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Banking > Features on Banking> ICICI Consolidating gains                    Click here for concluding part of the feature

ICICI Consolidating gains
[Part I]

[Following is special feature published in May 2001 issue of Chartered Financial Analyst]

It is a surprise to everyone if the newspapers or the late night editions of the TV news do not carry anything about the ICICI. One of India's biggest financial institution is always in the limelight. The growth of the ICICI over the years has proved repeatedly the ability of the institution in adopting new technologies and products. It is through its ability to nourish new products and services that the institution has become a household name in a very short span of time.

This time again the FI is in the news in a big way. Previously, the institution has been in the limelight for controlling the market turbulence or expansion into new markets. However, the reason this time is totally different from the earlier ones. After a constant expansion of the number of subsidiaries in the last five years, the leading financial institution has announced its plans of restructuring. Things are moving fast at the Bandra-Kurla complex of ICICI. Also, after substantially diluting its stake in the ICICI Bank, the group is also planning for a reverse merger.

Exponential growth

The Industrial Credit and Investment Corporation of India limited founded way back in 1955, has witnessed more than it could have dreamed of at the time of its inception. However, following the economic liberalization of Indian economy, it has renamed itself as ICICI. The principal objective behind setting up this organization at that time was to make available long-term capital for industrial development and investment in India. Gopalan Ramachandran, Chief executive, Business Economics and Risk Management says, "Considering the fact that it was established at a time when India had a stock market but not a reliable capital market to supply long-term debt and equity, the growth of ICICI is wonderful."

Not only did the institution withstand the test of time but also witnessed exponential growth that anybody can ever imagine. Under its group umbrella, ICICI has around 27 subsidiaries. Of course, the most prominent and most successful among them is the ICICI bank. One observer puts the constant increase in the number of subsidiaries as part of their decentralization strategy.

The major reason for the exponential growth of ICICI is due to its willingness to adapt itself to changes. It is the first one to start Internet banking. Also it has been the first ever institution to start a web based securities trading through its subsidiary ICICI Web Trade Ltd. Says Gopalan Ramachandran, "ICICI is a financial institution that has seldom resisted change. It has been an ardent promoter of internal and external change." Truly, it has been the best in the business to adopt to the changes in the environment. And what more can it ask for from its employees who were most willing to adopt new things. And all this is due to the comfort provided by the subsidiaries identifies an industry observer.

Not only it witnessed increase in the number of subsidiaries during the last few years, it has also witnessed one of the best years in existence in terms of rise in its total assets. At the end of the financial year 2000, its assets stood at Rs. 706 bn. In the process, it has become the second largest financial institution in India. Also, today the group manages around 7.4 mn customer accounts. It includes three mn customers' accounts of the ICICI bank. The well-diversified portfolio of the company will tell the story of its success. Out of the total portfolio, corporate finance accounts for 37 percent while the structured project finance accounts for 23 percent. Slowly it is also gaining momentum in the retail loans segment, though at present it represents only 2 percent of the total portfolio.

It is no doubt that ICICI has now become India's best-managed financial institution catering to the needs of different customers. The key to success has been the constant endeavor to implement new technologies and products. According to Anurag Khanna, Founder and CEO of BanknetIndia.com, "The company is making constant efforts to exploit first mover advantage in the technology-related businesses." The principal achievements of ICICI according to Gopalan Ramachandran, are, "It has been able to reduce drastically the percentage of problem loans and the surge in the size of its balance sheet. Also, it has rapidly assimilated the technology and had developed institutional and managerial process aimed at managing risk." The result is the rapid increase in the shareholder value compared to others in the industry.

What made this possible?

One man who can claim the phenomenal growth of ICICI is K V Kamath, the CEO of the company under whose stewardship the company had witnessed a spectacular growth. He is the person behind the transformation of ICICI from a financial institution whose main businesses was lending money for industrial projects to a broad based finance group that extends loans to individuals, finances car purchases and engages in mutual funds. The urge for growth seems to be never ending for him and the company. Now the company has focused on achieving the status of a one-stop shop, a universal bank and a financial supermarket catering to different needs of customers ranging from large multi-crore corporations to a common man on the street. In the words of Kamath, "We want to be a global organization in the domestic market."

The increase in the number of subsidiaries has helped the company. Anurag Khanna, says, "As ICICI has transformed its business from a development financial institution to a diversified financial service group offering a wide variety of products and services it required various subsidiaries to handle particular activities." Justifying the reason behind the floating of the subsidiaries and their contribution to the overall success he adds, "These subsidiaries helped in focusing on their specific areas of operation and facilitated attention to their specific customer segments and activities."

Gopalan Ramachandran adds to the views expressed by Anurag Khanna. While explaining the role of subsidiaries in the growth of ICICI, he says, "Subsidiaries enable special managerial talent to deploy cutting-edge technologies. The internalisation of risk and reward in subsidiaries is a potent impetus for the growth of the ICICI group." However, a question that arises in the floating of the subsidiaries is whether there are any private benefits arising for a select group of institutional investors. Since the principal voting rights in the company are owned by a set of well-informed institutional investors, it can be assumed that the floating of subsidiaries will not provide any private benefits.

The participation of the employees in the activities of the company is a key to the success for any organization. ICICI is no exception to this and rightfully the cooperation from the employees to the management has been outstanding. The company has been able to retain the best people through a combination of training and performance linked compensation. "ICICI has empowered managers to try new techniques, technologies and process and above all, to establish new beachheads for exploitation in the future," says Gopalan Ramachandran.

The other key factor that made the growth of the ICICI possible is the constant lookout for new opportunities and technology. Kamath has once quoted, "Technology at the ICICI will revolutionize the way we access the public for assets or liabilities." The establishment of ICICI Web Trade Limited is an example of the company's willingness to adopt technology. This has helped the company to better manage non-market and other risks, to better serve the customers and to deploy cutting-edge technologies according to an industry observer.

ICICI has always been in the forefront to identify and exploit opportunities. The company even cites this as one of the reason for floating subsidiaries. Through the various subsidiaries, it was able to address the various retail opportunities. Gopalan Ramachandran says, "The retail subsidiaries have hitherto focused on their specific areas of operation in order to facilitate rapid time to market and dedicate attention to their customer segments and channels." There is no area left unexplored by ICICI.

ICICI has always attempted to fulfill its vision of becoming a universal bank. Consider the case of Citicorp. After the banking recession in the US, Citicorp has been experiencing negative profits during the period 1987-89. But it had been able to turn the negative profits to positive with the credit card division. It had laid a target of $ 1 bn profits. Many felt that the target was never attainable. However, with aggressive marketing strategies and constant new product development and services it had attained it. Likewise, though the vision of becoming a universal bank by the ICICI may seem to be olympian, it is achievable. One fact that will be of concern for the company in achieving the universal bank status is the state of the non-performing assets. Anurag Khanna says, "It needs to look into NPA levels, which are more than the permissible level and also dilution of control due to floating of too many subsidiaries."

Many people may be aware of the fact that the massive brand building exercise that the company has undertaken in the recent years. It is not surprising to say that the ICICI's Safety Bonds have become the household name in India. Since the strong mass-market players are absent in India, the investor base has grown larger and stronger with every issue of safety bonds. This enabled the group to build a profitable retail franchise. Also the practices of the company like the adoption of US Generally Accepted Accounting Practices had acted as tremendous confidence booster in the market.

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