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ICICI Bank Reaching Global Markets through Technology
INTRODUCTION
The story of ICICI Bank indeed is quite exciting as we look into how the company has internationalized its business vis-a-vis the other banks from India. With the least number of international bank branches as compared to many of the other Indian banks, it stands tall in terms of its share of international business, especially in the foreign remittance business. In a short period of time, it has grown to be the largest bank in the private sector with a global foot print. Its share of international remittance business among the banks in India has risen from 4% in 2003-04 to about 30% today while retaining over 75% of the total online international remittance business in India. How did it grow so fast? Did it face any challenges at home or outside to achieve these successes? What have been its strategies in the internationalization process of its business? In other words, what have been the secrets of its success? Several pertinent questions come to mind when we look at the pace of growth of this company in a highly turbulent and competitive world of international banking that has been guarded for years by the well established, highly networked, international banks and remittance business houses. Let us explore some of the following issues to understand the company‘s approach towards internationalization and how it broke through the old guards of international banks and remittance business houses. Why did ICICI Bank want to internationalize its business? Why did ICICI Bank choose to get into remittance business? What are the various sources of foreign remittance? How did the company reach the customers without physical presence? What are the various products on remittance business? What have been the challenges working with international partners and markets etc? What were the basic strategies of ICICI Bank to succeed in its international operation? How critical was technology in the global remittance business? What are its problems of delivery in India? What are the technological challenges that the company faces? Not only was the company faced with the challenge of competition from other established players in the industry but also from potential customers for international banking and remittance business.
World Banking & Remittance Business:
The history of banking started with the transaction between goldsmith and people. As a token of receiving gold the goldsmith used to issue a receipt. In this process the goldsmith started issuing receipts for specific values of gold, and it became the first banknotes. With the start of the industrial era goldsmiths turned into full-fledged bankers. Indeed they have played a major role in the initial phase of industrialization. To further increase their power and influence, these banking groups started influencing governments or monarchies and strategically utilized the service of these governments or monarchies for their self interest. And as a result only those politicians came to power who have played according to the will of banking groups. In the twentieth century these banking groups were able to discover a new way of money transformation, which identifies that by periodically restricting the money supply, crashes within the emergent stock exchanges of the world could easily be engineered, and one can examine this statement from the example of famous Wall Street Crash of 1929. In economic terms it will be categorized as transfer of wealth rather than destruction of wealth. In the later stage these groups were concentrating on destabilizing a multitude of traditional cultures and creating a series of homogenized trading blocks to replace them. Banking has been the stronghold of established business houses. It was more so in the foreign remittance business. Large Exchange Houses with huge banking and distribution networks gave little scope for other banks to enter this business. ICICI Bank, though energetic did not have the nature of infrastructure to enter in to the international markets. Even some of the Indian Banks had more overseas branches than ICICI Bank had. It had only about six years of experience as a bank operating in the retail segment. Entering into such an international banking and foreign remittance business was a tough call for ICICI Bank in 2001. How did the company make inroads to such a global industry? While the inflows in the world remittance business has grown by about 90% over the period 2002-07, the inflow of remittance business in the developing countries has grown by nearly 110% during the same period. Out of a total inflow of remittances of $ 318 billion in the world, developing countries accounted for $ 240 billion. The highest growth of 136% has been in the upper middle income countries. Interestingly, on the other hand, the outflows of remittances from the developing countries have been as high as 226% during 2002-07 (see Exhibit 1). The market for remittance business to India during 1975-2003 is best illustrated in Exhibit 1b. India, Mexico and Philippines have been the top remittance receiving countries for over a decade now. China, Spain, and many others have also shown significant growth during the same period. Remittances received by India have grown from US$ 8,453 million to US$ 27,607 million during the period 2002-06 (see Exhibit 2). Why have been there such high growths in the developing countries? Is it the Diaspora of the developing countries in the industrially advanced countries? Is the differential in interest rates in the industrially advanced country the cause for the movement of foreign capital to the developing countries? The annual rate of interest in Japan is the lowest with
around 1-2% for short term loans up to one year period. Similarly, the rate of interest in USA, Europe, and Great Britain ranges between 3-6% as compared to 10-18% in several developing countries like India (see Exhibit 3). Indian business through export and Import has also grown several times over during the last two decades. From a crisis of foreign exchange in 1991, India has moved far ahead from it. From US$ 5.63 billion foreign currency reserve in 1991, the amount stood at US$ 199.17 billion in March 2007. NRI deposit in India has also grown by over 300% during the same period (see Exhibit 4 & 5). See also Exhibit 6 for the inflows, outflows and local withdrawal figures for the period 1999-2008. How have these factors contributed to the foreign remittance business?
Indian Banking Industry:
In 1786, the first bank in India got established. The General Bank of India was set up in the year 1786 and subsequently the Bank of Hindustan and Bengal Bank came into existence. In 1809 East India Company established Bank of Bengal, Bank of Bombay in 1840, and Bank of Madras in 1843 as independent units and called it Presidency Banks. Allahabad Bank was established in 1865, exclusively by Indians. The Reserve Bank of India was established in the year 1935. The Government of India came up with the Banking Companies Act, 1949 to streamline the functioning and activities of commercial banks. This was later changed to Banking Regulation Act 1949 as per the amendment act of 1965. After independence the government took major steps in banking sector reforms. It nationalized many banks and formed State Bank of India to act as the principal agent of RBI to handle banking transactions all over the country. The Government instituted a number of policies such as (i) 1949: Enactment of Banking Regulation Act (ii) 1955: Nationalization of State Bank of India (iii) 1959: Nationalization of SBI subsidiaries (iv) 1961: Insurance cover extended to deposits (v) 1969: Nationalization of 14 major banks (vi) 1971: Creation of credit guarantee corporation (vii) 1975: Creation of regional rural banks (viii) 1980: Nationalization of seven banks with deposits over INR 2000 million As the Indian economy opened up, several foreign banks came to India. ATM stations, phone banking and net banking were introduced in the country. Slowly the customers were introduced to foreign exchange. Indian banking industry‘s business has increased from US$ 469.4 billion in 2002 to US$ 1171.29 billion in 2007. The aggregate deposits of Scheduled Commercial Bank have risen from 17.8 percent in 2005-06 to 25.2 percent as on January 4, 2008. With all these achievements Indian banks started aspiring to
become global and have a global presence. Many Indian banks started to expand their branches in foreign countries. Setting up subsidiaries and investing in joint ventures were other modes for international expansion.
Remittance Business & Indian Banks:
Remittances include different kinds of monies that flow from migrants to their families. These include regular amounts of money that are important for the family budget, money sent for investment like the purchase of land or the building of a house, community development like building of a temple, repayment of family debt, and gift money for family celebrations. Remittances are unlike market flows of money for they are not sensitive to interest rate movements and are relatively stable (RBI, 2004). This flow of funds from migrant workers back to their families in their home country is an important source of income in many developing economies. The recipients often depend on remittances to cover day-to-day living expenses, to provide a cushion against emergencies or in some cases as funding for small investments. For a remittance service to work, it needs to have some kind of network (access points where funds can be captured and disbursed, and procedures to link those access points to enable settlement and messaging). It is possible to divide remittance service into various categories like unilateral, franchised, negotiated, and open. All these types are different primarily according to how a network of access points is created and linked. The categories have no absolute dividing lines but are useful for helping to clarify some of the payment issues that arise with remittances. India is the largest receiver of remittances in the world market with about US$ 28 billion in 2006. This large amount of remittance came from various countries and regions like USA, Europe, and the Middle East with a major share coming from USA. Indeed, foreign remittances accounted for about 3% of India‘s GDP, making it an area of interest across domestic financial services sector. Private transfers that earlier contributed less than 1 % of GDP in India, has contributed over 3% since 2001-02 (see Exhibit 7). Private transfers have been routed to India through various means like inward remittances, local withdrawals or redemptions from NRI deposits, gold and silver brought through passenger baggage, personal gifts, donations to charitable/religious institutions in India, etc. There has been steady rise in all these various categories of private transfers (see Exhibit 8). The Indian remittance market comprises of multiple corridors, each with a distinct set of
customer segments that have diverse remittance needs and behavior. Indian immigrants follow a varied profile across geographies providing cheap labour in the GCC countries and to meet the needs of specialized software developers, doctors, engineers, and nurses in US, Europe and Australia. This creates two distinct types of immigrant; blue-collar workers and white-collar workers. According to the World Bank the value of migrant remittance is increasing at a rate of 10% every year, which offers significant business opportunities for banks and income through three ways, viz., remittance charges, forex income & float income. What has been driving the growth of private transfers including the foreign remittances to India? Is it the huge Indian Diaspora spread across the world? Indians comprise about 58 % in Mauritius, 38% in Fiji, 37% in U.A.E, 19% in Bahrain, 10 % in Oman and 7% in Singapore. Over a million Indians live in several of the industrially developed countries like U.K. (2.2 million), Australia (1.9 million), U.S.A (1.68 million) and South Africa (1.1 million). Many people from this large Indian Diaspora look forward to remit some of their income back to India for various purposes. Indian banks are also well spread in many foreign countries; 22 branches in U.K., 11 branches in Hong Kong, 9 each in Fiji and Singapore (for details see Exhibit 9). There are a large number of banks in India with wide networks, large deposits and huge manpower to tap the opportunities in the foreign remittance business and other private transfer business. For the statistics of banks in India see Exhibit 10. Several Indian banks have branches in many foreign countries. Allahabad Bank has 40 foreign branches, State Bank of India has 33 foreign branches, and Bank of India has 21 foreign branches (see Exhibit 11). With rapid changes in the regulatory policies of the Government, India has turned out to be a hot spot of business activity in the world. The regulatory changes in the banking industry and the ever increasing demands of the global Indian compound the dynamics of business for the banks in India (see Exhibit 12 for the challenges that the Indian banking industry have been facing). Competition among the Indian banks is also well poised. Different banks have different strengths and have different strategies on aspects like retail/product capability, customer base and delivery / technology platforms. In the above context of worldwide banking, Indian banking industry, global Indians spread across the continents, and studying the internationalization process of ICICI Bank through the remittance business is exciting to analyze.
