From Banking Woe to Banking Wow!!

A couple of decades ago, a visit to the bank meant an agonising journey with your resin covered passbook to the dank interiors of the place, with paper-bundles bursting at their seams strewn across the desks of numb, antique, uninterested and sometimes downright rude individuals, who would not have hesitated to tell you, “We will update your passbook tomorrow”. Imagine the plight of a guy who has stood in the serpentine queue, probably already having fought with his boss for taking some time out from his busy schedule only to return with an empty passbook. When I compare this to banks/financial institutions today, the metamorphosis is unbelievable. Let me be biased and give credit of this technological upsurge and customer satisfaction to ICICI Bank. After all they are my bankers. A small caveat, from my personal experience I can vouch for the fact, that ICICI money2india can never compete with some of the other players which have entered the forex market. With higher overheads, ICICI cannot compete to the superior rates and quick remittance by the smaller players.
ICICI is an example of a visionary entrepreneurship that catapulted a burdened, state-run enterprise to India’s leading private domestic Banks. In 1991 when the economic environment moved towards the market and away from socialism, a new breed of private domestic banks emerged. Eager to take risks and compete, these banks gave an alternative to the poorly run state-owned banks. Established in 1955 as a Development Financial Institution, it came under the indirect ownership of the state. Its prime objective was to lend money to government-approved clients at government-instructed interest rates. By 1985 it had become burdened by large Non performing assets and could no longer survive on government subsidies. The only way to come out of the banking core’s grim situation was by not confronting it directly but by introducing healthy competition at the margin. Narayan Vaghul who was at the helm of affairs in ICICI, saw an opportunity to steer his ship clear of state patronage and into the murky but profitable waters of the market economy. ICICI set up its commercial banking arm in 1994.
K.V.Kamath inherited the solid foundation and a list of blue-chip corporate clientele to boast of, that Vaghul had painstakingly nurtured. Kamath intended to take this one step further by not restricting ICICI only to project financing which could not have sustained its growth. A massive structural transformation was undertaken and in due course of time ICICI emerged as a butterfly from the historically sheltered chrysalis of state-ownership to full flight as one of India’s premier financial enterprises. During the 80’s retail financing was unheard of, and as companies provided their employees with conveyance allowance and housing which would expire on their retirement, meant that an employee was likely to retire with no house, no car and often meagre insurance coverage.
ICICI took the plunge into the underserved retail financing space full of opportunities and risks. The burgeoning middle class flush with disposable incomes meant that growth was headed northwards. The market realities did weigh heavily on ICICI, with analysts considering a large part of the Indian consumer base as “Unbankable”. Some 60 percent of Indians didn’t even have bank accounts, no credit bureaus existed to track credit histories, and no agencies existed to collect bad loans. Added to their woes were the entrenched players who had conquered the market for some of the lucrative services. Citibank virtually owned the credit card space, and HDFC, had a 70 percent share of the housing finance market. ICICI banked upon its strength in banking to corporations and utilising technology to overcome these challenges in the retail market. Paying just 60 percent of the salaries other banks provided and tapping the unrewarded talent, which was latent in India, at the same time giving complete autonomy and incentive pay to them, served as a recipe for success. Technology was another vital cog in the wheel for the transformation. Virtual and physical networks were built to cater to hundreds of corporate clients. So, while other banks competed via elaborate networks of branches and in some cases direct selling agents, ICICI decided to develop an entirely new network. Kamath believed that he could overcome the absence of an adequate physical infrastructure by using Internet banking and ATM’s. At one point ICICI was installing 3 ATM’s a day, with massive backup systems that ensured connectivity at all times.
The Investment paid rich dividends, with ICICI unseating HDFC by 2000, and over the next few years it took the lead in five of the six retail products in which it competed. Moreover international markets gave their vote of confidence to this strategy, what with foreign institutions owning 71 percent of ICICI. This also meant that the so-called state owned banks (SBI, PNB, BOB etc) had to pull up their socks and get their act together. They are listed now, so part of the equity capital is now privately owned. Indeed, on a per transaction basis, the cost structure of Indian banks is 10 percent of a comparable transaction in a global bank. From inefficient paper gatherers to executives talking about data-driven scientific progress in financial markets to economists at MIT, Harvard and Wharton, the leap has been tremendous. It comes as no surprise then, that ICICI serves as a case study leading to discussions on banking possibilities, innovations, and dovetailing idealism with economic value at Harvard Business School.