A privatised bank with long state ties may begin life with a lucrative franchise, but it isn't supposed to scale up like a dot-com. This no one told Kundapur Vaman Kamath and his brain trust at ICICI of India, fast closing in on the world's biggest 200 banks.
But Kamath likely wouldn't have listened anyway. He showed his colors as a greenhorn project officer in 1972 at ICICI, then deep in state hands. He backed an untested entrepreneur, Dhirubhai Ambani, who was aiming to transform something called Reliance Industries by such crazy means as flying in machinery to jump-start a factory.
Kamath admired Ambani's big vision and penchant for quick action. By the time Ambani died three years ago, his $17 billion conglomerate, India's largest, had no trouble getting bankers to listen.
Kamath, now CEOof Mumbai-based ICICI Bank, still bets big at age 57. He has helped transform a staid, midsize corporate lender -- privatised in stages over the last decade -- into a market leader in Indian retail credit. Every third retail dollar -- in an open, competitive $40 billion consumer finance market -- is funded by ICICI Bank.
Last year ICICI Bank earned $460 million on revenues of $1.4 billion and $39 billion in assets -- still small change compared with Citibank, its main rival in India, with a $1.5 trillion global asset base, but large enough to become India's biggest private-sector bank. "Nobody had played the retail game in a big way," says Kamath.
Investors like the bent. ICICI Bank's depositary shares, the first Indian stock traded on the New York Stock Exchange, have doubled in the past year to a recent $24.
"We like ICICI because there is a huge appetite for lending in the retail market," says Sukumar Rajah, chief investment officer for Franklin Templeton Asset Management in Chennai. "Their strength comes from technology and better people," said Rajah. And a winning growth strategy: A Merrill Lynch report estimates retail credit to grow at 35 per cent for the next few years.
The early years
It was a different story a decade ago. Kamath had done stints for others abroad, and when he returned to ICICI as chief executive in 1996, he tried to bulldoze further into corporate lending. But the State Bank of India, the country's behemoth, was tough to dislodge. He turned to consumer finance, which constituted around one per cent of GDP (today it accounts for a still-low 7 per cent).
Kamath wasn't the only one with the idea. With few barriers in the sector, India had earlier attracted foreign banks such as Citi and Standard Chartered. "We introduced modern, air-conditioned branches and friendly staff," says Akhil Maria, head of international consumer banking operations at E-serve International, a Citigroup affiliate.
But such cool comforts were reserved for the affluent. Nearly 30 million bankable households were grossly neglected. They parked savings in local banks and under mattresses, borrowing only to get female relatives married off. "We recognised the changing demographics and growth of a service sector [now constituting more than half of India's output]," says Chanda Kochhar, ICICI's executive director for retail and a rising global star.
A people's bank
The 44-year-old Indian management-school graduate (like her boss, Kamath) went outside for talent and has sought volume with competitive rates. For instance, ICICI shaved one or two percentage points off auto loans -- locking in dealers and carmakers, some of which were its corporate clients -- and gaining a one-third share of this rapidly expanding finance market.
"Low cost, a fresh perspective to risk and an ability to deploy armies, not small battalions, all over the country helped create very favorable cost advantages," says Leo Puri, director of financial services at McKinsey & Co in Mumbai.
But Kamath needed capital and key lieutenants to build a 100,000-customer base up to 14 million in five years. Various domestic and foreign offerings have raised $2 billion (and 70 per cent of ICICI's shares are held abroad). Kamath merged the original corporate lender with the retail bank in 2002, allowing him to better leverage a hefty if murky asset base. "We made all the right calls," he says, including creating an "A team" of top staff to captain initiatives, a concept borrowed from GE and its ex-chief, Jack Welch -- a key influence on Kamath. He also tied pay to performance and cut the deadwood.
ICICI spreads its wings
ICICI bought private Bank of Madura, with 300 branches in key towns, to create a physical platform for loans and deposits. But even offices kept open 12 hours a day -- much longer than the competition -- were inadequate to reach out to what is now 60 million middle-rung (at least $4,500 income) households across the country.
Kochhar enlisted retailers, builders and car companies and hired nearly 30,000 field reps to sell car loans and mortgages at 1,200 locations. "We changed the face of distribution in the country," she says. "We brought loans home (to clients) at low costs."
Technology helps. ICICI's 560 branches account for only 25 per cent of transactions today compared with 95 per cent five years back. Ubiquitous ATMs "speak" Hindi, English and a local language, and even allow the ritual-obsessed to donate to their favorite gods.
How the brand was built
Still, brand visibility was poor. Few knew ICICI; maybe they'd heard of tongue twister Industrial Credit & Investment Corp of India as a corporate lender. Kochhar spent 16 times more on advertising than did the State Bank of India. The percentage of customers showing awareness of the bank shot up to 96 per cent in 2003 from 20 per cent in 1999, says researcher IMRB-Millward Brown.
India until recently lacked credit bureaus and identity cards, so Kochhar hired accounting agencies to investigate customers, many of whom had no pay slips or ID. In contrast, competing banks insisted on documentation and favored the salaried class. But some borrowers buck the plan: One who recently secured a $10,000 ICICI home loan at 7.7 per cent recalls he had to insist on seeing a credit officer and that his rate was shaved to beat offers from three other banks. "ICICI works on thin margins," says a Western investment banker.
In spite of aggressive lending, defaults are low, at around 1.2 per cent of outstanding loans. But ICICI's collection practices have rattled car-loan customers used to more timid state banks. ICICI cases crowd consumer court files. "It is manageable in the short term, but they have to make sure it does not get systemic," says Templeton's Rajah.
ICICI still has plenty of room to grow. It has more customers than Singapore's top three banks put together, yet only a tenth their assets. It won't face immediate outflanking by the likes of Citibank and Stanchart -- a new Communist-backed government has quelled takeover aspirations by the multinationals.
But ICICI will look afield. Kamath counts on garnering a big chunk of $20 billion in remittances from Indians -- coolies and coders -- living abroad; partnering with Lloyds Bank in the UK and Wells Fargo in the US has helped. He has also secured a foothold in Canada, Russia and the Mideast.
Big vision, quick action.