History & Evolution of ICICI Bank:
The Industrial Credit and Investment Corporation of India Limited (ICICI) was created in the year 1955 with an joint initiative of the World Bank, the Government of India, and representatives of Indian industry, for a common objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses. Besides funding from the World Bank and other multi-lateral agencies, ICICI was the major source of foreign currency loans to the Indian industry. Apart from this ICICI was also among the first Indian companies to raise funds from international markets. In 1977, ICICI sponsored the formation of Housing Development Finance Corporation. ICICI was also the first Indian institution to receive ADB loans. In 1999, through an issue of American Depository Shares, ICICI was listed on the New York Stock Exchange. With the new regulations in the banking industry and increasing opportunities for retail banking, ICICI set up ICICI Bank in 1994. Later in 2000, ICICI Bank acquired Bank of Madura and in 2002, ICICI Ltd., along with two other group companies, was merged with ICICI Bank. Through these mergers, and reorganization, ICICI Bank emerged as a formidable force in the banking industry. See Exhibit 13 and Exhibit 14 for the evolutionary path of ICICI Bank. As on March 31, 2007, ICICI Bank had 17 subsidiaries. N. Vagul had steadily built ICICI as a development financing institution through its early years and subsequently ICICI had successfully set up ICICI Bank in 1994. With the liberalization and privatization processes in India since 1991, the Indian banking industry had taken a different turn during the period 1991-2000. When K.V. Kamath took over as the CEO of ICICI Bank in 1996, the banking industry in India was fast changing with several banking deregulations underway and increasing competition in the market. Around this time, the bank had a high employee turnover to the extent that it could destabilize the operations of the bank. Kamath wondered how to manage the manpower. He also wondered if technology was a solution to handle some of these problems and would it also help in the company‘s growth plans.
International Banking:
By June 2001, ICICI Bank with a total income of INR 14690 million and successful domestic operation with a short span of its inception, the company was looking for growth for the future. The top executives including K.V. Kamath, Bhargav Dasgupta and Lalita Gupte wondered if they should enter the world markets and whether they would be able to compete outside their domestic turf. If at all they entered the international banking, in which products they should begin. With many large banks with large network of branches in India and abroad, how should ICICI Bank invest to get a share of the international banking business? Who should manage the international operations? Will the existing manpower in the bank be sufficient and be able to handle both the domestic and the international operations? In order to achieve growth, the Board of ICICI Bank decided to expand into international markets. The Board of ICICI Bank asked Lalita Gupte to lead the internationalization
process. Subsequently, Bhargav Dasgupta was invited to join Gupte to build the international banking business of ICICI Bank. The management team of international business deliberated on the international strategy of the firm. First, it looked into the existing model, where the bank followed its customers, whether corporate or retail. Second, it looked into the alternative modes of servicing the customers based in different parts of the world. Third, it evaluated on how to leverage its banking and business network to expand in the international markets. Today, the International Business Group has grown significantly and the IB Group consists of over 3000 people. It is further supported by nearly 300 technical people and 150 operational people. However, how did the company realize the plans it set forth for itself. How did the managers succeed in implementing their plans and ideas?
International Remittance Business:
Having scanned the world market on international banking with specific reference to world remittance business, foreign remittance to India and the size of Indian Diaspora spread across the globe, ICICI Bank focused on the international remittance business to begin with. The world remittance business has several major corridors. However, the company first focused to operate in the India corridor i.e., to provide remittance services from anywhere to India. The company undertook a detailed study of the leading players from India, type of product/service and proposition and the mode of platform for the delivery of services. During the period, 1996-2001, the State Bank of India with about 50 million customer base had about 17% growth. With nearly 9000 branches and 100 ATMs it had a large reach in the country. HDFC had over 200 ATMs, 130 branches, 1.4 million customers and had grown at about 74%. Citi Bank with 1.8 million customers had about 130 ATMs and 11 branches and grew at about 14%. ICICI Bank had over 5 million customers and had grown at 76%. It had 400 branches and 600 ATMs (see Exhibit 15). For its international remittance business, the company offered two major routes, viz., the Vostro Account and the Nostro Account. The Vostro system was essentially for customers with Indian Rupee Account and Nostro was for other customers. Nostro worked with the help of SMART software that is a middle ware called the Customer Delivery Channel Interface (CDCI). The various banking services of the company and the key features of each are provided in Exhibit 16. The commission/charges of the company for the different types of remittances vary from 0.125% to 0.2%. The details of the charges are provided in Exhibit 17. Does the company earn only from these commissions or does it earns from other means? Did it benefit anything from the currency float for sometime? While the company did create different accounts to cater to the international remittance and that there was possibly a good margin in the business, what were complexities that the company had to resolve in order to operate in the international remittance business? How could the technology be used seamlessly across the international borders?
Transactions had to be done across different regulatory frameworks of different countries, different time zones with different operating hours of people, different systems and processes in different banks based in different countries, international partners with different working styles. Further, with thousands of automated transactions in a day, the issues of reconciliation because of various differences in different countries and minor errors in data entry could block the whole transaction process. While banks are used to deal with all these issues through their manual transactions in the domestic business, the problems indeed were unlimited especially when technology was to be used to intermediate most of these international transactions. Views of a few senior executives from the International Business Division given below indicate the nature of complexities involved. “We needed to understand the clearing system in India and in other countries, regulatory norms of different countries, understand the technological interfaces, adopt architectural changes in our technology and develop several expertise to service our international clients seamlessly.” “Given the anti-money laundering issue in international money transfers understanding the „Know your Customer‟ norms in different countries were crucial for us to operate safely in this business” “It was indeed very different experience to work with our foreign partners. While we in India followed a top-down approach for scaling up any of our business models, our partners in USA and Europe used the bottom-up approach for scaling up. We had some difficulties in the beginning and had to accept the different working styles in other countries.” Anchal Kapoor, DGM, IB Division ―Our major concern in the international remittance business has been the „reconciliation of accounts‟. With thousands of transactions every day registered from different countries, minor manual data entry errors or technical errors could lead to severe restrictions to overall transaction process. Often, problems of reconciliation has been like a nightmare in this business‖ Girish Nayak, GM, IB Division Journal of Case Research Vol. 1 Issue ii 110
International Remittance Strategies:
ICICI as an organization is divided into six major product divisions like; Retail Banking, International Banking, Rural, Micro-Banking and Agri-Business, Government Banking and Corporate Centre. The ICICI Group strategy is summarized in Exhibit 18. The company identified international banking as a key opportunity, aiming to cater to the cross-border needs of clients and leveraging the domestic banking strengths to offer products internationally. ICICI Bank chalked out different strategies for different markets. In the traditional model, it offered partner bank based products and bank branch based products. In the Innovative
Model, it offered the online Product web-based access and alliance partners. See Exhibit 19 for the details of each offer. The overall strategy of the Group can be put into an analogy of a beautiful building with solid foundation and strong pillars supporting the structures as illustrated in Exhibit 19 b. The top management of ICICI Bank seems to have had a clear reason for the expansion of its business world-wide as can be seen from the statement below. ―We believe that we have to serve our customers anywhere in the world” K V Kamath, CEO However, how would a young bank from a developing country develop the network to challenge the existing well established highly networked international bank and exchange houses? How did the company plan to leverage with the correspondence banks and to leverage technology for its internationalization plans? With regard to these issues, the top management team responsible for the international business had the following thoughts. ―We cannot physically be everywhere our clients are, so we will leverage our correspondent relationship with other banks‖ Lalita Gupte, First head of International Business Group (IBG) “Adopting the alliances model, we have been able to garner presence and distribution reach as we set up operations globally. Our Unique Selling Proposition/Point (USP) has Journal of Case Research Vol. 1 Issue ii 111 been the use of technology as a differentiating factor to garner larger share of the NRI remittance business,” Bhargav Dasgupta, Former Director & Core Team Member of the initial IBG The company had substantially used the alliances and partner model in the domestic market and it tried to replicate the same in the international markets. In the domestic market it had alliances with the airlines and travel houses. The objective was to target NRI when they were either visiting or leaving India. It also had a focused marketing approach in the domestic market, where it tied up with universities and companies from where students and employees were likely to migrate to foreign countries for different purposes. Exhibit 20 shows the details of the initiative that ICICI Bank had undertaken in the domestic front during 1996-2001. To tap the opportunities in the remittance market in India ICICI launched a remittance product in association with US based Wells Fargo to enable non resident Indians in the US to send money to India directly from their Wells Fargo account to their beneficiary‘s ICICI Bank account in India in just 24 hours. It also launched a partnership with Mees Pierson, Fortis‘ private banking arm to provide a full range of high net worth products and services to ICICI‘s clients in India and abroad.
Technology Issues:
While the standard mode of collection and transfers of foreign remittances were through physical outlets of the banks or the exchange houses, ICICI Bank was very weak on this type of resource base to compete with the well established exchange houses and banks. The fixed cost of setting up a physical outlet and the variable cost of maintaining a setup have generally been very high both in India and more so in the industrially advanced countries. The company adopted technology as a solution to most of its business transaction, products and services. The company set up an internet portal for NRI to transfer money to India. In the above context, if the company adopted the technology route, what would be issues of implementing the technology for dealing with foreign remittance business? What were the initial costs of investments in technology? How did
the company target the customers? What kind of technology platforms would the company use? Did the company have a technology policy? What were methods of organization to introduce technology for various businesses? What were the major challenges in technical support? What would be the next technological challenge for the company? Did the company have an advantage of having no experience of foreign remittance business in the traditional mode? The company went in for using technology for carrying out its remittance business. It spent about 10 million USD toward the initial cost of technology investments in remittance business alone and today it spends about 30 - 40 million USD. When the company decided to enter the international market, it dedicated only about 100 million USD to expand to seven countries. Even though the company adopted the electronic route to transfer money, it needed the collaborations with several correspondents, viz., the exchange houses, foreign banks, and agents. How did they convince the foreign partners to agree to their mode of money transfer? How did the company tie-up with the banks for serving the beneficiaries of the remittances? While the people had no option but to send money in the traditional way, the software professionals with easy access to internet were early to adopt the technology solutions to money transfer that the company offered. Further the speed of delivery and tracking facility were additional advantages in the mode proposed by the company. Money could be delivered with in 3-7 days if correspondent was a foreign bank and within 2-3 days if the correspondent was an Indian bank. Setting up the technology platform was a critical issue. What would be the difficulty if the company used different systems? Would java based Windows operating system, Pramati layer as server, Oracle database management system and the Sun Solaris Platform be compatible to each other? How critical were the issues of memory capacity processing speed in the business? With technology as the mode of remittance transfer, the business became round the clock (24*7). How would the company handle this situation? Can the company work only on a
fire fighting basis or needed to root fix the technical problems? As per the NEFT routing norms and IBRD regulations of punching time that is between 2PM-4PM, the pressures to carry out the transactions increased substantially. Further, ISB is yet another key issue in the whole system. The need for highly skilled manpower, lean teams operating round the clock, providing connectivity, session management, and parallel operations could have been some ways to handle the challenges posed. Views from a few senior executives from the Technology Group given below highlight various issues. ―Our challenge was to develop standard application programming interface (API) and standard messaging protocols, taking into account the know your customer regulations in different countries and incorporating fields for different types of data to capture all relevant information to meet regulatory norms in different countries from where the bank received remittance business.‖ Indranil Ghosh, AGM, Technology Group With regard to the technology policy of the company: ―The policy of the technology group has been to spend judiciously, get the best deal from the vendors, and make full use of the servers to their optimal levels. Make full utilization of the memory and the CPU capacity.‖ “The top management identifies the technology edge and estimates the enterprise wide technology requirements. The technology policy is aligned to our business requirements. Based on the needs of business groups, annual budgetary proposals are made by the Technology Group. These proposals are then given to the Managing Director for approval. There are about 5-6 Group Heads of technology and each Group Head leads 3-4 team leaders. Each team of technical experts works on a specific problem.” M.S. Seetharaman, DGM, Technology Group If the company were to move from ‗anywhere to India route‘ to ‗anywhere to anywhere route‘ in the remittance business, what would be the technological challenges? How does the company handle the issue of scalability? Today the average number of transaction is about 8000 per day in the India corridor, how would this change if the company were to go ‗anywhere to anywhere transaction‘. Will the Unix system serve its future capacity requirement?
