basak icici bank orissa sme pres.3 24-5-05
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Bhubaneswar
May 24, 2005
Innovation to SME Financingby ICICI Bank
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Individuals asConsumers
Individuals asConsumers
Individuals inBusiness Partnership &
Family OwnedBusinesses
Partnership &Family Owned
Businesses
Small &Medium Sized
Companies
Small &Medium Sized
Companies
Top TierLocal and
Global
Corporates
Top TierLocal and
GlobalCorporates
Small and Medium EnterprisesCorporateBanking
ConsumerBanking
The Customer Spectrum for Banks
SME segment is an essential part of
the customer spectrum for banks
Large LocalCorporates
Large LocalCorporates
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Indian experience in SME Banking
SMEs are vulnerable
Information about SMEs is scarce
SMEs are geographically disbursed
SMEs are transaction intensive
Poor entrepreneurial attitude
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Evaluation of creditrisk
Evaluation of creditrisk
Cost to acquire andserve
Cost to acquire andserve
Other challengesOther challenges
High cost of acquisition of new
client
High cost of credit processing,
services & delivery coverage
Challenges to Banks in SME Financing
Lack of transparent creditinformation, access to credithistoryLimited sectoral dataLow capitalisation and collateral-
high impairment propensity
Poor legal framework forcollateral enforcementDealing with poor entrepreneurial
attitudeNo secondary market for SME
loansNo clear exit route for private
equity
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Global best practises
Wells Fargo,Citibank
Wells Fargo,Citibank
Market segmentation Aligned with retail strategies ,
channels Integrated private & business
banking
Wells Fargo,Barclays,
Amex,Banc One
Wells Fargo,Barclays,
Amex,Banc One
Multi-channel acquisition(including call centre)
Credit score based creditassessment
Wells Fargo,J P MorganWells Fargo,J P Morgan
Intensive use of technology ,automation
Market intermediaries / feet onstreet to multiply capacity
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SEG - Coverage model
Businesssegment
CorporateLinked Business(CLB)
CorporateLinked Business(CLB)
Cluster BankingGroup (CBG)
Cluster BankingGroup (CBG)
Business Focus
Channel finance
needs of WBG
Selective targeting ofhomogenous client
segments
Business approach
Corporate specificumbrella financeproposal
Program basedlending with industry
experts
BusinessBanking Group(BBG)
BusinessBanking Group(BBG)
Liability led strategy Liability led backedby parameterisedproducts
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ICICI Bank in Orissa
Presence In Orissa
-23ATMs
-6Branch
BERHAMPUR
ROURKELA
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Orissa: a focus state for ICICI Bank
Minerals Share %
Bauxite 59.5%
Chromite 98.4%
Manganese 67.60%
Nickel 91.80%
Graphite 71%
Branches coming up at Angul, Keonjhar and Balasore
CD Ratio of 205% Highest deposits of important minerals in the Country Power surplus state (Installed Cap.: 4178.5 MW)
The mining sector isexpected to be the main
driver to the States futuregrowthMineral stock is a high
220 mn. tonnes out of theestimated all-India figureof 231 mn tonnes (1999-00).
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Some SME customers in Orissa
FUND-BASED Assistance
Emerson Network, BhubaneswarDEALERS of L&T and IOCL, Sambalpur
DEALERS of NALCO, Lafarge & Finolex, Cuttack
NON-FUND BASED AssistanceNeepaz Metallics, RourkelaJai Balaji Sponge, Rourkela
DERIVATIVES
Neepaz Metallics, RourkelaJai Balaji Sponge, Rourkela
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The most basic of all human needs is the need tounderstand and be understood..
The best way to understand yourcustomer is to listen to him
We listened to our customer, weunderstood and together we keepgrowing
We continue to listen.
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Thank you
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BBG - Strategy
CoverageCoverage
Present in 79 centresComprehensive mapping of SEG
SMs to each branchAcquisition through outbound
call Centre & feet on street
MarketingMarketingRoad showsDirect marketingMass media inbound calls
Focus on fee incomeFocus on fee incomeTrade finance services and
productsCross sell retail products
Parameterised assetproducts
Parameterised assetproducts
Parameterised asset products
for complete share of wallet
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Twelve clusters covered...
