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					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
                        65% of population below 35 years of age
     Consumer
    Demographic    Increasing literacy levels
     s of India
                   Higher   adaptability to technology
                   Urbanisation is    a continuing trend
                   Increasing "consumption"        mindset in
                   India



3
      …driven by a growing consuming
      class…
2000: Per capita              2007: Per capita             2015: Per capita
  GDP US$ 500                  GDP US$ 1,000                GDP US$ 1,500

 Consuming                     Consuming
     class                                                    Consuming
                    35%            class           70%
  population                                               class population
                   growth       population        growth
 estimated at                                                estimated at
                               estimated at
about 260 mn1                                               about 600 mn1
                              about 350 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
4      households
    …with an upward migration of
    incomes..
                                       (households in million)
                                                       FY2010
                            FY1996       FY2002
                                                       Estimate

    Middle income             33            50             98

    High income               1              3             10
        Middle income   :      US$ 2,100 -11,670 per household p.a.
        High income     :      > 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                                                                                                                                                 Mutual Funds Penetration
                                                                            Life insurance penetration & per capita (2006)
                                              6000                                                                                             14.0%




                                                                                                                                                                                            Mutual Funds as a % of GDP
                                                                                                                                                                                                                         60%
                                                          13.1%
    I n su ran ce p e r cap i t a ( U S D )




                                                                                                                                               12.0%




                                                                                                                                                       I n su ran ce p e n e t rat i o n
                                              5000
                                                          5,140
                                                                                                                                                                                                                         50%
                                                                           9.2%
                                                                  8.3%                                                                         10.0%
                                              4000                                                         7.9%                                                                                                          40%
                                                                                                                                               8.0%
                                              3000            2,829                                                                                                                                                      30%               21%         19%    19%
                                                                          2,456                 5.4%
                                                                                      4.0%                                                     6.0%
                                                                                                                                       4.1%                                                                              20%
                                              2000                                              1,617                3.2%
                                                                                                           1,480                               4.0%                                                                                                                    8%
                                                                                                                               1.7%                                                                                              4%
                                                                                                                                                                                                                         10%
                                              1000                                                                                             2.0%
                                                                                  1,790
                                                                                                                     189       34      33                                                                                 0%
                                                 0                                                                                             0.0%
                                                     UK           Japan Hong Kong         US   Singapore   Korea   M alaysia   China   India                                                                                    China     Japan        HK     Korea   India
                                              Source: Swiss Re
                                                                                                                                                                                                                               Source McKinsey

                                                                                                                                                                                                                         Mortgage Market Penetration
                                                    Retail Credit / GDP at 13% as




                                                                                                                                                                                           M ortgages as a % of GDP
                                                                                                                                                                                                                         80%
                                                                                                                                                                                                                               62%
                                                     compared to 60%* in Malaysia
                                                                                                                                                                                                                         60%           49%
                                                     & 90%* in the US                                                                                                                                                                            37%    38%

                                                    113 mn people are likely to                                                                                                                                         40%

                                                     retire by 2016                                                                                                                                                      20%
                                                                                                                                                                                                                                                               17%
                                                                                                                                                                                                                                                                      7%
                                                                 Need for retirement planning
                                                                                                                                                                                                                          0%
                                                                  now
                                                                                                                                                                                                                               USA      HK   Europe Sing      China   India
                                                                                                                                                                                                                               Source McKinsey


                                               * At the end of 2005, Source IMF
6
    ..offering banks a huge opportunity..
    125. 00
                                    US$ bn
                                                 30%       114
    100. 00
                              40%       88
     75. 00
                      62
     50. 00

     25. 00

         -
                    2005               2006                2007

             Housing Loans    Credit Card     Auto Loans    Others

        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         Multiplier         Rising
           income           effect          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




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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


11
     ICICI Bank‟s consumer finance strategy
     S                                            Aspirations
           Multi      • The one stop financial
     t   product        shop
         offerings    • Product differentiation     Pan-India
     r                                             provider of
     o     Sound      • Leveraging corporate       full suite of
     n     selling      & channel                      retail
          strategy      relationships               products
     g                • Focus on cross selling
           Multi
                      • Technology led
     B   channel        delivery of products         Market
         offerings                                 leadership
     r
     a                                                  &
          Efficient   • Superior service              Scale
     n   operations     quality at optimum
                        cost
     d


12
     Establishing new paradigm in consumer
     credit distribution…
          Doorstep delivery              Point-of-sale delivery

                                        Strong channel partner
        Agents taking product           network
         to the customer
                                           Manufacturers,
        Availability of credit at          dealers, realtors
         the customer‟s home or
                                        Availability of credit at
         office
                                         point-of-sale of product

      “Enhanced customer convenience” the key selling
                      proposition


13
     …and achieving economies of scale….
            Particulars      Before 1995           Now

                                               complex retail &
         Product Portfolio   Single product   corporate finance
                                                  products

         Branches/ Offices         6               >1,300

              ATMs                 -               ~4,000

          Employee Base          1,000            >40,000

          Customer Base          3,000             31 Mn

        Internet customers         -              18.3 Mn




14
     …by leveraging technology channels…
                                      Usage            Usage
            Channel
                                      20001            20081,2
           Branches2                    94%              7%
           ATMs & POS
                                        3%              37%
            terminals
            Internet                    2%              21%
        Call centre &
                                        1%              30%
       mobile banking
     ICICIDirect – The Online trading platform caters to more
     than 1.4 million customers handling about 3,50,000 trades a
     day



      1.   For savings accounts.
      2.   Excluding 5% of transactions processed at
           centralised operations centres
15
      … with a focus on cross-sell…
            Deposits           Credit card         Bonds               Loans

          Pvt. banking         Debit cards       Insurance          Mutual funds




      Customer service &         Campaign management
                                                                 Live data warehouse
     sales force automation            solutions




                                                                      Corporate
            Walk in           Private banking   Salary account
           customers            customers         customers            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 Indian skill and cost
                      advantages for global
     Leveraging       competitiveness
     the India
     base            Seeking ethnic familiarity and India
                      linkage, but with internationally-
                      benchmarked products and services

                     Use of technology to support
                      business growth at minimum
     Leveraging       incremental cost
     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         Europe (top   Asia Pacific
                                 average          quartile)     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

                                        UK Belgium            Russia
     Canada
                    USA                             Germany       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
        International banking as the next growth horizon
            Leveraging technology for direct banking services
            Replicating customer orientation in NRI services and
             remittance business
27
     Thank you




28

				
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