Operational Issues:
The company had two types of accounts viz., Vostro INR Account and Nostro Account. Further, three different types of Nostro Accounts were initially created that are for NRI Accounts, Credit Services, and Treasury. About 180 correspondents operate through the Vostro Account and about 40 correspondents operate through the Nostro Account. For every transaction, a swift code is generated and that is then passed on to the Finacle Core Banking system of ICICI Bank. Instead of a one to one transaction, ICICI Bank accumulates all the remittances and carries out a bulk transaction at one go. The automatic process involves talking of different systems with each other. The SWIFT message with remittance details from the correspondents, the core banking system (Finacle) of ICICI Bank, foreign exchange rate system, and the NEFT system have to process and clear the data for completion of a transaction and receipt of money (INR) at ICICI Bank in Mumbai. On an average, the company today handles about 8000 remittance transactions a day and about 100,000 remittance transactions a year. The issue of concern in the operations is when there is non-straight through transaction resulting in non reconciliation of accounts. On an average there has been as much as 6065% non-straight through process (STP) transactions in the Nostro system in the beginning. Today, ICICI Bank still gets about 20% non-STPs in the Nostro system and about 8% non-STP occurs in the Vostro system. With a 24*7 hours operating system in the global remittance business, how will the operations be managed? While an appropriate design of the architect and platforms with largely compatible technology may be adopted to meet the memory capacity and processing speed, what would be the typical operational issues when dealing with foreign transactions that might originate in any of the foreign countries (with a set of banking rules and regulation) and need to be remitted in India? ICICI Bank can receive payments from different banks and the payments to the beneficiary of the remittance may be remitted in a different bank. How would the company deal with these complexities? The company deals with nearly 8000 transactions a day that come from different countries and from different banks and it gets about 2 hours to punch in the client and beneficiary details for routing transfers to
India through the NEFT. What kind of operational problems will the company face? A NRI could choose to transact through Money2India, the foreign remittance portal of the ICICI Bank (see Exhibit 21 for the steps to transaction). Would the operational issues be resolved through such portals for foreign remittance transactions? How much can the integration of the various systems of SWIFT, Finacle, Foreign Exchange Rate, and NEFT solve the problems of non STPs? What if other correspondent banks or agents are not using the same systems? How much of errors occur because of human error in data entry? The number of non ICICI Banks that used NEFT has risen from 13,000 a few years ago to 40,000 today. Name matching is also used to bypass syntax errors in data entry. Integrating systems within ICICI Bank is another issue. The basic Finacle Core Banking system has been developed by Infosys Technologies.
However, this has been modified and upgraded to meet the needs of ICICI Bank. “We have leveraged our good relationship with Infosys to develop the Finacle Core Banking system to meet our needs and to fully integrate our core banking system with the SWIFT system. We are trying to integrate our Finacle Core Banking system with the other systems that we interact with. We are also trying to convert non electronic transaction like the transaction through demand draft to electronic transaction and we have been fairly successful in reducing the volume of demand draft transactions from 2530% to 13%.” Jegannath Shreenivas, GM, Operations Group Why would a customer prefer demand draft (DD) to electronic fund transfer? With DD a beneficiary can credit the money to any of his or her accounts in India. Further, DD is easy to deliver to beneficiaries based in remote and rural India that are unconnected with the electronic systems. A strong team of about 150 operational professionals are dedicated to remittance business in the company. Eighty of them are based in Mumbai (in Western India) and seventy are based in Hyderabad (in Southern India). The operations team works closely with the remittance business group. When a new product is proposed by the Business Group, the technology, operations and the legal teams meet to assess the support requirement. The product and process needs to be approved by the Product and Process Committee before any product is undertaken to the product launch stage. The operation group has periodic reviews with International Business group. The operations group has more intensive reviews and dialogues. In the initial years, the operations group and the technology group had Technology Forums every quarter. However, for the last three years, since 2006, Technology Forums are organized every month. The Finacle Customer Relationship Management system helps the operations group to lodge their requirements/complaints to the technology group and the daily Management Information System (MIS) further aids the dialogue process between operations and technology groups.
ICICI Bank & Remittance Business Today:
ICICI Bank has grown in size and strength within a short span of time. It is the largest bank among the private sector banks in India. It has built a large number of subsidiaries which add to the networking and business strength of the company (see Exhibit 22 for list of subsidiaries). ICICI Bank today has a global foot print with subsidiaries in the United Kingdom, Russia and Canada, bank branches in Singapore, Bahrain, Hong Kong, Sri Lanka, Dubai International Finance Centre and Qatar Financial Centre and representative offices in the United States, United Arab Emirates, China, South Africa, Bangladesh,
Thailand, Malaysia, and Indonesia. As per the current statistics, ICICI Bank has more than 450,000 NRI customers managed by or serviced by the branches in locations like London, Leicester, Manchester, Southall, Wembley, Birmingham, Belgium, Scarborough, Toronto Downtown, Toronto East, Brampton, Vancouver, Surrey, Moscow and Kaluga. ICICI Bank, UK has received regulatory approvals for establishing a branch in Frankfurt, Germany. See Exhibit 23 for the company‘s global presence. The company has also had a huge growth and has had healthy financial position (see Exhibit 24). The company has been looking forward for engaging fully with the growth of the Indian economy. The future plans and strategy of the company can be read through the comments (given below) of the top management: “ICICI Bank is seeking to participate in India‟s growth process by leveraging its strong competencies in various segments of the business. We are continuing our focus on retail banking. We are partnering Indian companies by providing the right product and advisory skills to aid their rising global aspirations. Rural India continues to be significantly untapped market and presents a major growth opportunity, which we are seeking to address through innovative products and delivery mechanisms. We seek to support this strategy with financial and human capital, as we move to the next level in terms of scale of operations. Looking ahead, we see ourselves as the premier provider of financial services in India and to Indian customers overseas, partnering our customers and the nation in achieving growth and prosperity.” N. Vaghul, Chairman “Looking ahead, we believe that India will sustain high growth rates for the foreseeable future, driven by the knowledge economy and industrial resurgence, to which rural growth could bring an additional new dimension. As an Indian financial services group, we seek to facilitate and participate in this growth process by making a wide range of financial products and services available on a large scale, accessing capital to support growth when necessary. Achieving size and scale aligned to the needs of a fast growing modern economy, with relevance in the global context, will be a key success factor as India grows and globalizes.” “The bank expects one-fourth of its balance sheet from the overseas business and also aiming to make a position among the top ten banks of the world within next five years.” K.V. Kamath, Chief Executive Officer “The last fiscal saw a significant scale-up of our international operations and expansion of our global footprint to 18 countries. We are now a preferred international bank, offering best-in-class products to Indian corporations going global and the Indian Diaspora by leveraging our international presence and strong technological capabilities. Our products and services for the NRIs were supplemented by offerings to the local customers, furthering our transformation into a global bank. Indian corporations are today undertaking large projects, big-ticket overseas acquisitions and rising huge capital from international markets. Our corporate banking strategy takes a unified global view of our clients and offers them a comprehensive suite of commercial and investment banking products apart from the working capital loans and project finance.”
―We are now India‟s biggest bank in terms of overseas business is concerned and from here we are aiming at a contribution of 25 per cent from international business in 2008.” Chanda Kochhar, Joint MD and Chief Financial Officer2
2 The
designations of executives given in the case were as when the case was being studied and written in the year 2008.
Questions for Discussion
1. What are the major issues of internationalization that the above case throws up? 2. What were the challenges faced by ICICI Bank while entering new markets? 3. What are the international strategies of ICICI Bank that would be applicable to other Indian companies going international? 4. What are the international strategies of ICICI Bank that are unique and are not applicable to other Indian companies? 5. How did ICICI Bank successfully operationalize its international strategy? Journal of Case Research Vol. 1 Issue ii 120
Exhibit 1: World Remittance Trends 2007 (in $ billion)
Emirates 1(DIFC) — 6 — — — — — — — 1(DIFC) — 8 United Kingdom 6 — 8 6 1 — — — 1 — — — 22 United States of America 3 — 1 2 — — — — — — — — 6 Total 33 1 40 21 2 3 6 1 1 4 5 2 119 Notes: AHB – Allahabad Bank, IOB – Indian Overseas Bank, BoB – Bank of Baroda, PNB – Punjab National Bank, BoI – Bank of India, DFIC – Dubai International Financial Centre
Source: Department of Banking Operations & Development, Reserve Bank of India. Journal of Case Research Vol. 1 Issue ii 129
Exhibit 12: Indian Banking Challenges & ICICI Bank
With a chain of more than 65,000 branches, Indian Banking system is one of the largest banking networks in the world The retail-banking sector contributes 1/5th of the overall bank credit. The Indian retail-banking sector is growing at a rate of 122% per annum. The retail-banking sector of India will reach a worth of $310 billion by the year 2010, predicted by the experts. During the year 2000-2005, the entire assets of the banking industry increased with a compound annual growth rate of 14% touching a worth of $523 billion from $ 271 billion. The profits of Indian banking industry jumped at a compound annual rate of 26% touching a worth of $ 5.2 billion from $ 1.55 billion. Banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. Continuous deregulation has made the banking market extremely competitive with
greater autonomy, operational flexibility and decontrolled interest rate and liberalized norms for foreign exchange. Marketplace has been redefined with new rules. Banks need to access low cost funds and simultaneously improve the efficiency. Customers have become demanding and the loyalties are diffused. The competency gap needs to be addressed otherwise there will be missed opportunities. Investing in state of the art technology as the backbone to ensure reliable service delivery. Innovating products to capture customer ‗mind share‘ to begin with and later the wallet share. Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction. The banks need some transformation initiatives in various fields for the emerging challenges. These initiatives includes areas like; Strategy, Brand, Organization Restructuring, Re-engineering of the key business processes, Cost efficiency, Right Sizing and matching of skills, Creating a high performing organization, Change management and creating a new mind set. ICICI Bank set-up an International Banking Group to implement a focused strategy for its international banking business. ICICI was the first Indian institution to be licensed by Qatar Financial Centre (QFC). As on December 31, 2006 ICICI Bank had an asset base of around US$ 67 billion. In 2006 ICICI Bank has shown a continuous growth in its profit. Source: RNCOS Report, ECS Limited, Authors‘ research Journal of Case Research Vol. 1 Issue ii 130
Exhibit 13: Evolutionary Path of ICICI Bank
Year Milestone
1955 The Industrial Credit and Investment Corporation of India Limited (ICICI) incorporated at the initiative of the World Bank, the Government of India and representatives of Indian Industry. 1960 ICICI building at 163, Backbay Reclamation, inaugurated. 1967 ICICI made its first debenture issue for INR 60 million, which was oversubscribed 1969 The first two regional offices in Calcutta and Madras set up 1977 ICICI sponsored the formation of Housing Development Finance Corporation. Managed its first equity public issue. 1986 ICICI became the first Indian institution to receive ADB Loans 1993 ICICI Securities and Finance Company Limited in joint venture with J.P. Morgan set up 1994 ICICI Bank set up Through the merger of Industrial Credit and Investment Corporation of India Ltd (ICICI) and Shipping Credit and Investment Corporation of India Ltd (SCICI) by their initial capital contribution of 75:25 respectively. 1997 The name The Industrial Credit and Investment Corporation of India Ltd. Changed to ICICI Ltd and ICICI Ltd announced the takeover of ITC Classic Finance. 1999 ICICI Bank was listed on the NYSE through an issue of American Depositary Shares. 2000 ICICI Bank announces merger of Bank of Madura 2001 The Boards of ICICI Ltd. and ICICI Bank approved the merger of ICICI with ICICI Bank.
