STRATEGIC IMPLEMENTATION: COMPANY ANALYSIS ON ICICI BANK

WHAT IS BANK TODAY?

The current banking scenario is greatly different from the past.

Capital is going to play a crucial role in the banking sector.

Only 15 to 20 years ago, most Western banks generated 90% of revenue from interest income. Now this percentage has fallen to 60%, sometimes as low as 40%.

The concept of banking is being modified and the traditional barriers among financial service sub industries (retail banking, private banking, investment banking, asset management, insurance, etc.) are vanished.

GLOBAL BANKING

The common trends resulted in pace of dramatic change for banking are:

The focus of banking is shifting from transactions management toward sales of financial products.

Barriers to entry for the retail banking segment are being lowered.

The growing variety of delivery channels for banking enables new entrants to thrive.

Challenges faced by Global banks are: Credit Crises Hedge Funds Money laundering

FACTORS AFFECTING GLOBAL BANKING INDUSTRY

A slowing population growth and increasing average life expectancy and per capita income.

The growing importance of a clear strategic intent in the banking industry.

The technological breakthrough caused by the eruption of e-banking and e-finance.

Worldwide consolidation and consequent restructuring.

Increasing competition in terms of both markets and products.

“Contamination” among different industries.

CONSOLIDATION

To take advantage of economies of scale. For E.g.:-the merger between the Swiss banks

UBS and SBC creating one of the largest banks in the world.

To have access to distribution channels. To widen the range of products that the bank

can offer both actual and potential clients. For E.g..:-between Citibank and Travelers, has

originated Citigroup. To enter a new geographic market.

AFTERMATH OF GLOBAL CRISIS

IMF warns that world economy development could decline to its lowest point ever since World War II to just 0.5% this year.

In USA the interest rate has been cut hugely by the Federal Reserve from the 5.25% to 0.25%.

In UK pound was at a 23-year low against the dollar.

The Bank of England has cut interest rates to a record low of 1% -the lowest level in its 315- year history.

STIMULUS PACKAGES ACROSS THE GLOBE....

The US Congress passed a stimulus package worth $ 838 billion, aimed at creating millions of new jobs and steering the economy out of the recession.

China announced a huge economic stimulus package of an estimated $586 billion.

Japan announced $100bn to curb recession. Germany announced $63bn.

INDIAN BANK SCENARIO

India’s banking sector, currently ranked among the most preferred banking destinations in the world

Stupendous growth in profits, however rise in NPAs may remain a key challenge”

India's financial sector is undergoing a consolidation phase with the implementation of Basel II norms which was started in April 2009.

Strong Regulatory System RBI road map for foreign player’s Approximately 74 per cent of holdings of

ICICI and HDFC bank are in the hands of foreigners.

INDIAN BANK SCENARIO

Indian Banks go global Robust risk management practices Advanced technology Skilled manpower Very sound marketing practices. As per RBI PSU banks in India will require an

amount of Rs 2980 billion of additional capital

CRAR of 12 per cent by March 2010 Post 2009 entry of new players will intense

the competition for domestic banks.

INDIAN BANK SCENARIO

Key areas are trade finance, institutional banking, corporate and investment banking

Improve branding of domestic banks by improving various parameters

Human expertise is minimum in derivatives Risk Management to be key area. Post 2009 in the areas of retail banking also

the PSU banks will face great hurdle.

The banking sector index has grown at a compounded annual rate of over 51 per cent since the year 2001.

Sector has the potential to account for over 7.7 per cent of GDP with over Rs.7,500 billion in market cap

To provide over 1.5 million jobs.

INDIAN BANK SCENARIO STATISTICS

PSB72%

Private Banks20%

Foreign Banks8%

The net NPAs of PSBs also registered a relatively smaller rise of 28.83 % against the whopping increase of 43.84 % in the net NPAs of private sector banks.

PLR rates of PSU’s higher than private banks The credit flow from the public sector banks

has increased substantially from 19.8 % as On the other hand private banks witnessed

steep fall in credit flow from 24.2 % to 11.8 %

Retail banking sector expected to grow at a rate of 30%

KEY STATISTICS

KEY STATISTICS

Despite registering a healthy rise of 51.9 % in their bottom line, Net non-performing assets (NPAs) of 25 banks have risen by an average 34.5 % in Q3 FY ’09 as against Q3 FY’08.

The average capital adequacy ratio (CAR) of 25 banks slipped marginally to 13.22 % in Q2-FY ‘09 from 13.39 % in the previous year.

The public sector bank’s bottom line grew by an average 57.29 % in the third quarter of the fiscal as compared to private sector banks’ 43.88 %

Absolute gross non-performing loans (NPLs) for all Indian banks increased by 22.5% compared with 11.9% in the previous year.

ICICI BANK: AN INTRODUCTION

India's largest private sector bank.

