Consumer Banking in India : The ICICI Experience June 17, 2008

Contents India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings’ for International Banking

Changing Consumer Demographics.... Increasingly affluent, with a bulging middle class The youngest population in the world 65% of population below 35 years of age Increasing literacy levels Higher adaptability to technology Urbanisation is a continuing trend Increasing "consumption" mindset in India Consumer Demographics of India

…driven by a growing consuming class… 2000: Per capita GDP US$ 500 2007: Per capita GDP US$ 1,000 2015: Per capita GDP US$ 1,500 Consuming class population estimated at about 260 mn1 Consuming class population estimated at about 350 mn1 Consuming class population estimated at about 600 mn1 35% growth 70% growth From per capita GDP of US$ 1,000 to US$ 1,500: consuming population to grow manifold Estimates based on NCAER data. Consuming class comprises middle and high income households 4 4

…with an upward migration of incomes.. (households in million) FY1996 FY2002 FY2010 Estimate Middle income 33 50 98 High income 1 3 10 Middle income : US$ 2,100 -11,670 per household p.a. High income : > US$ 11,670 per household p.a. Rising affluence and growth of the consuming class NCAER data for top 24 cities in India shows migration to higher income levels growing at over 40% per annum

..and low market penetration.. Life Insurance Penetration Mutual Funds Penetration Source: Swiss Re Source McKinsey Mortgage Market Penetration Retail Credit / GDP at 13% as compared to 60%* in Malaysia & 90%* in the US 113 mn people are likely to retire by 2016 Need for retirement planning now Source McKinsey * At the end of 2005, Source IMF

..offering banks a huge opportunity.. US$ bn 114 30% 88 40% 62 Robust growth in consumer credit in India Across product segments Growth to moderate to 12-15% due to the large base effect Source: Reserve Bank of India

..and resultant Economic growth… Rising consumption Multiplier effect Rising income Rising production GDP growth Nominal Consumption expenditure growth tracking nominal GDP growth The multiplier effect at work India on a high growth trajectory with an average GDP growth rate of 8.7% over the last four years Expected growth rate of 8-8.5% during FY 09

Contents ICICI Bank: Consumer Finance Experience India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings’ for International Banking

Retail finance: the ICICI experience ICICI Limited : 1955 to 1999 One of India’s leading Financial Institutions Single Product - Focused on project finance Well recognised brand in the corporate segment No presence in the consumer segment

Key challenges at the time of entry into consumer finance Well entrenched competition Change in mindset required Focus on decentralisation & empowerment No experience in consumer finance Finding the right way to approach the market was a key challenge Lack of scale Low relevance for intermediaries and vendors High cost of funds Creating a retail organisation

Bank’s consumer finance strategy Aspirations S t r o n g B r a n d Multi product offerings The one stop financial shop Product differentiation Pan-India provider of full suite of retail products Sound selling strategy Leveraging corporate & channel relationships Focus on cross selling Multi channel offerings Technology led delivery of products Market leadership & Scale Efficient operations Superior service quality at optimum cost

Establishing new paradigm in consumer credit distribution… Doorstep delivery Point-of-sale delivery Agents taking product to the customer Availability of credit at the customer’s home or office Strong channel partner network Manufacturers, dealers, realtors Availability of credit at point-of-sale of product “Enhanced customer convenience” the key selling proposition

…and achieving economies of scale…. Particulars Before 1995 Now Product Portfolio Single product complex retail & corporate finance products Branches/ Offices 6 >1,300 ATMs - ~4,000 Employee Base 1,000 >40,000 Customer Base 3,000 31 Mn Internet customers - 18.3 Mn

…by leveraging technology channels… Usage 20001 Usage 20081,2 Branches2 94% 7% ATMs & POS terminals 3% 37% Internet 2% 21% Call centre & mobile banking 1% 30% ICICIDirect – The Online trading platform caters to more than 1.4 million customers handling about 3,50,000 trades a day For savings accounts. Excluding 5% of transactions processed at centralised operations centres

… with a focus on cross-sell… Deposits Credit card Bonds Loans Pvt. banking Debit cards Insurance Mutual funds Customer service & sales force automation Campaign management solutions Live data warehouse Walk in customers Private banking customers Salary account customers Corporate banking customers To achieve market leadership in consumer finance in India

The ICICI Group today Largest private sector bank in India Largest consumer credit provider Largest private sector life insurer Largest private sector general insurer Leading asset management company Largest private equity & venture fund Leading securities and broking company Consolidated banking assets of US$121 bn; market cap of US$ 20bn

Contents Risk Management in Consumer Finance India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings’ for International Banking

Risk Management Practices Robust Credit Assessment & Practices Customer identification (KYC) a regulatory requirement Stringent credit practices for customer assessment Income documents used to assess ability to pay Fixed Obligation to Income Ratio as % of monthly salary a key parameter Loan to Value ratios to ensure customer equity Bureau checks - No lending to people with bad credit history Validation of information by physical and telephonic checks Upfront communication of Most Important Terms i.e. interest rate, tenure, etc..

Risk Management Practices (Contd..) Strong Credit Policies Non existence of negative amortization products / interest only products Portfolio controls using risk analytics Collection processes & policies Focus on Customer Service Compliance with Banking Codes and Standards Board of India (BCSBI) Alternative mechanisms for dispute resolution – “DISHA” Customer education on “Safe Banking” Regulatory requirements Risk weights on most retail assets higher than Basel II requirements High requirements for general provisions General provisions on unsecured loans at 2%

Contents Learnings’ for International Banking India: Consumer Banking Landscape ICICI Bank: Consumer Finance Experience Risk Management in Consumer Finance Learnings’ for International Banking

International Opportunity : Key Drivers Leveraging Indian skill and cost advantages for global competitiveness Seeking ethnic familiarity and India linkage, but with internationally-benchmarked products and services Leveraging the India base Use of technology to support business growth at minimum incremental cost Agnostic approach: no mainframes Substantially lower technology costs than global banks Leveraging Technology Capital

ICICI Bank: Low cost technology as competitive advantage * ICICI Bank spending as 100 units per account Source: Mckinsey

Leveraging Technology in UK & Canada Direct banking model: Easy-to-use, completely online banking account Strategy: Leveraging the experience of having executed a successful internet banking strategy in India Account opening forms processed in India All treasury-related back-office operations are done out of Mumbai Cost effective and scaleable customer acquisition and servicing model Raised US$ 7.4 bn of retail deposits

ICICI Bank Remittance services Inward remittances facilities into India from over 40 countries worldwide Leveraging state of art technology Wide product with low cost and innovative online as well as offline channels ICICI Bank pioneered online money transfers through Money2India.com Instant transfer products launched from ICICI Bank overseas branches/ subsidiaries 24X7 customer service accessibility through email and phone Plans to extend remittance expertise in over 30 non-India remittance corridors ICICI Bank awarded the Asian Banker Award for ‘Excellence in Remittance business’ in Asia Pacific region

Our global presence UK Belgium Russia Canada Germany China USA Hong Kong Bahrain Bangladesh Qatar Malaysia UAE Thailand Mumbai Singapore Sri Lanka Indonesia South Africa Subsidiary Representative Office Overseas Branch Largest international balance sheet among Indian banks

In summary Consumer finance opportunity in India strong Strong consumption cycle Growing consuming class Rising incomes ICICI Bank identified retail banking as an opportunity for growth Focus on customer convenience Developing and leveraging technology channels Achieved market leadership in consumer finance in India International banking as the next growth horizon Leveraging technology for direct banking services Replicating customer orientation in NRI services and remittance business

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