2002 ICICI Ltd. merged with ICICI Bank 2003 ICICI Bank announced the setting up of its first ever offshore branch in Singapore The first offshore banking unit (OBU) at Seepz Special Economic Zone, Mumbai, launched ICICI Bank‘s representative office inaugurated in Dubai Representative office set up in China ICICI Bank‘s UK subsidiary launched ICICI Bank subsidiary set up in Canada 2004 Mobile Banking Service in India launched in association with Reliance Infocomm India‘s first multi-branded credit card with HPCL and Airtel launched 2005 First Indian company to make a simultaneous equity offering of $ 1.8 billion in India, the United States and Japan Acquired Ivestitsionno Kreditny Bank of Russia ICICI Bank became the largest bank in India in terms of its market capitalization 2006 ICICI Bank subsidiary set up in Russia Representative offices opened in Thailand, Indonesia and Malaysia 2007 Sangli Bank amalgamated with ICICI Bank ICICI Bank signed a multi-tranche dual currency US$ 1.5 billion syndication loan agreement in Singapore ICICI Bank Eurasia LLC inaugurated its first branch at St Petersburg, Russia 2008 ICICI Bank enters US, launches its first branch in New York ICICI Bank enters Germany, opens its first branch in Frankfurt ICICI Bank announces in May 2008 to open 4 new offices in USA
Source: ICICI Bank Ltd. Journal of Case Research Vol. 1 Issue ii 131
Exhibit 14: Development of ICICI Bank
Industrialization (1955 – 1964), ICICI was among the World‘s first development banks in the private sector, to quickly emerge as an important source of foreign currency loans in the country, to facilitate import of industrial machinery and technology. During this period ICICI was assisted with over 400 companies. Reorganization (1965 – 1974), A phase of Green Revolution and an emerging need in the various sectors. To cater these needs ICICI has started export finance, concessional funding in industrially backward areas and loans for small enterprisers. Consolidation (1975 – 1984), ICICI had consolidated and broad based the financial system by setting up state level financial and technical institutions and the countries first finance institution with housing specialization. This was the period when obstacles like oil stock came into picture. Liberalization (1985 – 1994), A phase, India began to open up which leads to the private enterprise and free play of market forces and ICICI saw the opportunity to diversify to meet the requirements of the new paradigm, and set up country‘s first rating agency, first venture capital company and entered into asset management and banking. Globalization (1995 – 2004), Created both challenges and opportunities, because of the India‘s move towards global economy. But ICICI enabled consumption-led growth by
accelerating the availability and affordability of retail finance and bringing world class technology to banking, and by this it became the first Indian bank to list on the New York Stock Exchange and emerged as a leading universal bank in India. Journal of Case Research Vol. 1 Issue ii 132
Exhibit 15: Share of different Indian Banks in NRI Market, 1996-2001
Indian Public Sector Banks Indian Private Sector Banks Foreign Banks in India services Student loans Bridge cards Gift services Source: ICICI Bank, Internal Document, 2001 Journal of Case Research Vol. 1 Issue ii 138
Exhibit 21: Foreign Remittance Steps: New York – Mumbai*
―X‖ a remitter, must register himself as a user with Money2India Web site ―X‖ can opt to transfer money through the Automated Clearing House, which is the clearing network for electronic funds transfer in the US. ―X‖ needs to provide detail such as his US bank account number, the type of account that he holds and the 9 digit routing number (a number given by the US Fed to identify every branch in the US) ICICI Bank will validate the account for security reasons within 3 days. It does this by making two small deposits and a withdrawal. Once the validation is done, ―X‖ will be informed about this and he can initiate the process of transferring money. After logging on to the Money2India website, he must provide the details of the beneficiary such as Name, Address, Bank Account, Currency etc. The money is transferred from his US bank account after 1 to 2 working days to ICICI Bank, New York. ICICI Bank in Mumbai receives the payment instruction from ICICI bank New York via SWIFT. In the event of the beneficiary having a different bank account (non-ICICI Bank) it may take another day. *The dollars are converted in Mumbai and the rupee equivalent is credited to the ICICI Bank account of the beneficiary on the 5th working day after transfer from the US bank account Source: Business Line, Aug. 03, 2006 Journal of Case Research Vol. 1 Issue ii 139
Exhibit 22: Subsidiaries of ICICI Bank
Domestic International 1. ICICI Securities Limited1 2. ICICI Securities Primary Dealership Limited2 3. ICICI Prudential Life Insurance Company Ltd. 4. ICICI Lombard General Insurance Co. Ltd. 5. ICICI Prudential Asset Management Co. Ltd.4 6. ICICI Prudential Trust Limited 6 7. ICICI Venture Funds Management Co. Ltd. 8. ICICI Home Finance Company Limited 9. ICICI Investment Management Company Ltd. 10. ICICI Trusteeship Services Limited 1. ICICI Bank UK Plc. 2. ICICI Bank Canada 3. ICICI Wealth Management Inc.3 4. ICICI Bank Eurasia Limited Liability Co. 5. ICICI Securities Holdings Inc.5 6. ICICI Securities Inc.7 7. ICICI International Limited
1. Formerly known as ICICI Brokerage Services Limited. 2. Formerly known as ICICI Securities Limited 3. ICICI Wealth Management Inc. was incorporated as a subsidiary of ICICI Canada in fiscal 2007. It has not yet been capitalized and is yet to commence operations. 4. Formerly known as Prudential ICICI Asset Management Company Limited. 5. Subsidiary of ICICI Securities Limited 6. Formerly known as Prudential ICICI Trust Limited 7. Subsidiary of ICICI Securities Holdings Inc.
Journal of Case Research Vol. 1 Issue ii 140
Exhibit 23: Global Foot Prints of ICICI Bank, 2008
USA
UK
Australia
Fiji
GCC
Mauritius
Indian Indian Diaspora: >1,392,000 Diaspora: 336,829 Indian Diaspora: 714,718 Indian Diaspora: 1,678,765 Indian Diaspora: 2,200,000 Indian Diaspora: 190,000
Journal of Case Research Vol. 1 Issue ii 141 Journal of Case Research Vol. 1 Issue ii
142
Exhibit 24: ICICI Bank: Financial Details (in INR 10 million)
Mar98 Mar99 Mar00 Mar01 Mar02 Mar03 Mar04 Mar05 Mar06 Mar07 12mths 12mths 12mths 12mths 12mths 12mths 12mths 12mths 12mths 12mths Total Income 347.623 642.80 1048.10 1469.09 2762.28 12533.37 12069.23 12949.57 19368.34 29957.23 PAT net of P&E 50.26 63.45 105.43 161.23 253.04 -2.66 1598.41 1861.19 2492.97 2995.00 GFA 218.76 261.56 315.15 589.68 4494.30 4812.98 5090.21 5525.65 5968.56 6298.57 Net Worth 266.75 308.33 1149.51 1312.62 6594.96 7283.31 8360.56 12899.98 22555.99 24663.26 Borrowings 192.23 367.89 659.47 1200.80 58969.97 44051.95 39846.11 41753.40 48666.30 70661.14 PBDITA/Total Income (%) 77.82 83.47 79.58 75.64 69.39 64.00 78.03 73.70 72.66 71.55 PAT net of P & E /Tot inc (%) 14.45 9.86 10.05 10.97 9.37 10.66 13.61 15.66 13.15 10.42 RONW 22.39 22.03 14.45 13.09 6.53 17.38 20.93 18.86 14.33 13.17 ROCE 16.08 11.91 9.44 8.70 0.80 2.17 3.44 4.06 4.25 3.93 Investments - - - - 35891.08 35462.30 43435.52 50487.35 71547.40 91257.83 Equity shares - - - - 2516.83 2424.54 3107.92 3981.47 4918.55 6009.49 Debt instruments - - - - 29158.67 31238.49 35450.07 37343.50 53012.71 70127.56 Group companies - - - - 608.18 782.13 1423.65 2066.69 2860.70 4072.23 Non-group companies - - - - 8345.01 7332.33 7233.37 4768.81 3861.88 4400.08
GFA: Gross Fixed Asset, RONW: Return on Net Worth, ROCE: Return on Capital Employed
Source: CMIE Data Base Journal of Case Research Vol. 1 Issue ii 143
References:
1. Company Annual Reports, http://www.icicibank.com 2. SANSCO Data Base, Xavier Institute of Management, Bhubaneswar
3. CMIE Data Base, Xavier Institute of Management, Bhubaneswar 4. ISI Emerging Markets, Xavier Institute of Management, Bhubaneswar 5. http://www.nriinternet.com 6. Business Line – August 03, 2006 7. http://www.bis.org/review/r050321g.pdf 8. http://www.unescap.org/drpad/publication/fin_2206/part4.pdf 9. http://www.iupindia.org/books/GoingGlobal-Strategies_ovw.asp 10. ICICI‘s Global Expansion, Tarun Khanna & Ramana Nanda, 9-706-426, September 27, 2006, Harvard Business School 11. ICICI Bank, Path to Globalization, Boris Typsin & Ashok Som, 306-507-1, ESSEC Business School, ECCH
INTRODUCTION
The story of ICICI Bank indeed is quite exciting as we look into how the company has internationalized its business vis-a-vis the other banks from India. With the least number of international bank branches as compared to many of the other Indian banks, it stands tall in terms of its share of international business, especially in the foreign remittance business. In a short period of time, it has grown to be the largest bank in the private sector with a global foot print. Its share of international remittance business among the banks in India has risen from 4% in 2003-04 to about 30% today while retaining over 75% of the total online international remittance business in India. How did it grow so fast? Did it face any challenges at home or outside to achieve these successes? What have been its strategies in the internationalization process of its business? In other words, what have been the secrets of its success? Several pertinent questions come to mind when we look at the pace of growth of this company in a highly turbulent and competitive world of international banking that has been guarded for years by the well established, highly networked, international banks and remittance business houses. Let us explore some of the following issues to understand the company‘s approach towards internationalization and how it broke through the old guards of international banks and remittance business houses. Why did ICICI Bank want to internationalize its business? Why did ICICI Bank choose to get into remittance business? What are the various sources of foreign remittance? How did the company reach the customers without physical presence? What are the various products on remittance business? What have been the challenges working with international partners and markets etc? What were the basic strategies of ICICI Bank to succeed in its international operation? How critical was technology in the global remittance business? What are its problems of delivery in India? What are the technological challenges that the company faces? Not only was the company faced with the challenge of competition from other established players in the industry but also from potential customers for international banking and remittance business.
