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

Changing Consumer Increasingly affluent, with a Demographics....

bulging middle class
The

youngest population in the world

65%

of population below 35 years of

Consumer Consumer Demographi Demographi cs of India cs of India

age
Increasing Higher

literacy levels

adaptability to technology is a continuing trend

Urbanisation Increasing

"consumption" mindset in India

driven by a growing consuming class

2000: Per 2000: Per capita GDP capita GDP US$ 500 US$ 500 2007: Per 2007: Per capita GDP capita GDP US$ 1,000 US$ 1,000 2015: Per 2015: Per capita GDP capita GDP US$ 1,500 US$ 1,500

Consuming Consuming class class 35% population population estimated at growth estimated at about 260 about 260 mn11 mn

Consuming Consuming class class 70% population population growth estimated at estimated at about 350 about 350 mn11 mn

Consuming Consuming class class population population estimated at estimated at about 600 about 600 mn11 mn

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 : household p.a.

FY2002 50 3

33 1

FY2010 Estimat e 98 10

US$ 2,100 -11,670 per

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
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6000 5000 4000 Insurance per capita (USD) 3000 2000 1000 0

L ife in s u r a n c e p e n e tr a tio n & p e r c a p ita (2 0 0 6 )

1 3 .1 % 5 ,1 4 0 8 .3 % 2 ,8 29 9 .2 % 7 .9 % 2 ,4 56 5.4% 1 , 6 1 7 1 , 4 8 0 3 .2 % 1 .7 % 1 ,7 9 0
UK J a p a nH o n g K o n U S g

1 4 .0 % 1 2 .0 % 1 0 .0 % Insurance penetration 8 .0 %

Mutual Funds as a % of GDP

Life Insurance Penetration

..and low market penetration..

60% 50% 40% 30% 20% 10% 0% China Ja pan HK Korea
4% 21% 19% 19%

Mutual Funds Penetration

4 .0 %

4.1%

6 .0 % 4 .0 % 2 .0 %

8%

189

34

33
In d i a

0 .0 %

S i n g a p o Keo r e a M a l a y s i a h i n a r C

India

Source: Swiss Re

Source McKinsey

Mortgages 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 80% Penetration 62%

60% 40% 20% 0% USA HK Europe Sing China India
17% 7% 49% 37% 38%

Need for retirement planning now

Source McKinsey

* At the end of 2005, Source IMF

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..offering banks a huge opportunity..

15 0 2 .0 10 0 0 .0 7 .0 5 0 5 .0 0 0 2 .0 5 0 20 05 H ousing Loa ns 20 06 Cre dit Ca rd Auto Loa ns 20 07 Othe rs

US$ bn 30% 40% 62 88

114

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

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..and resultant Economic growth

Rising consumpti on Rising income Multiplier effect 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

Rising production

Contents
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

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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 relevance for intermediaries and vendors

Lack of scale
Low

High cost of funds Creating a retail organisation

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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 Technology led selling delivery of products Superior service quality at optimum cost

Aspiration s Pan-India
provider of full suite of retail products

Market leadershi p & Scale

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Establishing new paradigm in consumer credit distribution

Doorstep delivery

Point-of-sale delivery

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

Enhanced customer convenience the key selling proposition

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and achieving economies of scale.

Particulars Product Portfolio Branches/ Offices ATMs Employee Base Customer Base Internet customers Before 1995
Single product 6 1,000 3,000 -

Now
complex retail & corporate finance products >1,300 ~4,000 >40,000 31 Mn 18.3 Mn

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by leveraging technology channels

Channel Branches2 ATMs & POS terminals Internet Call centre & mobile banking Usage 20001
94% 3% 2% 1%

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

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

1. 2.
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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 & Campaign management Live data warehouse sales force automation solutions

Walk in customers

Private banking customers

Salary account customers

Corporate banking customers

To achieve market leadership in consumer finance in India

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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

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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..

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Risk Management Practices (Contd..) Policies Strong Credit

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%

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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

Leveraging the India base

Indian skill and cost advantages for global competitiveness

Seeking

Leveraging Technology Capital

ethnic familiarity and India linkage, but with internationally-benchmarked products and services Use of technology to support business growth at minimum incremental cost
Agnostic

approach: no mainframes lower technology costs than global banks

Substantially

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ICICI Bank: Low cost technology as competitive advantage per account* IT spend
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
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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

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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

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Our global presence

Canad a UK Belgium
USA Russia China Hong Kong

Germany

Bahrai Banglades n Qatar h Malaysia UAE Thailand Mumbai Singapore Sri Lanka Indonesia

South Africa

Subsidiary

Largest international balance sheet among Indian banks

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Representative Office

Overseas Branch

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

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Thank you

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