Formerly Industrial Credit and Investment

Corporation of India

The Bank has a network of 1,520 branches and about

4,721 ATMs

Its present in 18 countries with more than 25 million

customers worldwide

ICICI Bank is one of the Big Four Banks of India

with State Bank of India, Axis Bank and HDFC Bank

VISION

To be the leading provider of financial services in India and a major global bank.

MISSION

We will leverage our people, technology, speed and financial capital to:

be the banker of first choice for our customers by delivering high quality, world-class products and services.

expand the frontiers of our business globally. play a proactive role in the full realisation of India’s

potential maintain a healthy financial profile and diversify our

earnings across businesses and geographies maintain high standards of governance and ethics contribute positively to the various countries and

markets in which we operate create value for our stakeholders

ACHIEVEMENTS OF THE BANK IN THE INDUSTRY

Introduced concept of branding. Process, People and Physical evidence –

brought to life by ICICI. Product Innovation – Put the ‘customer first’. Cash on the celebrity fever. Introduction of DSA’s and DST’s. Unleashed the power of the internet –

introduced the concept of net banking and e-mail marketing.

First bank to focus on retail banking as a driver for growth.

Comprehensive data centre availability & data protection solutions.

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CRITICAL SUCCESS FACTORS

India’s largest private sector bank and second largest in terms of assets.

Strong bank network with 1400 branches and 4530 ATMs pan India.

International presence in 18 countries. Complete range of financial services to both

corporate bankers and retail customers. Ratio of fee income to total income higher

than Indian Banks and comparable to global banks.

Largest provider of retail credit in India. Involved in 75% outbound mergers and

acquisition deals from India.

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PRODUCT PORTFOLIO

ICICI Bank

Personal Banking

Corporate Banking

PERSONAL BANKING

Deposits. Loans. Investments. Cards. Insurance. Online Services. Wealth Management, Forex Services and

Demat Services.

NRI BANKING

Money Transfer. Bank Accounts. Investments. Property Solutions. Insurance. Loans.

CORPORATE BANKING

Corporate Net Banking. Cash Management. Trade Services. FXOnline. SME Services. Online Taxes. Custodial Services. Agri/Rural Business Banking.

GEOGRAPHIC PRESENCE

The Bank is expanding in overseas markets and has the largest international balance sheet among Indian banks.

ICICI Bank now has wholly-owned subsidiaries, branches and representatives offices in 18 countries, including an offshore unit in Mumbai.

Wholly owned subsidiaries in Canada, Russia and the UK (the subsidiary through which the HiSAVE savings brand is operated), offshore banking units in Bahrain and Singapore, an advisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United Arab Emirates and USA.

ICICI BANK FINANCIALS: BALANCE SHEET

BALANCE SHEET (CONTD…)

PROFIT AND LOSS

PROFIT AND LOSS (CONTD…)

CASH FLOW STATEMENT

KEY RATIOS

COMPETITOR COMPARISON

Strengths1) Leading private sector bank2) High Capital Adequacy as per Basel II norms

SWOT AnalysisICICI Bank

STRENGTHS

India’s second-largest bank by total assets, with a network of over 1548 branches and offices, and over 4816 ATMs only behind State Bank of India

As of March 2009, it had an asset base of INR 3793 billion reflecting its large scale of operations

The company’s strong position in the Indian market gives it significant brand recognition, leveraging which the bank could gains competitive advantage over its peers

The Bank’s capital adequacy at September 30, 2009 as per Reserve Bank of India’s Basel II norms was 17.7% and Tier-1 capital adequacy was 13.3%, well above RBI’s requirement of total capital adequacy of 9.0% and Tier-1 capital adequacy of 6.0%

WEAKNESSES Fee based Income and Income from Investments

has reduced by 6.5% from Mar-09 to Sep-09 while it has reduced by 3.7% since Sep-07

Other Income for SBI has grown by 123% since Sep 07.

Hence, it is a major contributor to the Total Income along with low Investment requirement

OPPORTUNITIES Decrease in Housing Loan Interest Rates and

reducing prices of Real Estate will lead to an increase in demand for Housing Loans

The private equity market in India attracted $7.3 billion in investment capital in 2009 and it is expected to reach up to $50 billion in 2012

Private equity investments in India are expected to remain based on the traditionally smaller growth-capital investments.

ICICI bank provides venture capital funding to start-up companies and private equity to a range of companies through funds managed by its subsidiary ICICI Venture Funds.