World Banking & Remittance Business:
The history of banking started with the transaction between goldsmith and people. As a token of receiving gold the goldsmith used to issue a receipt. In this process the goldsmith started issuing receipts for specific values of gold, and it became the first banknotes. With the start of the industrial era goldsmiths turned into full-fledged bankers. Indeed they have played a major role in the initial phase of industrialization. To further increase their power and influence, these banking groups started influencing governments or monarchies and strategically utilized the service of these governments or monarchies for their self interest. And as a result only those politicians came to power who have played according to the will of banking groups. In the twentieth century these banking groups were able to discover a new way of money transformation, which identifies that by periodically restricting the money supply, crashes within the emergent stock exchanges of the world could easily be engineered, and one can examine this statement from the example of famous Wall Street Crash of 1929. In economic terms it will be categorized as transfer of wealth rather than destruction of wealth. In the later stage these groups were concentrating on destabilizing a multitude of traditional cultures and creating a series of homogenized trading blocks to replace them. Banking has been the stronghold of established business houses. It was more so in the foreign remittance business. Large Exchange Houses with huge banking and distribution networks gave little scope for other banks to enter this business. ICICI Bank, though energetic did not have the nature of infrastructure to enter in to the international markets. Even some of the Indian Banks had more overseas branches than ICICI Bank had. It had only about six years of experience as a bank operating in the retail segment. Entering into such an international banking and foreign remittance business was a tough call for ICICI Bank in 2001. How did the company make inroads to such a global industry? While the inflows in the world remittance business has grown by about 90% over the period 2002-07, the inflow of remittance business in the developing countries has grown by nearly 110% during the same period. Out of a total inflow of remittances of $ 318 billion in the world, developing countries accounted for $ 240 billion. The highest growth of 136% has been in the upper middle income countries. Interestingly, on the other hand, the outflows of remittances from the developing countries have been as high as 226% during 2002-07 (see Exhibit 1). The market for remittance business to India during 1975-2003 is best illustrated in Exhibit 1b. India, Mexico and Philippines have been the top remittance receiving countries for over a decade now. China, Spain, and many others have also shown significant growth during the same period. Remittances received by India have grown from US$ 8,453 million to US$ 27,607 million during the period 2002-06 (see Exhibit 2). Why have been there such high growths in the developing countries? Is it the Diaspora of the developing countries in the industrially advanced countries? Is the differential in interest rates in the industrially advanced country the cause for the movement of foreign capital to the developing countries? The annual rate of interest in Japan is the lowest with
around 1-2% for short term loans up to one year period. Similarly, the rate of interest in USA, Europe, and Great Britain ranges between 3-6% as compared to 10-18% in several developing countries like India (see Exhibit 3). Indian business through export and Import has also grown several times over during the last two decades. From a crisis of foreign exchange in 1991, India has moved far ahead from it. From US$ 5.63 billion foreign currency reserve in 1991, the amount stood at US$ 199.17 billion in March 2007. NRI deposit in India has also grown by over 300% during the same period (see Exhibit 4 & 5). See also Exhibit 6 for the inflows, outflows and local withdrawal figures for the period 1999-2008. How have these factors contributed to the foreign remittance business?
Indian Banking Industry:
In 1786, the first bank in India got established. The General Bank of India was set up in the year 1786 and subsequently the Bank of Hindustan and Bengal Bank came into existence. In 1809 East India Company established Bank of Bengal, Bank of Bombay in 1840, and Bank of Madras in 1843 as independent units and called it Presidency Banks. Allahabad Bank was established in 1865, exclusively by Indians. The Reserve Bank of India was established in the year 1935. The Government of India came up with the Banking Companies Act, 1949 to streamline the functioning and activities of commercial banks. This was later changed to Banking Regulation Act 1949 as per the amendment act of 1965. After independence the government took major steps in banking sector reforms. It nationalized many banks and formed State Bank of India to act as the principal agent of RBI to handle banking transactions all over the country. The Government instituted a number of policies such as (i) 1949: Enactment of Banking Regulation Act (ii) 1955: Nationalization of State Bank of India (iii) 1959: Nationalization of SBI subsidiaries (iv) 1961: Insurance cover extended to deposits (v) 1969: Nationalization of 14 major banks (vi) 1971: Creation of credit guarantee corporation (vii) 1975: Creation of regional rural banks (viii) 1980: Nationalization of seven banks with deposits over INR 2000 million As the Indian economy opened up, several foreign banks came to India. ATM stations, phone banking and net banking were introduced in the country. Slowly the customers were introduced to foreign exchange. Indian banking industry‘s business has increased from US$ 469.4 billion in 2002 to US$ 1171.29 billion in 2007. The aggregate deposits of Scheduled Commercial Bank have risen from 17.8 percent in 2005-06 to 25.2 percent as on January 4, 2008. With all these achievements Indian banks started aspiring to
become global and have a global presence. Many Indian banks started to expand their branches in foreign countries. Setting up subsidiaries and investing in joint ventures were other modes for international expansion.
Remittance Business & Indian Banks:
Remittances include different kinds of monies that flow from migrants to their families. These include regular amounts of money that are important for the family budget, money sent for investment like the purchase of land or the building of a house, community development like building of a temple, repayment of family debt, and gift money for family celebrations. Remittances are unlike market flows of money for they are not sensitive to interest rate movements and are relatively stable (RBI, 2004). This flow of funds from migrant workers back to their families in their home country is an important source of income in many developing economies. The recipients often depend on remittances to cover day-to-day living expenses, to provide a cushion against emergencies or in some cases as funding for small investments. For a remittance service to work, it needs to have some kind of network (access points where funds can be captured and disbursed, and procedures to link those access points to enable settlement and messaging). It is possible to divide remittance service into various categories like unilateral, franchised, negotiated, and open. All these types are different primarily according to how a network of access points is created and linked. The categories have no absolute dividing lines but are useful for helping to clarify some of the payment issues that arise with remittances. India is the largest receiver of remittances in the world market with about US$ 28 billion in 2006. This large amount of remittance came from various countries and regions like USA, Europe, and the Middle East with a major share coming from USA. Indeed, foreign remittances accounted for about 3% of India‘s GDP, making it an area of interest across domestic financial services sector. Private transfers that earlier contributed less than 1 % of GDP in India, has contributed over 3% since 2001-02 (see Exhibit 7). Private transfers have been routed to India through various means like inward remittances, local withdrawals or redemptions from NRI deposits, gold and silver brought through passenger baggage, personal gifts, donations to charitable/religious institutions in India, etc. There has been steady rise in all these various categories of private transfers (see Exhibit 8). The Indian remittance market comprises of multiple corridors, each with a distinct set of
customer segments that have diverse remittance needs and behavior. Indian immigrants follow a varied profile across geographies providing cheap labour in the GCC countries and to meet the needs of specialized software developers, doctors, engineers, and nurses in US, Europe and Australia. This creates two distinct types of immigrant; blue-collar workers and white-collar workers. According to the World Bank the value of migrant remittance is increasing at a rate of 10% every year, which offers significant business opportunities for banks and income through three ways, viz., remittance charges, forex income & float income. What has been driving the growth of private transfers including the foreign remittances to India? Is it the huge Indian Diaspora spread across the world? Indians comprise about 58 % in Mauritius, 38% in Fiji, 37% in U.A.E, 19% in Bahrain, 10 % in Oman and 7% in Singapore. Over a million Indians live in several of the industrially developed countries like U.K. (2.2 million), Australia (1.9 million), U.S.A (1.68 million) and South Africa (1.1 million). Many people from this large Indian Diaspora look forward to remit some of their income back to India for various purposes. Indian banks are also well spread in many foreign countries; 22 branches in U.K., 11 branches in Hong Kong, 9 each in Fiji and Singapore (for details see Exhibit 9). There are a large number of banks in India with wide networks, large deposits and huge manpower to tap the opportunities in the foreign remittance business and other private transfer business. For the statistics of banks in India see Exhibit 10. Several Indian banks have branches in many foreign countries. Allahabad Bank has 40 foreign branches, State Bank of India has 33 foreign branches, and Bank of India has 21 foreign branches (see Exhibit 11). With rapid changes in the regulatory policies of the Government, India has turned out to be a hot spot of business activity in the world. The regulatory changes in the banking industry and the ever increasing demands of the global Indian compound the dynamics of business for the banks in India (see Exhibit 12 for the challenges that the Indian banking industry have been facing). Competition among the Indian banks is also well poised. Different banks have different strengths and have different strategies on aspects like retail/product capability, customer base and delivery / technology platforms. In the above context of worldwide banking, Indian banking industry, global Indians spread across the continents, and studying the internationalization process of ICICI Bank through the remittance business is exciting to analyze.
