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The Rediff Business Special/Nikhil Faleiro

Rise of a 'universal banking major' from India

There was a time when the Industrial Development Bank of India and Industrial Credit and Investment Corporation of India, along with the Unit Trust of India and Life Insurance Corporation, were considered the pre-eminent financial institutions of India. Consider these:

• The other day, IDBI got knocked off India's premier stock market index, the Sensex of the Bombay Stock Exchange.
• UTI got embroiled in a controversy over the net asset value of its flagship US-64 and is still in the process of getting its act together.
• Besides its significant but traditional role in the capital market, LIC has been busy shoring up its weak spots for the post-liberalisation insurance market (which may pit itself against big-time foreign players).
• Among the four, ICICI, India’s largest financial institution, has been going from strength to strength, constantly reinventing itself for the Internet-driven new economy. It is still part of the 30-share Sensex and is doing well on the New York Stock Exchange, the only Indian company to do so.

Members of the ICICI top brass recall how on December 2, 1999, K V Kamath, the chief executive officer and managing director, told them that he wanted ICICI's Internet venture to go online at the earliest. It seemed as much a tall order as an act of desperation, considering that the time needed to set up such ventures is ninety days. But Kamath was in a hurry.

The Internet revolution had started to rage in India, and start-ups that offered numerous services began to mushroom. ICICI, through its venture capital fund, was funding most of these enterprises, when it could very well have launched these services itself.

A senior official said, "ICICI was funding its own competitors, which was ironical as they could take away a chunk of the business pie from it. In the long run, this could be detrimental."

It was, thus, not surprising to find ICICI shift its focus to concentrate on the Internet. The financial behemoth sprang into action and by February 22, had not only put in place its Internet strategy but launched Web-based trading.

As of now its services are in isolation: whether it is Web-based trading or its tie-up with Satyam Infoway for banking products. But once these forays converge, ICICI may no longer be a mere financial big brother, dutifully doling out credit to start-ups and other corporates.

Much thinking, lightning moves and stunning deals have contributed to the morphing of India's best-known FI into a "universal banking major". Industry observers talk of Kamath in glowing terms, his vision, his committed team, their drive to tackle the problem of non-performing assets of banks and so on.

Kamath's efforts at cleansing and reorienting India's banking sector to global standards, have been recognised around the financial world. "People who hired well like ICICI have done a good job of building the right capital in humans and they are going to have huge benefits from it," Prof Sanjiv Ranjan Das of the Harvard University had once told rediff.com. Professor Bala V Balachandran, professor of accounting, information systems and decision sciences, Kellog's Institute of Management in the US, had this to say: "Companies like ICICI are doing much better than other banks because they are able to take advantage of the bigger capital that they have.

"And they are efficient at targeting the customer as against doling out funds to everybody. These companies don't grow just like that but rather in a focused way.

"Companies like ICICI have visionaries like K V Kamath at the helm. He is taking care of what's happening outside, the problems, the pitfalls, how to recover... That comes from leadership."

ICICI's Web-based trading, for one, has caused a significant flurry. By already having subsidiaries for broking depository participants and banking, ICICI can now leverage these to provide a comprehensive trading and settlement platform.

As Nachiket Mor, in-charge of ICICI's Internet foray, says, "We want to use the Internet to become a universal banking major." While many traditional bankers will offer Internet trading, ICICI plans to go a step further and provide a platform for settlement of the trade transactions in cash or shares too.

For example, after a trade, the share has to be settled. At present, the investor has to give instructions to his depository participant who will transfer the shares to the buyer's account. Simultaneously, the buyer must settle the transaction by cheque. However, all this will now go through the Internet and ICICI will be the first one to provide consolidated services.

Mor says, "Customers, without exchanging a piece of paper or making a telephone call, can actually buy or sell shares."

The other product ICICI plans to launch, on a stand-alone basis, is a payments gateway. ICICI plans to offer a platform to its existing clients for conducting their business-to-business or B2B transactions through the Internet, and later it would be offered to other players for carrying out their business-to-consumer or B2C transactions, too.

The aim of the game is for the gateway to facilitate cash transactions for each of ICICI's cash-related forays. Thus, once integration takes place, the customer would be able to buy and sell shares, invest in mutual funds, park funds in bonds of debt instruments, or settle credit card and home loan transactions, through this gateway. "Customers can pick up one transaction in one medium, modify it in another, and conclude it in some other medium," says Kamath.

However, that is not all. ICICI is also actively mulling over investing in and incubating e-economy start-ups.

Analysts point out that there are indications that ICICI may not remain content with merely distributing financial products in the future. It would like to emerge as a dominant player in the entire e-economy.

There is one global trend that ICICI is watching very closely: whether to distribute other companies' financial services or concentrate on developing only its own services. Mor clarifies, "No clear signal has emerged from any global trend, but this is one area we want to concentrate on."

The other trend that ICICI is closely examining is the emerging linkage between various sectors in cross-selling products.

Mor says, "AT&T proved to be one of the most successful partners of a credit card company as it was able to do a high-risk profile of the customer because of the nature of its business. We are considering all possibilities depending on how the Indian market evolves."

But, for ICICI, the future cannot be clearer. It disbursed Rs 170.16 billion during the first nine months of 1999-2000, up 23 per cent from Rs 138 billion during the previous corresponding period. Its loan sanctions are pegged at Rs 326.7 billion, up 19 per cent from Rs 274.9 billion. All this was possible because ICICI managed high growth rates by diversifying into business areas and de-risking its portfolio.

By trying to combine past achievements with new ability to create a universal bank that offers a comprehensive range of financial products, ICICI is gradually moving away from its traditional role of a credit-provider to the industry.

Lalita Gupte, joint managing director, ICICI, says, "We aim to provide the best for big and small customers, and this is the aim of the universal banking system."

However, from an institution that was formed to fund small industries that found help from banks difficult to get by, ICICI is now poised to become a global player in the new millennium.

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