New Technologies for Small and Medium - Size Enterprise Financing Washington D.C. December 6, 2002

2 ICICI Bank - The e-Universal Bank Assets of US $ 21 bn Globally held (ADR, FII own 47% stake ) Second largest Bank in India - Technology Leader Rated by Moodys above sovereign rating First Indian Bank to be listed on NYSE

3 Retail Financial Services Corporate Financial Services Term Loans Project Finance Commercial Bank Investment Bank Venture Capital Genl. Insurance IT Services Car Loans Mortgages Credit Cards Personal loans Deposits Life Insurance Mutual funds A universal banking powerhouse...

4 Establishing an international presence Canada UK UAE Singapore USAChina Phase I : Offices opened/to be opened shortly Phase II : Geographies under advanced stage of evaluation

5 Smart Card Technology Universal Banking Theme Empanelled expert for tax and accounting advice Web Trading Internet Banking Mobile Banking Call Centre B2B Solutions Portals e-Commerce initiatives Leveraging Technology to enhance delivery capabilities

6 SME Sector Higher productivity High quality- greater competitiveness Sustainable revenue models Higher productivity High quality- greater competitiveness Sustainable revenue models Use of Technology Use of Technology Enables virtuous cycle of technology, innovation, competitiveness, openness to market economy and globalisation Virtuous cycle Virtuous cycle Single largest employer Fastest to adopt innovation Ensures equitable wealth distribution Single largest employer Fastest to adopt innovation Ensures equitable wealth distribution Importance of SME Sector in Technology

7 Financing options for SME Upto breakeven Long Sustainable growth VC / Bank / Debt markets Bank Finance / Debt/ IPO Short term GrowthLoan/ Debt/ IPO Mid Term CreationPromoters Long Seed capital / Subsidy SME Lifecycle Suitable type Duration of financing required Suitable Channel Start up VC / Angel investor / Subsidy/ Tax incentive Long VC / Promoters MaturityPublic Debt/ Capital Market Short term VC / Angel investor / Subsidy/ Tax incentive/ VC/ Angel Investor / Promoters VC / Bank / Promoters Capital Market/ Debt markets

8 Financing for SMEs Unit Level - Standalone Cluster Financing Unique for cluster Productise d

9 Financing intervention for technology Financing intervention for technology can happen at 2 levels Unit Level Direct Finance to SME by VC Equity Loans Capital Markets Cluster & System Level Cluster financing B2B models Internet payments in closed user groups Smart cards in closed loops Technology based financing solutions

10 Constraints in Financing SME’s.. Banks perception of SME’s Lack of transparency of information Low technology Low capitalization / Collaterals Vulnerable to market changes High risk sector Low profitability Banks perception of SME’s Lack of transparency of information Low technology Low capitalization / Collaterals Vulnerable to market changes High risk sector Low profitability SME’s perception of Banks No special schemes for technology financing Inadequate and delayed credit Cumbersome procedures Insistence on collaterals and guarantees High rates of interest SME’s perception of Banks No special schemes for technology financing Inadequate and delayed credit Cumbersome procedures Insistence on collaterals and guarantees High rates of interest

11 SME Financing Approaches to SME Financing Prudent Segmentation Cash flow based evaluation Multiple channels offerings by leveraging Technology Migration to non-branch channels Approaches to SME Financing Prudent Segmentation Cash flow based evaluation Multiple channels offerings by leveraging Technology Migration to non-branch channels Key aspects Measurement of risk and mitigation Reduction in cost of transactions Delivery – cost and reach Key aspects Measurement of risk and mitigation Reduction in cost of transactions Delivery – cost and reach

12 Enabling Framework for Technology Financing Technology Financing Financing Quality Initiatives Priority Sector Mandated Lending Specialised Stock- markets Competitive pressure to encourage innovation Protection to nascent technical units Technical education/ skilled manpower Fiscal Measures, System and Infrastructure Cluster Development VC/ Angel incubators Institutional framework of nodal agencies for refinance/ guarantees Industrial extension services Enabling technology transfer incentives

13 BIS 2 Proposals – Advantage SME Banks free to evolve capital allocation according to internal rating based approach SME’s with turnover less than EUR 50 mn will have explicit lower capital charge Small businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocation Recognition to collaterals, credit derivatives, guarantees for allocating capital Banks free to evolve capital allocation according to internal rating based approach SME’s with turnover less than EUR 50 mn will have explicit lower capital charge Small businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocation Recognition to collaterals, credit derivatives, guarantees for allocating capital Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by banks

14 ICICI Bank Initiatives SME Portal - Internet Banking Gateway for B2B sites SME Portal - Internet Banking Gateway for B2B sites Supply Chain Financing on B2B loops Subsidiary network role in technology financing

15

16 Case Study I - Supply Chain B2B Solution Purchase Order Purchase Order ERP Interface ERP Interface Despatch Invoices Despatch Invoices Dealer Overdraft Account Dealer Overdraft Account ICICI Bank SME Dealer SME Dealer ABC Ltd

17 Case Study II - Smart card solution for FSCs Bank Account/ Credit History Output Sale Collect Money Farmer Service Center Credit Debit e-purse Merchant Store Input Online update of Bank accounts

18 Innovative Delivery Mechanisms Innovative Delivery Mechanisms Sustainable Access for Rural India (SARI) project Partners: MIT Media Labs, Harvard University, I-Gyan, Providing reliable Internet access through Kiosks using corDECT WiLL 100 kiosks managed by entrepreneurs to be set-up Providing e-governance, and information services Delivering banking services through Internet kiosks Innovations in Delivery Channels

19 Other initiatives - I e-banking in ICICI Bank ICICI Markets online FX, Debt, SME Portal Corporate Infinity online transfer/ settlement system Bill Junction Utility bill payments Roaming Current Account web interface ICICI Direct and ICICI Select Pay Seal electronic payment system

20 Other Initiatives - II OTHER INITIATIVES Cluster Financing Fleet card for transporters Smart card for retailers Escrow payment services Facilitating e-Sales Tax/ Octroi payments Shopping Mall arrangements

21 ICICI Eco-Net Internet & Technology Fund ICICI Infotech Services Limited ICICI Information Technology Fund ICICI Web Trade Limited ICICI OneSource Limited ICICI Equity Fund  Business process outsourcing  Call Centre Activities  Internet based broking services  Software consulting development  IT enabled services  IT infrastructure  Investment in equity  Investment in securities of medium sized IT companies  Investment in equity  Investment in unlisted internet & technology companies  Investment in equity  Investment in medium sized IT companies Subsidiary network support technology financing

22 Our recommendations Dedicated Institutions Fiscal benefits to attract VC funds Lifecycle approach to determine which channel to fund SME requirement Public-private partnership Banks to be permitted to use non-bank infrastructure to deliver services

23 Road Ahead Liberalised norms for tech transfer JV with foreign VC Directed lending norms to include all tech intensive SME Re-finance, guarantees, subsidies, VC funds Tax incentives Infrastructure status to IT, Bio-tech, telecom Public - Private Partnership

Thank You