History & Evolution of ICICI Bank:
The Industrial Credit and Investment Corporation of India Limited (ICICI) was created in the year 1955 with an joint initiative of the World Bank, the Government of India, and representatives of Indian industry, for a common objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses. Besides funding from the World Bank and other multi-lateral agencies, ICICI was the major source of foreign currency loans to the Indian industry. Apart from this ICICI was also among the first Indian companies to raise funds from international markets. In 1977, ICICI sponsored the formation of Housing Development Finance Corporation. ICICI was also the first Indian institution to receive ADB loans. In 1999, through an issue of American Depository Shares, ICICI was listed on the New York Stock Exchange. With the new regulations in the banking industry and increasing opportunities for retail banking, ICICI set up ICICI Bank in 1994. Later in 2000, ICICI Bank acquired Bank of Madura and in 2002, ICICI Ltd., along with two other group companies, was merged with ICICI Bank. Through these mergers, and reorganization, ICICI Bank emerged as a formidable force in the banking industry. See Exhibit 13 and Exhibit 14 for the evolutionary path of ICICI Bank. As on March 31, 2007, ICICI Bank had 17 subsidiaries. N. Vagul had steadily built ICICI as a development financing institution through its early years and subsequently ICICI had successfully set up ICICI Bank in 1994. With the liberalization and privatization processes in India since 1991, the Indian banking industry had taken a different turn during the period 1991-2000. When K.V. Kamath took over as the CEO of ICICI Bank in 1996, the banking industry in India was fast changing with several banking deregulations underway and increasing competition in the market. Around this time, the bank had a high employee turnover to the extent that it could destabilize the operations of the bank. Kamath wondered how to manage the manpower. He also wondered if technology was a solution to handle some of these problems and would it also help in the company‘s growth plans.
International Banking:
By June 2001, ICICI Bank with a total income of INR 14690 million and successful domestic operation with a short span of its inception, the company was looking for growth for the future. The top executives including K.V. Kamath, Bhargav Dasgupta and Lalita Gupte wondered if they should enter the world markets and whether they would be able to compete outside their domestic turf. If at all they entered the international banking, in which products they should begin. With many large banks with large network of branches in India and abroad, how should ICICI Bank invest to get a share of the international banking business? Who should manage the international operations? Will the existing manpower in the bank be sufficient and be able to handle both the domestic and the international operations? In order to achieve growth, the Board of ICICI Bank decided to expand into international markets. The Board of ICICI Bank asked Lalita Gupte to lead the internationalization
process. Subsequently, Bhargav Dasgupta was invited to join Gupte to build the international banking business of ICICI Bank. The management team of international business deliberated on the international strategy of the firm. First, it looked into the existing model, where the bank followed its customers, whether corporate or retail. Second, it looked into the alternative modes of servicing the customers based in different parts of the world. Third, it evaluated on how to leverage its banking and business network to expand in the international markets. Today, the International Business Group has grown significantly and the IB Group consists of over 3000 people. It is further supported by nearly 300 technical people and 150 operational people. However, how did the company realize the plans it set forth for itself. How did the managers succeed in implementing their plans and ideas?
International Remittance Business:
Having scanned the world market on international banking with specific reference to world remittance business, foreign remittance to India and the size of Indian Diaspora spread across the globe, ICICI Bank focused on the international remittance business to begin with. The world remittance business has several major corridors. However, the company first focused to operate in the India corridor i.e., to provide remittance services from anywhere to India. The company undertook a detailed study of the leading players from India, type of product/service and proposition and the mode of platform for the delivery of services. During the period, 1996-2001, the State Bank of India with about 50 million customer base had about 17% growth. With nearly 9000 branches and 100 ATMs it had a large reach in the country. HDFC had over 200 ATMs, 130 branches, 1.4 million customers and had grown at about 74%. Citi Bank with 1.8 million customers had about 130 ATMs and 11 branches and grew at about 14%. ICICI Bank had over 5 million customers and had grown at 76%. It had 400 branches and 600 ATMs (see Exhibit 15). For its international remittance business, the company offered two major routes, viz., the Vostro Account and the Nostro Account. The Vostro system was essentially for customers with Indian Rupee Account and Nostro was for other customers. Nostro worked with the help of SMART software that is a middle ware called the Customer Delivery Channel Interface (CDCI). The various banking services of the company and the key features of each are provided in Exhibit 16. The commission/charges of the company for the different types of remittances vary from 0.125% to 0.2%. The details of the charges are provided in Exhibit 17. Does the company earn only from these commissions or does it earns from other means? Did it benefit anything from the currency float for sometime? While the company did create different accounts to cater to the international remittance and that there was possibly a good margin in the business, what were complexities that the company had to resolve in order to operate in the international remittance business? How could the technology be used seamlessly across the international borders?
Transactions had to be done across different regulatory frameworks of different countries, different time zones with different operating hours of people, different systems and processes in different banks based in different countries, international partners with different working styles. Further, with thousands of automated transactions in a day, the issues of reconciliation because of various differences in different countries and minor errors in data entry could block the whole transaction process. While banks are used to deal with all these issues through their manual transactions in the domestic business, the problems indeed were unlimited especially when technology was to be used to intermediate most of these international transactions. Views of a few senior executives from the International Business Division given below indicate the nature of complexities involved. “We needed to understand the clearing system in India and in other countries, regulatory norms of different countries, understand the technological interfaces, adopt architectural changes in our technology and develop several expertise to service our international clients seamlessly.” “Given the anti-money laundering issue in international money transfers understanding the „Know your Customer‟ norms in different countries were crucial for us to operate safely in this business” “It was indeed very different experience to work with our foreign partners. While we in India followed a top-down approach for scaling up any of our business models, our partners in USA and Europe used the bottom-up approach for scaling up. We had some difficulties in the beginning and had to accept the different working styles in other countries.” Anchal Kapoor, DGM, IB Division ―Our major concern in the international remittance business has been the „reconciliation of accounts‟. With thousands of transactions every day registered from different countries, minor manual data entry errors or technical errors could lead to severe restrictions to overall transaction process. Often, problems of reconciliation has been like a nightmare in this business‖ Girish Nayak, GM, IB Division Journal of Case Research Vol. 1 Issue ii 110
International Remittance Strategies:
ICICI as an organization is divided into six major product divisions like; Retail Banking, International Banking, Rural, Micro-Banking and Agri-Business, Government Banking and Corporate Centre. The ICICI Group strategy is summarized in Exhibit 18. The company identified international banking as a key opportunity, aiming to cater to the cross-border needs of clients and leveraging the domestic banking strengths to offer products internationally. ICICI Bank chalked out different strategies for different markets. In the traditional model, it offered partner bank based products and bank branch based products. In the Innovative
Model, it offered the online Product web-based access and alliance partners. See Exhibit 19 for the details of each offer. The overall strategy of the Group can be put into an analogy of a beautiful building with solid foundation and strong pillars supporting the structures as illustrated in Exhibit 19 b. The top management of ICICI Bank seems to have had a clear reason for the expansion of its business world-wide as can be seen from the statement below. ―We believe that we have to serve our customers anywhere in the world” K V Kamath, CEO However, how would a young bank from a developing country develop the network to challenge the existing well established highly networked international bank and exchange houses? How did the company plan to leverage with the correspondence banks and to leverage technology for its internationalization plans? With regard to these issues, the top management team responsible for the international business had the following thoughts. ―We cannot physically be everywhere our clients are, so we will leverage our correspondent relationship with other banks‖ Lalita Gupte, First head of International Business Group (IBG) “Adopting the alliances model, we have been able to garner presence and distribution reach as we set up operations globally. Our Unique Selling Proposition/Point (USP) has Journal of Case Research Vol. 1 Issue ii 111 been the use of technology as a differentiating factor to garner larger share of the NRI remittance business,” Bhargav Dasgupta, Former Director & Core Team Member of the initial IBG The company had substantially used the alliances and partner model in the domestic market and it tried to replicate the same in the international markets. In the domestic market it had alliances with the airlines and travel houses. The objective was to target NRI when they were either visiting or leaving India. It also had a focused marketing approach in the domestic market, where it tied up with universities and companies from where students and employees were likely to migrate to foreign countries for different purposes. Exhibit 20 shows the details of the initiative that ICICI Bank had undertaken in the domestic front during 1996-2001. To tap the opportunities in the remittance market in India ICICI launched a remittance product in association with US based Wells Fargo to enable non resident Indians in the US to send money to India directly from their Wells Fargo account to their beneficiary‘s ICICI Bank account in India in just 24 hours. It also launched a partnership with Mees Pierson, Fortis‘ private banking arm to provide a full range of high net worth products and services to ICICI‘s clients in India and abroad.
Technology Issues:
While the standard mode of collection and transfers of foreign remittances were through physical outlets of the banks or the exchange houses, ICICI Bank was very weak on this type of resource base to compete with the well established exchange houses and banks. The fixed cost of setting up a physical outlet and the variable cost of maintaining a setup have generally been very high both in India and more so in the industrially advanced countries. The company adopted technology as a solution to most of its business transaction, products and services. The company set up an internet portal for NRI to transfer money to India. In the above context, if the company adopted the technology route, what would be issues of implementing the technology for dealing with foreign remittance business? What were the initial costs of investments in technology? How did
the company target the customers? What kind of technology platforms would the company use? Did the company have a technology policy? What were methods of organization to introduce technology for various businesses? What were the major challenges in technical support? What would be the next technological challenge for the company? Did the company have an advantage of having no experience of foreign remittance business in the traditional mode? The company went in for using technology for carrying out its remittance business. It spent about 10 million USD toward the initial cost of technology investments in remittance business alone and today it spends about 30 - 40 million USD. When the company decided to enter the international market, it dedicated only about 100 million USD to expand to seven countries. Even though the company adopted the electronic route to transfer money, it needed the collaborations with several correspondents, viz., the exchange houses, foreign banks, and agents. How did they convince the foreign partners to agree to their mode of money transfer? How did the company tie-up with the banks for serving the beneficiaries of the remittances? While the people had no option but to send money in the traditional way, the software professionals with easy access to internet were early to adopt the technology solutions to money transfer that the company offered. Further the speed of delivery and tracking facility were additional advantages in the mode proposed by the company. Money could be delivered with in 3-7 days if correspondent was a foreign bank and within 2-3 days if the correspondent was an Indian bank. Setting up the technology platform was a critical issue. What would be the difficulty if the company used different systems? Would java based Windows operating system, Pramati layer as server, Oracle database management system and the Sun Solaris Platform be compatible to each other? How critical were the issues of memory capacity processing speed in the business? With technology as the mode of remittance transfer, the business became round the clock (24*7). How would the company handle this situation? Can the company work only on a
fire fighting basis or needed to root fix the technical problems? As per the NEFT routing norms and IBRD regulations of punching time that is between 2PM-4PM, the pressures to carry out the transactions increased substantially. Further, ISB is yet another key issue in the whole system. The need for highly skilled manpower, lean teams operating round the clock, providing connectivity, session management, and parallel operations could have been some ways to handle the challenges posed. Views from a few senior executives from the Technology Group given below highlight various issues. ―Our challenge was to develop standard application programming interface (API) and standard messaging protocols, taking into account the know your customer regulations in different countries and incorporating fields for different types of data to capture all relevant information to meet regulatory norms in different countries from where the bank received remittance business.‖ Indranil Ghosh, AGM, Technology Group With regard to the technology policy of the company: ―The policy of the technology group has been to spend judiciously, get the best deal from the vendors, and make full use of the servers to their optimal levels. Make full utilization of the memory and the CPU capacity.‖ “The top management identifies the technology edge and estimates the enterprise wide technology requirements. The technology policy is aligned to our business requirements. Based on the needs of business groups, annual budgetary proposals are made by the Technology Group. These proposals are then given to the Managing Director for approval. There are about 5-6 Group Heads of technology and each Group Head leads 3-4 team leaders. Each team of technical experts works on a specific problem.” M.S. Seetharaman, DGM, Technology Group If the company were to move from ‗anywhere to India route‘ to ‗anywhere to anywhere route‘ in the remittance business, what would be the technological challenges? How does the company handle the issue of scalability? Today the average number of transaction is about 8000 per day in the India corridor, how would this change if the company were to go ‗anywhere to anywhere transaction‘. Will the Unix system serve its future capacity requirement?
