhanced customer convenience the key selling proposition


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 -


by leveraging technology channels

Channel Branches2 ATMs & POS terminals

Usage 20001
94% 3% 2% 1%

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

Call centre & mobile banking

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

1. 2.

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


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

India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience

Risk Management in Consumer Finance

Learnings for International Banking


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..


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%


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

Learnings for International Banking


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

Leveraging Technology Capital

Substantially lower technology costs than global banks


ICICI Bank: Low cost technology as competitive advantage

IT spend per account*

700 600 500 400 300 200 100 0 ICICI Bank Indian average Europe (top quartile) Asia Pacific average

* ICICI Bank spending as 100 units per account

Source: Mckinsey

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


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 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


Our global presence


UK Belgium

Russia China Hong Kong

Germany Bahrain

Bangladesh Qatar Malaysia UAE Thailand Mumbai Singapore Sri Lanka Indonesia

South Africa


Representative Office

Overseas Branch

Largest international balance sheet among Indian banks


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


Thank you