Consumer Banking in India The ICICI Experience

Consumer Banking in India : The ICICI Experience June 17, 2008 Contents India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings‟ for International Banking 2 Changing Consumer Demographics....  Increasingly affluent, with a bulging middle class  The youngest population in the world population below 35 years of age Consumer Demographic s of India  65% of  Increasing literacy levels  Higher adaptability to technology is a continuing trend  Urbanisation  Increasing "consumption" mindset in India 3 …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 4 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 33 FY2002 50 FY2010 Estimate 98 High income Middle income High income 1 : : 3 10 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 5 ..and low market penetration.. Life Insurance Penetration Life insurance penetration & per capita (2006) Mutual Funds Penetration Mutual Funds as a % of GDP 14.0% 6000 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 5000 12.0% 21% 19% 4.1% 1,617 1,480 3.2% 1.7% 6.0% 4.0% 2.0% 19% 8% 4% 1,790 189 34 China 33 0.0% India 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 80% 62% 60% 40% 20% 0% USA 49% 37% 38% 17% 7% Need for retirement planning now HK Europe Sing China India Source McKinsey * At the end of 2005, Source IMF 6 ..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% 114 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 7 ..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 8 Contents India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings‟ for International Banking 9 Retail finance: the ICICI experience ICICI 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  10 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  No experience in consumer finance   Lack of scale  Low relevance for intermediaries and vendors   High cost of funds Creating a retail organisation 11 ICICI Bank‟s consumer finance strategy S t r o n g Multi product offerings Sound selling strategy • 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 Aspirations Pan-India provider of full suite of retail products B r a n d Multi channel offerings Efficient operations Market leadership & Scale 12 Establishing new paradigm in consumer credit distribution… Doorstep delivery  Point-of-sale delivery  Agents taking product to the customer  Availability of credit at the customer‟s 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 13 …and achieving economies of scale…. Particulars Before 1995 Now complex retail & corporate finance products Product Portfolio Single product Branches/ Offices ATMs Employee Base 6 1,000 3,000 - >1,300 ~4,000 >40,000 Customer Base Internet customers 31 Mn 18.3 Mn 14 …by leveraging technology channels… Channel Branches2 Usage 20001 94% 3% 2% Usage 20081,2 7% 37% 21% ATMs & POS terminals Internet Call centre & mobile banking 1% 30% ICICIDirect – The Online trading platform caters to more than 1.4 million customers handling about 3,50,000 trades a day 1. 2. 15 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 16 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 17 Contents India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings‟ for International Banking 18 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.. 19 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% 20 Contents India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings‟ for International Banking 21 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  Leveraging Technology Capital   Agnostic approach: no mainframes Substantially lower technology costs than global banks 22 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 23 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 24 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 25 Our global presence Canada USA UK Belgium Germany Russia China Hong Kong Bahrain Bangladesh Qatar Malaysia UAE Thailand Mumbai Singapore Sri Lanka Indonesia South Africa Subsidiary Representative Office Overseas Branch Largest international balance sheet among Indian banks 26 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   27 Thank you 28