Operational Issues:
The company had two types of accounts viz., Vostro INR Account and Nostro Account. Further, three different types of Nostro Accounts were initially created that are for NRI Accounts, Credit Services, and Treasury. About 180 correspondents operate through the Vostro Account and about 40 correspondents operate through the Nostro Account. For every transaction, a swift code is generated and that is then passed on to the Finacle Core Banking system of ICICI Bank. Instead of a one to one transaction, ICICI Bank accumulates all the remittances and carries out a bulk transaction at one go. The automatic process involves talking of different systems with each other. The SWIFT message with remittance details from the correspondents, the core banking system (Finacle) of ICICI Bank, foreign exchange rate system, and the NEFT system have to process and clear the data for completion of a transaction and receipt of money (INR) at ICICI Bank in Mumbai. On an average, the company today handles about 8000 remittance transactions a day and about 100,000 remittance transactions a year. The issue of concern in the operations is when there is non-straight through transaction resulting in non reconciliation of accounts. On an average there has been as much as 6065% non-straight through process (STP) transactions in the Nostro system in the beginning. Today, ICICI Bank still gets about 20% non-STPs in the Nostro system and about 8% non-STP occurs in the Vostro system. With a 24*7 hours operating system in the global remittance business, how will the operations be managed? While an appropriate design of the architect and platforms with largely compatible technology may be adopted to meet the memory capacity and processing speed, what would be the typical operational issues when dealing with foreign transactions that might originate in any of the foreign countries (with a set of banking rules and regulation) and need to be remitted in India? ICICI Bank can receive payments from different banks and the payments to the beneficiary of the remittance may be remitted in a different bank. How would the company deal with these complexities? The company deals with nearly 8000 transactions a day that come from different countries and from different banks and it gets about 2 hours to punch in the client and beneficiary details for routing transfers to
India through the NEFT. What kind of operational problems will the company face? A NRI could choose to transact through Money2India, the foreign remittance portal of the ICICI Bank (see Exhibit 21 for the steps to transaction). Would the operational issues be resolved through such portals for foreign remittance transactions? How much can the integration of the various systems of SWIFT, Finacle, Foreign Exchange Rate, and NEFT solve the problems of non STPs? What if other correspondent banks or agents are not using the same systems? How much of errors occur because of human error in data entry? The number of non ICICI Banks that used NEFT has risen from 13,000 a few years ago to 40,000 today. Name matching is also used to bypass syntax errors in data entry. Integrating systems within ICICI Bank is another issue. The basic Finacle Core Banking system has been developed by Infosys Technologies.
However, this has been modified and upgraded to meet the needs of ICICI Bank. “We have leveraged our good relationship with Infosys to develop the Finacle Core Banking system to meet our needs and to fully integrate our core banking system with the SWIFT system. We are trying to integrate our Finacle Core Banking system with the other systems that we interact with. We are also trying to convert non electronic transaction like the transaction through demand draft to electronic transaction and we have been fairly successful in reducing the volume of demand draft transactions from 2530% to 13%.” Jegannath Shreenivas, GM, Operations Group Why would a customer prefer demand draft (DD) to electronic fund transfer? With DD a beneficiary can credit the money to any of his or her accounts in India. Further, DD is easy to deliver to beneficiaries based in remote and rural India that are unconnected with the electronic systems. A strong team of about 150 operational professionals are dedicated to remittance business in the company. Eighty of them are based in Mumbai (in Western India) and seventy are based in Hyderabad (in Southern India). The operations team works closely with the remittance business group. When a new product is proposed by the Business Group, the technology, operations and the legal teams meet to assess the support requirement. The product and process needs to be approved by the Product and Process Committee before any product is undertaken to the product launch stage. The operation group has periodic reviews with International Business group. The operations group has more intensive reviews and dialogues. In the initial years, the operations group and the technology group had Technology Forums every quarter. However, for the last three years, since 2006, Technology Forums are organized every month. The Finacle Customer Relationship Management system helps the operations group to lodge their requirements/complaints to the technology group and the daily Management Information System (MIS) further aids the dialogue process between operations and technology groups.
ICICI Bank & Remittance Business Today:
ICICI Bank has grown in size and strength within a short span of time. It is the largest bank among the private sector banks in India. It has built a large number of subsidiaries which add to the networking and business strength of the company (see Exhibit 22 for list of subsidiaries). ICICI Bank today has a global foot print with subsidiaries in the United Kingdom, Russia and Canada, bank branches in Singapore, Bahrain, Hong Kong, Sri Lanka, Dubai International Finance Centre and Qatar Financial Centre and representative offices in the United States, United Arab Emirates, China, South Africa, Bangladesh,
Thailand, Malaysia, and Indonesia. As per the current statistics, ICICI Bank has more than 450,000 NRI customers managed by or serviced by the branches in locations like London, Leicester, Manchester, Southall, Wembley, Birmingham, Belgium, Scarborough, Toronto Downtown, Toronto East, Brampton, Vancouver, Surrey, Moscow and Kaluga. ICICI Bank, UK has received regulatory approvals for establishing a branch in Frankfurt, Germany. See Exhibit 23 for the company‘s global presence. The company has also had a huge growth and has had healthy financial position (see Exhibit 24). The company has been looking forward for engaging fully with the growth of the Indian economy. The future plans and strategy of the company can be read through the comments (given below) of the top management: “ICICI Bank is seeking to participate in India‟s growth process by leveraging its strong competencies in various segments of the business. We are continuing our focus on retail banking. We are partnering Indian companies by providing the right product and advisory skills to aid their rising global aspirations. Rural India continues to be significantly untapped market and presents a major growth opportunity, which we are seeking to address through innovative products and delivery mechanisms. We seek to support this strategy with financial and human capital, as we move to the next level in terms of scale of operations. Looking ahead, we see ourselves as the premier provider of financial services in India and to Indian customers overseas, partnering our customers and the nation in achieving growth and prosperity.” N. Vaghul, Chairman “Looking ahead, we believe that India will sustain high growth rates for the foreseeable future, driven by the knowledge economy and industrial resurgence, to which rural growth could bring an additional new dimension. As an Indian financial services group, we seek to facilitate and participate in this growth process by making a wide range of financial products and services available on a large scale, accessing capital to support growth when necessary. Achieving size and scale aligned to the needs of a fast growing modern economy, with relevance in the global context, will be a key success factor as India grows and globalizes.” “The bank expects one-fourth of its balance sheet from the overseas business and also aiming to make a position among the top ten banks of the world within next five years.” K.V. Kamath, Chief Executive Officer “The last fiscal saw a significant scale-up of our international operations and expansion of our global footprint to 18 countries. We are now a preferred international bank, offering best-in-class products to Indian corporations going global and the Indian Diaspora by leveraging our international presence and strong technological capabilities. Our products and services for the NRIs were supplemented by offerings to the local customers, furthering our transformation into a global bank. Indian corporations are today undertaking large projects, big-ticket overseas acquisitions and rising huge capital from international markets. Our corporate banking strategy takes a unified global view of our clients and offers them a comprehensive suite of commercial and investment banking products apart from the working capital loans and project finance.”
―We are now India‟s biggest bank in terms of overseas business is concerned and from here we are aiming at a contribution of 25 per cent from international business in 2008.” Chanda Kochhar, Joint MD and Chief Financial Officer2
2 The
designations of executives given in the case were as when the case was being studied and written in the year 2008.
Questions for Discussion
1. What are the major issues of internationalization that the above case throws up? 2. What were the challenges faced by ICICI Bank while entering new markets? 3. What are the international strategies of ICICI Bank that would be applicable to other Indian companies going international? 4. What are the international strategies of ICICI Bank that are unique and are not applicable to other Indian companies? 5. How did ICICI Bank successfully operationalize its international strategy? Journal of Case Research Vol. 1 Issue ii 120
Exhibit 1: World Remittance Trends 2007 (in $ billion)
Emirates 1(DIFC) — 6 — — — — — — — 1(DIFC) — 8 United Kingdom 6 — 8 6 1 — — — 1 — — — 22 United States of America 3 — 1 2 — — — — — — — — 6 Total 33 1 40 21 2 3 6 1 1 4 5 2 119 Notes: AHB – Allahabad Bank, IOB – Indian Overseas Bank, BoB – Bank of Baroda, PNB – Punjab National Bank, BoI – Bank of India, DFIC – Dubai International Financial Centre
Source: Department of Banking Operations & Development, Reserve Bank of India. Journal of Case Research Vol. 1 Issue ii 129
Exhibit 12: Indian Banking Challenges & ICICI Bank
With a chain of more than 65,000 branches, Indian Banking system is one of the largest banking networks in the world The retail-banking sector contributes 1/5th of the overall bank credit. The Indian retail-banking sector is growing at a rate of 122% per annum. The retail-banking sector of India will reach a worth of $310 billion by the year 2010, predicted by the experts. During the year 2000-2005, the entire assets of the banking industry increased with a compound annual growth rate of 14% touching a worth of $523 billion from $ 271 billion. The profits of Indian banking industry jumped at a compound annual rate of 26% touching a worth of $ 5.2 billion from $ 1.55 billion. Banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. Continuous deregulation has made the banking market extremely competitive with
greater autonomy, operational flexibility and decontrolled interest rate and liberalized norms for foreign exchange. Marketplace has been redefined with new rules. Banks need to access low cost funds and simultaneously improve the efficiency. Customers have become demanding and the loyalties are diffused. The competency gap needs to be addressed otherwise there will be missed opportunities. Investing in state of the art technology as the backbone to ensure reliable service delivery. Innovating products to capture customer ‗mind share‘ to begin with and later the wallet share. Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction. The banks need some transformation initiatives in various fields for the emerging challenges. These initiatives includes areas like; Strategy, Brand, Organization Restructuring, Re-engineering of the key business processes, Cost efficiency, Right Sizing and matching of skills, Creating a high performing organization, Change management and creating a new mind set. ICICI Bank set-up an International Banking Group to implement a focused strategy for its international banking business. ICICI was the first Indian institution to be licensed by Qatar Financial Centre (QFC). As on December 31, 2006 ICICI Bank had an asset base of around US$ 67 billion. In 2006 ICICI Bank has shown a continuous growth in its profit. Source: RNCOS Report, ECS Limited, Authors‘ research Journal of Case Research Vol. 1 Issue ii 130
Exhibit 13: Evolutionary Path of ICICI Bank
Year Milestone
1955 The Industrial Credit and Investment Corporation of India Limited (ICICI) incorporated at the initiative of the World Bank, the Government of India and representatives of Indian Industry. 1960 ICICI building at 163, Backbay Reclamation, inaugurated. 1967 ICICI made its first debenture issue for INR 60 million, which was oversubscribed 1969 The first two regional offices in Calcutta and Madras set up 1977 ICICI sponsored the formation of Housing Development Finance Corporation. Managed its first equity public issue. 1986 ICICI became the first Indian institution to receive ADB Loans 1993 ICICI Securities and Finance Company Limited in joint venture with J.P. Morgan set up 1994 ICICI Bank set up Through the merger of Industrial Credit and Investment Corporation of India Ltd (ICICI) and Shipping Credit and Investment Corporation of India Ltd (SCICI) by their initial capital contribution of 75:25 respectively. 1997 The name The Industrial Credit and Investment Corporation of India Ltd. Changed to ICICI Ltd and ICICI Ltd announced the takeover of ITC Classic Finance. 1999 ICICI Bank was listed on the NYSE through an issue of American Depositary Shares. 2000 ICICI Bank announces merger of Bank of Madura 2001 The Boards of ICICI Ltd. and ICICI Bank approved the merger of ICICI with ICICI Bank.
