consumer banking in india and the icici experience
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June 17, 2008
Consumer Banking in India : The ICICI Experience
2
Contents
ICICI Bank: Consumer Finance Experience
India: Consumer Banking Landscape
Risk Management in Consumer Finance
Learnings’ for International Banking
3
Changing Consumer Demographics....Increasingly affluent, with a
bulging middle class
The youngest population in the world
65% of population below 35 years of age
Increasing literacy levels
Higher adaptability to technology
Urbanisation is a continuing trend
Increasing "consumption" mindset in India
Consumer Demographics of India
Consumer Demographics of India
44
…driven by a growing consuming class…
1. Estimates based on NCAER data. Consuming class comprises middle and high income households
Consuming class
population estimated at
about 260 mn1
Consuming class
population estimated at
about 260 mn1
Consuming class
population estimated at
about 350 mn1
Consuming class
population estimated at
about 350 mn1
2000: Per capita GDP
US$ 500
2000: Per capita GDP
US$ 500
2007: Per capita GDP US$ 1,000
2007: Per capita GDP US$ 1,000
35% growth
From per capita GDP of US$ 1,000 to US$ 1,500: consuming population to grow manifold
Consuming class
population estimated at
about 600 mn1
Consuming class
population estimated at
about 600 mn1
2015: Per capita GDP US$ 1,500
2015: Per capita GDP US$ 1,500
70% growth
5
…with an upward migration of incomes..
FY1996 FY2002
Middle income
High income
33 50
1 3
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
FY2010Estimat
e
98
10
(households in million)
Middle income : US$ 2,100 -11,670 per household p.a.
High income : > US$ 11,670 per household p.a.
6
..and low market penetration..
Retail Credit / GDP at 13% as compared to 60%* in Malaysia & 90%* in the US
113 mn people are likely to retire by 2016 Need for retirement
planning now
Life insurance penetration & per capita (2006)
33
1,617
34189
1,480
1,790
2,4562,829
5,140
13.1%
4.1%
8.3%
4.0%
9.2%
7.9%
3.2%
1.7%
5.4%
0
1000
2000
3000
4000
5000
6000
UK J apan Hong Kong US Singapore Korea Malaysia China India
Insu
ranc
e pe
r cap
ita (U
SD)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Insu
ranc
e pe
netra
tion
Source: Swiss Re
Life Insurance Penetration Mutual Funds Penetration
4%
21% 19% 19%
8%
0%
10%
20%
30%
40%
50%
60%
China J apan HK Korea India
Mutu
al F
unds
as a
% o
f G
DP
Source McKinsey
62%
49%
37%
7%
17%
38%
0%
20%
40%
60%
80%
USA HK Europe Sing China India
Mort
gag
es a
s a
% o
f GD
P
Mortgage Market Penetration
Source McKinsey
* At the end of 2005, Source IMF
7
-
25.00
50.00
75.00
100.00
125.00
2005 2006 2007
Housing Loans Credit Card Auto Loans Others
..offering banks a huge opportunity..
Robust growth in consumer credit in India Across product segments
Growth to moderate to 12-15% due to the large base effect
62
88
114
40%
30%
Source: Reserve Bank of India
US$ bn
8
..and resultant Economic growth…
Rising consumpti
on
Rising income
Rising production
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
9
Contents
ICICI Bank: Consumer Finance Experience
India: Consumer Banking Landscape
Risk Management in Consumer Finance
Learnings’ for International Banking
10
Retail finance: the ICICI experienceICICI 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
11
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
12
ICICI Bank’s consumer finance strategy
Sound selling
strategy
Multi product offerings
Multi channel offerings
Pan-India provider
of full suite of retail
products
Efficient operations
S t r o n g B r a n d
• Leveraging corporate & channel relationships
• Focus on cross selling
• The one stop financial shop
• Product differentiation
• Technology led delivery of products
• Superior service quality at optimum cost
Aspirations
Market leadershi
p&
Scale
13
Establishing new paradigm in consumer credit distribution…
Doorstep delivery
Agents taking product to the customer
Availability of credit at the customer’s home or office
Point-of-sale delivery
Strong channel partner network Manufacturers,
dealers, realtors Availability of credit
at point-of-sale of product
“Enhanced customer convenience” the key selling proposition
14
Before 1995Particulars
6Branches/ Offices
3,000Customer Base
Single product
Product Portfolio
ATMs -
…and achieving economies of scale….
Employee Base 1,000
Internet customers -
Now
>1,300
31 Mn
complex retail & corporate
finance products
~4,000
>40,000
18.3 Mn
15
Usage 20081,2
7%Branches2
Usage 20001
94%
37%ATMs & POS
terminals 3%
21%Internet 2%
30%Call centre &
mobile banking
1%
Channel
1. For savings accounts.2. Excluding 5% of transactions
processed at centralised operations centres
…by leveraging technology channels…
ICICIDirect – The Online trading platform caters to more than 1.4 million customers handling about 3,50,000 trades a day
16
… with a focus on cross-sell…
Deposits
Pvt. banking
Credit card
Debit cards
Bonds
Insurance
Loans
Mutual funds
Walk in customers
Private banking
customers
Salary account
customers
Corporate banking
customers
Customer service & sales force automation
Campaign management solutions
Live data warehouse
To achieve market leadership in consumer finance in India
17
The ICICI Group today
Largest private sector life insurer
Largest private sector general insurer
Leading asset management company
Largest private equity & venture fund
Leading securities and broking company
Largest private sector bank in India
Consolidated banking assets of US$121 bn; market cap of US$ 20bn
Largest consumer credit provider
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Contents
ICICI Bank: Consumer Finance Experience
India: Consumer Banking Landscape
Risk Management in Consumer Finance
Learnings’ for International Banking
19
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 equityBureau checks - No lending to people with bad
credit historyValidation of information by physical and
telephonic checksUpfront communication of Most Important
Terms i.e. interest rate, tenure, etc..
20
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%
21
Contents
ICICI Bank: Consumer Finance Experience
India: Consumer Banking Landscape
Risk Management in Consumer Finance
Learnings’ for International Banking
22
International Opportunity : Key Drivers
Use of technology to support business growth at minimum incremental cost
Agnostic approach: no mainframes
Substantially lower technology costs than global banks
Leveraging Technology Capital
Leveraging Indian skill and cost advantages for global competitiveness
Seeking ethnic familiarity and India linkage, but with internationally-benchmarked products and services
Leveraging the India base
23
ICICI Bank: Low cost technology as competitive advantage
IT spend per account*
0
100
200
300
400
500
600
700
ICICI Bank Indianaverage
Europe (topquartile)
Asia Pacificaverage
Source: Mckinsey
* ICICI Bank spending as 100 units per account
24
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
25
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
Canada
UAE
Singapore
ChinaUSA
UK
Sri Lanka
Bangladesh
Russia
South Africa
Bahrain
Subsidiary Representative Office
Mumbai
Hong Kong
MalaysiaThailand
Indonesia
Belgium
Qatar
Overseas Branch
Largest international balance sheet among Indian banks
Germany
27
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
28
Thank you