Apparel
Automotive
Retail trade
Construction Pharmaceuticals
Educational Institutions Transporters
Tenkasi-Timber Diagnostic centres
Software & IT
services
Gems n JewelryTravel & Tourism
http://h/ORISSA%20SME%20Pres.3.ppt -
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CBG program lending approach
Multipleassessment
process
Multipleassessment
process
A combination of the followingGo/ No- Go criteriaScoring model
Comprehensive assessment &portfolio controls
Client pre-selection
Client pre-selection
Targeting pre-selected and pre-defined customer groups
Focus on sustainable market/corporate linkages
Trade referencesTrade references
360 degrees references from Competitors Suppliers Customers Financial partners
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CBG appraisal process
Target
customer
Target
customer
ICICI Bankcustomer
Scoring model
Go - No Gocriteria
Comprehensiveassessment
Three step assessment
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Portfolio controls
Exposure toindividualborrowers
Exposure to non-corporate entities
Regionalexposure
Group exposure
Term loanexposure
Cluster
Banking
Group
Cluster
Banking
Group
Review by risk on a biannual basis
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Monitoring of the borrower
Borrower/Promoter
Change in equity, change in promotersnetworth, market enquiry/ reports
Type ofrisk
Parameter
SM
Respon-sibility
Yearly
Frequency
BusinessSales fluctuations, changes in product /customer profile, creditor/ debtor terms SM
Yearly
FinancialTOL/TNW, Sales growth, PBDIT/ Sales,PAT/ Sales, Current ratio etc
SMYearly
Collateral
Changes in collateral value, changes in
guarantor profile SMYearly
Transact-ional
Limit utilization, credit/ debitsummations against sales turnover,TOD/ irregularities
CCMTand SM
Monthly
All accounts to be monitored by SM with support from CCMT team
CCMT: Centralised credit monitoringteam
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Continuous monitoring reports
Nat u re o f Repo r t s Freq uency SM s Head-SEGRepaym ent Overd ue St atu s Weekly Lim it Renew al Overd ue st at us Weekly Lim i t Due f o r renew al (w i th in nex t 2 m t hs) Week ly
TLs -Rep aym en t s (In t + In st l ) f al l in g d ue M o nt h ly Ir reg u lar it y Repo r t s M on t h ly M o nt h ly Selec t Op er at io nal In f or m at io n M o nt h ly Cr it ical a/cs M on t h ly
Ren ew al St at u s (Lim it + In su ran ce+ LA D ) M o nt h ly Por t f o l io A nalysis Repo r t Quar t er ly
Close monitoring and frequent reporting to identify early warningsignals of stress in accounts.
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Minimum vintage of 5 years
Gross sales turnover > Rs.100.0 million
Net-worth > Rs.25.0 million
Gross fixed assets > Rs.25.0 million PAT >=2% (last 2 years) and profitable
current year projectionsContractors /Sub-
contractors
Key target market norms (Go-No Go)
Association with large principal
contractors for more than 3 years
Existing projects to be spread over
minimum 2 different
contractors/employers
Labour contractors to be excluded
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BusinessOrder book, project diversity, track record, clientprofile
Category Parameters of evaluation
25 %
Weightage
FinancialTurnover, networth, PAT margins, investment in P&M,interest coverage, TOL/TNW
30 %
PromotersConstitution, vintage, trade references, promotersnetworth
20 %
TransactionHistory
Payment record, Limits utilisation, Compliance withsanction terms, credit/debit summations
10 %
Security Cash collateral and other collateral 15 %
Credit scoring model
Credit screens for term loans are based on customer segment, nature offunding in tune with differential risks
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Comprehensive Assessment
Assessed bank finance
Cash flow analysis
Assessed bank finance
Cash flow analysis
360 degree assessment- Customers
- Suppliers- Financiers- Competitors
360 degree assessment- Customers
- Suppliers- Financiers- Competitors
Amount of assistance
End use of assistance
Establish repaymentcapacity
Amount of assistance
End use of assistance
Establish repaymentcapacity
ObjectivesObjectives
Conventional methodsConventional methods
Unconventional methodsUnconventional methods
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