ORGANISATION STRUCTUREo Retail Banking Groupo Rural, Micro banking and Agri Business Groupo Wholesale Banking Groupo International Banking Groupo Global Markets Groupo Corporate Centreo Human Resource Management Groupo Global Operations and Middle Office Groupso Organization Excellence Groupo Technology Management Groupo Global Infrastructure and Administration Group

ORGANIZATION STRUCTURE

Fiscal 2009 – Unprecedented Volatility. High inflation and interest rates

2nd half impacted by global financial and liquidity crisis and loss of business confidence

Focus of bank on capital conservation, liquidity management and risk containment

Increasing branch network to garner low cost and retail deposit base

STRATEGIES Retail Strategy – Focus on risk containment

o Tightening of lending normso Increasing CASA Deposits (26.1 % to 28.7%)o Expanding branch network (755 to 1419)o Cross selling products (eg: life and general insurance of

subsidiary companies) to existing customerso Creation of concept of DSA (Direct Selling Agent) & DST

(Direct Selling Team)o Effort on the part of the bank to reach the customer rather

than waiting for the customer Small Enterprises

o Cluster Banking approach followedo Bouquet of small business banking products and

investment banking and advisory serviceso Initiatives like SMERA (Credit rating), “SME

Dialogue”(Sharing success stories), “ SME CEO Knowledge Series”

ICICI’S FOCUS ON INWARD REMITTANCES HAS RESULTED IN MAJOR DIVIDENDS FOR THE BANK

Corporate Bankingo Providing comprehensive and customized

financial solutionso Maintaining relationships with all of the

country’s corporate houseso Product specific teams to focus on specific

areas of expertise in designing financial solutions for clients

International Bankingo Building of retail deposit franchise, meeting

foreign currency needs of corporate clientso Focus on meeting foreign currency needs

of Indian corporate for overseas and domestic expansion

o ICICI discovered that, in India, there is a large untapped rural market which lacks awareness of financial services as well as convenient access to remittance delivery services

Rural and Agri-Businesso Strategy to not only increase finance in this sector but also the

ability to mitigate risks by offering micro savings, investment and insurance products

o Launch of Kisan Credit Card – Adequate and timely support to farmers under single window with flexible and simplified procedures

Life Insurance sector Strategyo Life insurance market expected to see revival in

growth in second half of FY2010 (first half would be impacted by high base effect)

o ICICI Life: focus on consolidating position as largest private sector life insurer, while maintaining new business profit margins and reducing expense ratio

o General insurance sector continues to witness impact of detariffing

o ICICI General: focus on maintaining market share and leadership, while maintaining underwriting profitability and reducing expense ratio

USE OF IT FOR RAPID BUSINESS EXPANSION AND TRANSFORMATION HAS ALWAYS REMAINED A KEY STRATEGY FOR ICICI

Information Technology Used as a strategic tool to gain

competitive advantage Also leads to increased

productivity and efficiency Systems capable of handling

high customer and transaction volumes

Focus on investments in technology to create new business offerings, improve performance and optimise costs

Some initiatives- Service request automation, enhanced use of SMS alert platforms, self service enablers

MICHAEL PORTER’S FIVE FORCES MODEL

COMPETITIVE RIVALRY

In 2008 – 09 HDFC Bank almost doubled its branch network through organic as well as inorganic growth route

ICICI Bank has partnerships with foreign banks like Lloyds Bank in UK and Wells Fargo in US in order to use new delivery channels and leverage technology to an end use

Apart from streamlining their processes through technology initiatives such as ATMs, telephone banking, online banking and web based products, banks also resorted to cross selling of financial products to augment their fee based income

BARGAINING POWER OF CUSTOMERS

For good creditworthy borrowers bargaining power is high due to availability of large number of Banks

BARGAINING POWER OF SUPPLIERS For good creditworthy borrowers bargaining

power is high due to availability of large number of BanksTrade unions in public sector banks can be anti reforms

Depositors may invest elsewhere if interest rates fall

THREAT OF NEW ENTRANTS

Foreign players, NBFCs and other private banks

Due to financial reforms and widening of priority sector norms

THREAT OF SUBSTITUTES Substitutes in Banking operations is not

possible, however other financial products like insurance, mutual funds, credit cards etc. do have the threat of substitutability by NBFCs

VALUE CHAIN ANALYSIS

The Primary Value chain activities are

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Sevices

Primary activities are supported byFirm Infrastructure like

organizational structure,control

systems,Company CultureHRM: Employee Hiring, Training, Development and

CompensationTechnology development:

technology to support value creating activities

Procurements: purchasing inputs such as materials,

supply & equipments

Cost advantage: by better understanding costs and squeezing

them out of the value-adding activitiesDifferentiation: by focusing on those

activities associated with core competencies and capabilities in order to perform them better

than do competitors

VALUE CHAIN ANALYSIS: ICICI BANK

Focus on Low cost CASA deposits

Use of information technology to reduce operation costs

The interest margins charged by ICICI is slightly higher

Extensive ATM network providing better service. ATMs in villages

Marketing oriented and the first to use brand ambassadors

BCG MATRIX

Online ServicesCorporate Net BankingOnline Taxes

Property Solutions Insurance

Bank Accounts Investments

DepositsLoans

STRATEGIES FOR WAY AHEAD

Increase Net interest margin. Leverage both international and domestic

growth by increasing commercial borrowings. Capture the CASA market share as that will

help get approval from RBI for branch expansion.

Check dependence on high cost wholesale deposits.

High fee income ratio has also led to exposure to complicated, structured derivative products both India and overseas.

Get rid of its obsession with growth in a slow economy.