Last year, ICICI employed Bollywood superstar Shahrukh Khan to advertise its expansion efforts. Yet they needn’t have worried: India’s largest private bank has already earned popular acclaim and goodwill in the country over the last year through its retail drive, pioneering development of rural finance and blockbuster capital-raising deals.
The bank has certainly put on a good show, with profits forecast to grow 20% this year. In September 2007, it launched a $2 billion, 5-year bond, the largest single tranche issued by an Asian financial institution outside Japan, and the biggest bond from a borrower in the region since 2003. This three-times oversubscribed deal also helped to signal that the Asian bond market was still open for business, after this summer’s dry season caused by the credit crunch.
Foreign investors have sunk their money into Indian banks to gain exposure to the country’s celebrated macroeconomic growth story. But Vishakha Mulye, CFO at ICICI, argues it has a stronger funding profile than its domestic rivals because “we were the first Asian institution ex-Japan to list on the NYSE since 1999. This has helped us in our fund-raising exercises, and we are able to reach a diverse base of investors,” she tells Emerging Markets.
The bank’s flurry of capital-raising issues over the last year will help it keep up with the racing growth of consumer loans, with the lender now controlling one-third of India’s market, increasing its customer base by 40% per year. The cash will also fund the country’s red-hot infrastructure market, continuing ICICI’s historic nation-building drive.
India’s economic growth – at 9% a year – certainly helps, but ICICI’s success has much to do with its accuracy in predicting the country’s consumer boom in the late 1990s, before many of its peers. Its business strategy now aims to tap the huge rural sector, extending credit for crops, irrigation and tractors, as well as financing health and education: the bank plans to service 25 million rural customers by 2011.
Mulye explains that innovative technology will be necessary to cut administration costs in the country’s sprawling rural market. “Rural India offers us the opportunity to leapfrog brick and mortar structures and use handheld devices and smart cards to provide banking services. We are seeking to do this at a cost that is substantially lower than the cost of serving urban customers, to provide affordable services while ensuring that our operations are self-sustaining.”
But she argues that partnerships with local players are necessary to build a sustainable business model. “Past experience shows that creating more bank branches does not allow sustainable growth in financial services access and penetration. So our approach is two-fold: firstly, to create a network of community-based financial institutions and other local partners, whose proximity to and knowledge of the customer would complement our financial resources; and to leverage technology to enhance efficiency of delivery and reduce cost.”