e-Finance in India

A Perspective

Geneva
October 24, 2001
Agenda

 Traditional SME Banking in India

 e-Finance in ICICI Bank
 e-Finance and SME
 Legal Structure in India
 Going Forward

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SME Banking in India

 SME in India characterised by

 Low capitalisation and limited assets
 Geographical diversity and high mortality
 Poor access to capital markets
 Cash intensity in transactions
 Lack of credit information
 Poor financial disclosure on account of tax issues
 Directed lending based on Central Bank guidelines
 High risk perception has led to high borrowing costs

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Agenda

 Traditional SME Banking in India

 e-Finance in ICICI Bank
 e-Finance and SME
 Legal Structure in India
 Going Forward

4
ICICI Group - lending approach

 Focussed product approach to SME sector

 Lending to SME based on strong corporate linkage
 Product and delivery technology dependent
 Pooling of assets at central hubs enables optimum
monitoring
 Lending approach
 Sectoral and liability led
 Parameterised

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 Relationship buildup ….
Step 1
SME relationship through “enhanced checking account”
Electronic delivery

Step 2
Transaction oriented products the key drivers

Step 3
Subject to satisfactory transaction record, SME elevated to
quasi credit relationship

Step 4
Offer takeout financing

Step 5
Offer regular long term credit

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Key Products

 Leverage corporate linkages through

 Vendor financing
 Dealer financing - with and without recourse
 Standalone, 3-P and rent securitisation
 Equipment financing
 Transaction oriented products
 Web based Cash Management Services
 Online FX applications
 Internet based payment system

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 Electronic products

Pay Seal Corporate Infinity

Bill Junction
electronic payment online transfer/
Utility bill payments
system settlement system

e-banking in ICICI

ICICI Markets Business Multiplier

ICICI Direct and ICICI
online FX, Debt, SME web interface
Select
Portal

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Some innovative e-initiatives

 Customer queries routed to “Call Centres”

 Intermediate step to web enablement
 Staff trained to handle complex transaction query
 Incentivise clients to use web platforms
 Introduction of pre-loaded smart cards for small value
purchases
 Smart card solutions for fleet and transport owners
 Dedicated SME Portal for non financial solutions

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10
Agenda

 Traditional SME Banking in India

 e-Finance in ICICI Bank
 e-Finance and SME
 Legal Structure in India
 Going Forward

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Advantage SME ....

e-banking leads to:

 Lower cost of delivery
 Speed and wider reach
 Credit information through transaction analysis
 Risk mitigation
 Through credit scoring model - statistical
 Portfolio based approach
 Corporate information

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Agenda

 Traditional SME Banking in India

 e-Finance in ICICI Bank
 e-Finance and SME
 Legal Structure in India
 Going Forward

13
e-banking related laws ….

 e-banking governed by:

 Information Technology (IT) Act, 2000
 Internet Banking guidelines of the Central Bank
 India is the 2nd country in Asia to initiate technology
related act
 e-banking encouraged through:
 Focussed legislation
 Access to IT skills, computers and incentives to ISPs

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Salient features of IT Act ….

 Drawn as per the UN Model Law for IT

 Legal recognition to
 Electronic records
 Electronic contracts
 Digital signature
 Appointment of certifying authority and controller
 Issuer of public and private key
 Controller - repository of all the signatures
 e-Governance- Filing of documents in e-form

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Central Bank guidelines ….

 Bank to have security policy approved by Board of

Directors
 Introduction of logical access control systems
 Security buffers between bank system and internet
 Products to be compliant with domestic foreign exchange
regulations
 Setting of inter bank payment gateway
 Mandatory disclosure of risks in internet based dealings

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Agenda

 Traditional SME Banking in India

 e-Finance in ICICI Bank
 e-Finance and SME
 Legal Structure in India
 Going Forward

17
Creating the “e” wave ....

 Encourage internet/ “e” usage

 Voice over Internet Protocol (IP)
 Telecom infrastructure
 Tax incentives for internet based transaction
 Incentive for electronic settlement
 Legal validity for e transaction
 Consumer Protection Act
 Negotiable Instrument Act
 Acceptance of electronic based document

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Creating the “e” wave .… Cont.

 Capital Account Convertibility

 Exchange Control Laws
 Strengthening the Intellectual Property Laws

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Thank You !!!