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Asia-PacificDecember 1 2004

The rural take on banking tech

KV Kamath of ICICI tells Karina Robinson why the bank’s strategy for technology dovetails perfectly with its plans to expand in rural India.
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Rural India has hit the headlines. India’s Congress party won the last election on the back of a revolt by the rural masses against the incumbent government. KV Kamath, managing director and CEO of ICICI, is looking for rural India to provide the bank with one of its biggest growth spurts.

There may, of course, be a political element to this: it will not be taken amiss by the new government in Delhi to hear about ICICI’s emphasis. But this does not detract from plans that could revolutionise banking in neglected areas of the country using the bank’s technological superiority.

Admittedly, the plush, overpriced Kai restaurant in London’s Mayfair, where we had lunch, seemed a million miles away rural India, as did tall, soft-spoken Mr Kamath in his navy suit with red tie, a conservative attire livened up by two thread bracelets, evidence of his having done a couple of pujas at temples.

Growth challenges

ICICI – winner of The Banker’s best bank in India for 2004 – is the second largest bank in India after state-owned behemoth State Bank of India, with assets of $28,861m. Although profits grew a phenomenal 146% to $442m in the financial year ending in March, at 1.53% it ranks only 12th in India on return on assets, according to The Banker’s own research. Its cost/income ratio at 63% is among the highest of the top 20 banks in India and some experts believe rural expansion will have a detrimental effect on this.

“The challenge for the private banks is that growth will come from the rural segment of India, which will have an impact on costs,” says Vikram Lund, strategist for the global banking industry at IBM. “I don’t think they have felt the pain as yet. The government is placing emphasis on rural India but also banks are realising Bombai, Chennai are pretty saturated.”

ICICI is already present in rural India. “You are required by regulation to lend 18% of all you lend for agriculture,” says 57-year-old Mr Kamath. “We are one of the few banks to have reached this target. We believe we are not suffering in lending. We do it by choice. We believe it is profitable, good for the country and good for us.’’

Currently, the bank uses local intermediaries – such as the representative of Hindustan Unilever and other such companies – to help finance farming. Its other main thrust is micro-credit, including a specific scheme called Self Help Groups, which brings together about 20 women in the villages (“Entrepreneurship at the village level is almost universally women,’’ says Mr Kamath), who learn to save, keep books and such. Eventually they are entrusted with bank loans to start small enterprises.

“Our collection rate on this is 100%. We are looking at reaching about 500,000 women and scaling it up to a million this year. So what, I think, we are a billion people! We must try to do something that reaches many more people,’’ he says.

Mr Kamath foresees reaching his target through the use of modern technology. There are two plans. One is to install internet kiosks, started by a village entrepreneur using bank loans, which could link to a hospital or an agricultural university so the villagers could put their simpler queries through without having to take an expensive journey.

The other ICICI plan is for a very basic automatic teller machine that would cost a fraction of the price of a normal one and would allow biometric identification of customers so even the illiterate could operate it. The bank expects these ATMs, which are at an advanced stage of testing, to be put out for field trials soon.

Foreign ventures

ICICI is also expanding abroad. The bank’s strategy is to grow where Indian corporates and immigrants would use their services. This includes the UK, South Africa, North America and Bahrain, among other regions. The bank says it has almost one-fifth of the remittances market to India – once again through its use of technology – by having online customers.

“We believe in the next three years our global balance sheet should account for roughly 25%-30% of our book. This year, it will be just under 10%,” says Mr Kamath.

Technology is the differentiator for the bank. Its approach is quite unique.

“I don’t have an office of the CTO [chief technology officer], which is frightening for most organisations. There is no technology department. The business unit, the user department, has to own technology and implement it,” says Mr Kamath. “We run technology at a very low cost, at 10% of the cost of most global banks. That is critical to the success.”

Unique model

Yet if running technology cheaply is the bank’s unique selling point, surely this can be imitated by others, I suggest. With evident and understandable satisfaction he tells me why other banks do not imitate his model: “[It is] not that easy. I learned it the hard way. You say, why can’t others do it?! Take a technology project. Who implements it in a large bank? The idea comes from the technology department. The CTO assigns a person from his team or from vendors. He is the boss of that project. Then you have the department for whom this project is done nominating someone on to that committee. But ownership of the project is the CTO department. The linkage to the department that ultimately will own the project is very thin, through one person. He must talk to the rest of his team. This, we think, is a recipe for disaster.’’

He points out that getting the ICICI London office up and running was done in 65 days, while the quote from the original outside vendor was one year. He proudly tells me the last technology failure the bank had was seven years ago. It seems almost an impossible statistic.

Ably wielding his chopsticks, Mr Kamath denies the bank – which earns two-thirds of its profits from retail and one-third from wholesale banking – could be taken over because in “every nation there are banks which are champions. We possibly are a champion in India, so given that, it would be a difficult supposition”. He also notes that an acquisition would destroy the basic ethos of the bank, the way it is run with technology devolved to different units.

He is just as adamant about why organic growth is the way forward for ICICI. “Let me put that in context. The largest bank in India has 10,000 branches. The third largest bank has 4000 or 5000. We are the second largest. We have 480,” he says. “I do not want another 4000 branches and have to deal with how to resolve them as we go along.”

Attracting attention

This is not to say Indian banking is not due for consolidation, nor does it mean India is not an attractive place for foreign banks to enter, Mr Kamath points out. He dismisses the notion that there are too many limits on bank ownership for foreigners. “I am confused when bankers say there are limits. I know they have been articulating this. Entering India is much more clear than, say, China. There is no way you buy the big one, they want [the large acquisition] to fall in their lap, but nowhere [does this happen].’’

The comparison with China obviously hits a nerve. When I muse that India promises and never delivers, unlike China, he jumps in: “I must differ. India is a difficult place but every foreign company that has gone to India has made money. You can’t say that about China. The key [factors for India] are the social problems, bridging the gap between rural India and urban India.’’

ICICI’s Mr Kamath is doing his best to help, using the bank’s unique technological bias.

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