e-Finance in India A Perspective Geneva October 24, 2001

2 Agenda Traditional SME Banking in India e-Finance in ICICI Bank e-Finance and SME Legal Structure in India Going Forward

3 SME Banking in India SME in India characterised by Low capitalisation and limited assets Geographical diversity and high mortality Poor access to capital markets Cash intensity in transactions Lack of credit information Poor financial disclosure on account of tax issues Directed lending based on Central Bank guidelines High risk perception has led to high borrowing costs

4 Agenda Traditional SME Banking in India e-Finance in ICICI Bank e-Finance and SME Legal Structure in India Going Forward

5 ICICI Group - lending approach Focussed product approach to SME sector Lending to SME based on strong corporate linkage Product and delivery technology dependent Pooling of assets at central hubs enables optimum monitoring Lending approach Sectoral and liability led Parameterised

6 Relationship buildup …. Step 1 SME relationship through “enhanced checking account” Step 3 Subject to satisfactory transaction record, SME elevated to quasi credit relationship Step 4 Offer takeout financing Step 5 Offer regular long term credit Step 2 Transaction oriented products the key drivers Electronic delivery

7 Key Products Leverage corporate linkages through Vendor financing Dealer financing - with and without recourse Standalone, 3-P and rent securitisation Equipment financing Transaction oriented products Web based Cash Management Services Online FX applications Internet based payment system

8 Electronic products e-banking in ICICI ICICI Markets online FX, Debt, SME Portal Corporate Infinity online transfer/ settlement system Bill Junction Utility bill payments Business Multiplier web interface ICICI Direct and ICICI Select Pay Seal electronic payment system

9 Some innovative e-initiatives Customer queries routed to “Call Centres” Intermediate step to web enablement Staff trained to handle complex transaction query Incentivise clients to use web platforms Introduction of pre-loaded smart cards for small value purchases Smart card solutions for fleet and transport owners Dedicated SME Portal for non financial solutions

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11 Agenda Traditional SME Banking in India e-Finance in ICICI Bank e-Finance and SME Legal Structure in India Going Forward

12 Advantage SME.... e-banking leads to: Lower cost of delivery Speed and wider reach Credit information through transaction analysis Risk mitigation Through credit scoring model - statistical Portfolio based approach Corporate information

13 Agenda Traditional SME Banking in India e-Finance in ICICI Bank e-Finance and SME Legal Structure in India Going Forward

14 e-banking related laws …. e-banking governed by: Information Technology (IT) Act, 2000 Internet Banking guidelines of the Central Bank India is the 2nd country in Asia to initiate technology related act e-banking encouraged through: Focussed legislation Access to IT skills, computers and incentives to ISPs

15 Salient features of IT Act …. Drawn as per the UN Model Law for IT Legal recognition to Electronic records Electronic contracts Digital signature Appointment of certifying authority and controller Issuer of public and private key Controller - repository of all the signatures e-Governance- Filing of documents in e-form

16 Central Bank guidelines …. Bank to have security policy approved by Board of Directors Introduction of logical access control systems Security buffers between bank system and internet Products to be compliant with domestic foreign exchange regulations Setting of inter bank payment gateway Mandatory disclosure of risks in internet based dealings

17 Agenda Traditional SME Banking in India e-Finance in ICICI Bank e-Finance and SME Legal Structure in India Going Forward

18 Creating the “e” wave.... Encourage internet/ “e” usage Voice over Internet Protocol (IP) Telecom infrastructure Tax incentives for internet based transaction Incentive for electronic settlement Legal validity for e transaction Consumer Protection Act Negotiable Instrument Act Acceptance of electronic based document

19 Creating the “e” wave.… Cont. Capital Account Convertibility Exchange Control Laws Strengthening the Intellectual Property Laws

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