2002 ICICI Ltd. merged with ICICI Bank 2003 ICICI Bank announced the setting up of its first ever offshore branch in Singapore The first offshore banking unit (OBU) at Seepz Special Economic Zone, Mumbai, launched ICICI Bank‘s representative office inaugurated in Dubai Representative office set up in China ICICI Bank‘s UK subsidiary launched ICICI Bank subsidiary set up in Canada 2004 Mobile Banking Service in India launched in association with Reliance Infocomm India‘s first multi-branded credit card with HPCL and Airtel launched 2005 First Indian company to make a simultaneous equity offering of $ 1.8 billion in India, the United States and Japan Acquired Ivestitsionno Kreditny Bank of Russia ICICI Bank became the largest bank in India in terms of its market capitalization 2006 ICICI Bank subsidiary set up in Russia Representative offices opened in Thailand, Indonesia and Malaysia 2007 Sangli Bank amalgamated with ICICI Bank ICICI Bank signed a multi-tranche dual currency US$ 1.5 billion syndication loan agreement in Singapore ICICI Bank Eurasia LLC inaugurated its first branch at St Petersburg, Russia 2008 ICICI Bank enters US, launches its first branch in New York ICICI Bank enters Germany, opens its first branch in Frankfurt ICICI Bank announces in May 2008 to open 4 new offices in USA
Source: ICICI Bank Ltd. Journal of Case Research Vol. 1 Issue ii 131
Exhibit 14: Development of ICICI Bank
Industrialization (1955 – 1964), ICICI was among the World‘s first development banks in the private sector, to quickly emerge as an important source of foreign currency loans in the country, to facilitate import of industrial machinery and technology. During this period ICICI was assisted with over 400 companies. Reorganization (1965 – 1974), A phase of Green Revolution and an emerging need in the various sectors. To cater these needs ICICI has started export finance, concessional funding in industrially backward areas and loans for small enterprisers. Consolidation (1975 – 1984), ICICI had consolidated and broad based the financial system by setting up state level financial and technical institutions and the countries first finance institution with housing specialization. This was the period when obstacles like oil stock came into picture. Liberalization (1985 – 1994), A phase, India began to open up which leads to the private enterprise and free play of market forces and ICICI saw the opportunity to diversify to meet the requirements of the new paradigm, and set up country‘s first rating agency, first venture capital company and entered into asset management and banking. Globalization (1995 – 2004), Created both challenges and opportunities, because of the India‘s move towards global economy. But ICICI enabled consumption-led growth by
accelerating the availability and affordability of retail finance and bringing world class technology to banking, and by this it became the first Indian bank to list on the New York Stock Exchange and emerged as a leading universal bank in India. Journal of Case Research Vol. 1 Issue ii 132
Exhibit 15: Share of different Indian Banks in NRI Market, 1996-2001
Indian Public Sector Banks Indian Private Sector Banks Foreign Banks in India services Student loans Bridge cards Gift services Source: ICICI Bank, Internal Document, 2001 Journal of Case Research Vol. 1 Issue ii 138
Exhibit 21: Foreign Remittance Steps: New York – Mumbai*
―X‖ a remitter, must register himself as a user with Money2India Web site ―X‖ can opt to transfer money through the Automated Clearing House, which is the clearing network for electronic funds transfer in the US. ―X‖ needs to provide detail such as his US bank account number, the type of account that he holds and the 9 digit routing number (a number given by the US Fed to identify every branch in the US) ICICI Bank will validate the account for security reasons within 3 days. It does this by making two small deposits and a withdrawal. Once the validation is done, ―X‖ will be informed about this and he can initiate the process of transferring money. After logging on to the Money2India website, he must provide the details of the beneficiary such as Name, Address, Bank Account, Currency etc. The money is transferred from his US bank account after 1 to 2 working days to ICICI Bank, New York. ICICI Bank in Mumbai receives the payment instruction from ICICI bank New York via SWIFT. In the event of the beneficiary having a different bank account (non-ICICI Bank) it may take another day. *The dollars are converted in Mumbai and the rupee equivalent is credited to the ICICI Bank account of the beneficiary on the 5th working day after transfer from the US bank account Source: Business Line, Aug. 03, 2006 Journal of Case Research Vol. 1 Issue ii 139
Exhibit 22: Subsidiaries of ICICI Bank
Domestic International 1. ICICI Securities Limited1 2. ICICI Securities Primary Dealership Limited2 3. ICICI Prudential Life Insurance Company Ltd. 4. ICICI Lombard General Insurance Co. Ltd. 5. ICICI Prudential Asset Management Co. Ltd.4 6. ICICI Prudential Trust Limited 6 7. ICICI Venture Funds Management Co. Ltd. 8. ICICI Home Finance Company Limited 9. ICICI Investment Management Company Ltd. 10. ICICI Trusteeship Services Limited 1. ICICI Bank UK Plc. 2. ICICI Bank Canada 3. ICICI Wealth Management Inc.3 4. ICICI Bank Eurasia Limited Liability Co. 5. ICICI Securities Holdings Inc.5 6. ICICI Securities Inc.7 7. ICICI International Limited
1. Formerly known as ICICI Brokerage Services Limited. 2. Formerly known as ICICI Securities Limited 3. ICICI Wealth Management Inc. was incorporated as a subsidiary of ICICI Canada in fiscal 2007. It has not yet been capitalized and is yet to commence operations. 4. Formerly known as Prudential ICICI Asset Management Company Limited. 5. Subsidiary of ICICI Securities Limited 6. Formerly known as Prudential ICICI Trust Limited 7. Subsidiary of ICICI Securities Holdings Inc.
Journal of Case Research Vol. 1 Issue ii 140
Exhibit 23: Global Foot Prints of ICICI Bank, 2008
USA
UK
Australia
Fiji
GCC
Mauritius
Indian Indian Diaspora: >1,392,000 Diaspora: 336,829 Indian Diaspora: 714,718 Indian Diaspora: 1,678,765 Indian Diaspora: 2,200,000 Indian Diaspora: 190,000
Journal of Case Research Vol. 1 Issue ii 141 Journal of Case Research Vol. 1 Issue ii
142
Exhibit 24: ICICI Bank: Financial Details (in INR 10 million)
Mar98 Mar99 Mar00 Mar01 Mar02 Mar03 Mar04 Mar05 Mar06 Mar07 12mths 12mths 12mths 12mths 12mths 12mths 12mths 12mths 12mths 12mths Total Income 347.623 642.80 1048.10 1469.09 2762.28 12533.37 12069.23 12949.57 19368.34 29957.23 PAT net of P&E 50.26 63.45 105.43 161.23 253.04 -2.66 1598.41 1861.19 2492.97 2995.00 GFA 218.76 261.56 315.15 589.68 4494.30 4812.98 5090.21 5525.65 5968.56 6298.57 Net Worth 266.75 308.33 1149.51 1312.62 6594.96 7283.31 8360.56 12899.98 22555.99 24663.26 Borrowings 192.23 367.89 659.47 1200.80 58969.97 44051.95 39846.11 41753.40 48666.30 70661.14 PBDITA/Total Income (%) 77.82 83.47 79.58 75.64 69.39 64.00 78.03 73.70 72.66 71.55 PAT net of P & E /Tot inc (%) 14.45 9.86 10.05 10.97 9.37 10.66 13.61 15.66 13.15 10.42 RONW 22.39 22.03 14.45 13.09 6.53 17.38 20.93 18.86 14.33 13.17 ROCE 16.08 11.91 9.44 8.70 0.80 2.17 3.44 4.06 4.25 3.93 Investments - - - - 35891.08 35462.30 43435.52 50487.35 71547.40 91257.83 Equity shares - - - - 2516.83 2424.54 3107.92 3981.47 4918.55 6009.49 Debt instruments - - - - 29158.67 31238.49 35450.07 37343.50 53012.71 70127.56 Group companies - - - - 608.18 782.13 1423.65 2066.69 2860.70 4072.23 Non-group companies - - - - 8345.01 7332.33 7233.37 4768.81 3861.88 4400.08
GFA: Gross Fixed Asset, RONW: Return on Net Worth, ROCE: Return on Capital Employed
Source: CMIE Data Base Journal of Case Research Vol. 1 Issue ii 143
References:
1. Company Annual Reports, http://www.icicibank.com 2. SANSCO Data Base, Xavier Institute of Management, Bhubaneswar
3. CMIE Data Base, Xavier Institute of Management, Bhubaneswar 4. ISI Emerging Markets, Xavier Institute of Management, Bhubaneswar 5. http://www.nriinternet.com 6. Business Line – August 03, 2006 7. http://www.bis.org/review/r050321g.pdf 8. http://www.unescap.org/drpad/publication/fin_2206/part4.pdf 9. http://www.iupindia.org/books/GoingGlobal-Strategies_ovw.asp 10. ICICI‘s Global Expansion, Tarun Khanna & Ramana Nanda, 9-706-426, September 27, 2006, Harvard Business School 11. ICICI Bank, Path to Globalization, Boris Typsin & Ashok Som, 306-507-1, ESSEC Business School, ECCH
