ICICI Bank: Reaching Global Markets Through Technology
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Business Case Series - Indian Multinationals BC3: 06/12/09 XIMB-Centre for Case Research ICICI Bank: Reaching Global Markets through Technology Amar K.J.R Nayak© Disclaimer The present case is intended to be used as the basis for class discussion to help raise relevant questions to think and to contextualize management issues rather than to illustrate either effective or ineffective practices. It is neither intended to glorify nor intended to condemn any individual or organization. Acknowledgement I thank ICICI Bank & XIMB for their cooperation and support in conducting the case research. I also thank Swarup K. Sahoo, Research Assistant for his help in preparing this case. © Amar K.J.R. Nayak, Ph.D., Strategic Management, Xavier Institute of Management, Bhubaneswar No part of this publication should be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the author. For Teaching Notes or any other information contact: [email protected] <http://www.ximb.ac.in/ccr/> ICICI Bank: Reaching Global Markets through Technology The story of ICICI Bank indeed is quite exciting as we look into how the company has internationalized its business vis-a-vis the other banks from India. With the least number of international bank branches as compared to many of the other Indian banks, it stands tall in terms of its share of international business, especially in the foreign remittance business. In a short period of time, it has grown to be the largest bank in the private sector with a global foot print. Its share of international remittance business among the banks in India has risen from 4% in 2003-04 to about 30% today while retaining over 75% of the total online international remittance business in India. How did it grow so fast? Did it face any challenges at home or outside to achieve these successes? What have been its strategies in the internationalization process of its business? In other words, what have been the secrets of its success? Several pertinent questions come to mind when we look at the pace of growth of this company in a highly turbulent and competitive world of international banking that has been guarded for years by the well established, highly networked, international banks and remittance business houses. Let us explore some of the following issues to understand the company’s approach towards internationalization and how it broke through the old guards of international banks and remittance business houses. · Why did ICICI Bank want to internationalize its business? · Why did ICICI Bank choose to get into remittance business? · What are the various sources of foreign remittance? · How did the company reach the customers without physical presence? · What are the various products on remittance business? · What have been the challenges working with international partners and markets etc? · What were the basic strategies of ICICI Bank to succeed in its international operation? · How critical was technology in the global remittance business? · What are its problems of delivery in India? · What are the technological challenges that the company faces? Not only was the company faced with the challenge of competition from other established players in the industry but also from potential customers for international banking and remittance business. A few quotes below highlight this point. My family lives in Ernakulam. Who other than SBI will get money to my parents? --US respondent Why should I choose a different bank when my family has been using SCB since 1990? --US respondent 1 World Banking & Remittance Business The history of banking started with the transaction between goldsmith and people. As a token of receiving gold the goldsmith used to issue a receipt. In this process the goldsmith started issuing receipts for specific values of gold, and it became the first banknotes. With the start of the industrial era goldsmiths turned into full-fledged bankers. Indeed they have played a major role in the initial phase of industrialization. To further increase their power and influence, these banking groups started influencing governments or monarchies and strategically utilized the service of these governments or monarchies for their self interest. And as a result only those politicians came to power who have played according to the will of banking groups. In the twentieth century these banking groups were able to discover a new way of money transformation, which identifies that by periodically restricting the money supply, crashes within the emergent stock exchanges of the world could easily be engineered, and one can examine this statement from the example of famous Wall Street Crash of 1929. In economic terms it will be categorized as transfer of wealth rather than destruction of wealth. In the later stage these groups were concentrating on destabilizing a multitude of traditional cultures and creating a series of homogenized trading blocks to replace them. Banking has been the stronghold of established business houses. It was more so in the foreign remittance business. Large Exchange Houses with huge banking and distribution networks gave little scope for other banks to enter this business. ICICI Bank, though energetic did not have the nature of infrastructure to enter in to the international markets. Even some of the Indian Banks had more overseas branches than ICICI Bank had. It had only about six years of experience as a bank operating in the retail segment. Entering into such an international banking and foreign remittance business was a tough call for ICICI Bank in 2001. How did the company make inroads to such a global industry? While the inflows in the world remittance business has grown by about 90% over the period 2002-07, the inflow of remittance business in the developing countries has grown by nearly 110% during the same period. Out of a total inflow of remittances of $ 318 billion in the world, developing countries accounted for $ 240 billion. The highest growth of 136% has been in the upper middle income countries. Interestingly, on the other hand, the outflows of remittances from the developing countries have been as high as 226% during 2002-07 (see Exhibit 1). The market for remittance business to India during 1975-2003 is best illustrated in Exhibit 1b. India, Mexico and Philippines have been the top remittance receiving countries for over a decade now. China, Spain, and many others have also shown significant growth during the same period. Remittances received by India have grown from US$ 8,453 million to US$ 27,607 million during the period 2002-06 (see Exhibit 2). Why have been there such high growths in the developing countries? Is it the Diaspora of the developing countries in the industrially advanced countries? Is the differential in interest rates in the industrially advanced country the cause for the 2 movement of foreign capital to the developing countries? The annual rate of interest in Japan is the lowest with around 1-2% for short term loans up to one year period. Similarly, the rate of interest in USA, Europe, and Great Britain ranges between 3-6% as compared to 10-18% in several developing countries like India (see Exhibit 3). Indian business through export and Import has also grown several times over during the last two decades. From a crisis of foreign exchange in 1991, India has moved far ahead from it. From US$ 5.63 billion foreign currency reserve in 1991, the amount stood at US$ 199.17 billion in March 2007. NRI deposit in India has also grown by over 300% during the same period (see Exhibit 4 & 5). See also Exhibit 6 for the inflows, outflows and local withdrawal figures for the period 1999-2008. How have these factors contributed to the foreign remittance business? Indian Banking Industry In 1786, the first bank in India got established. The General Bank of India was set up in the year 1786 and subsequently the Bank of Hindustan and Bengal Bank came into existence. In 1809 East India Company established Bank of Bengal, Bank of Bombay in 1840, and Bank of Madras in 1843 as independent units and called it Presidency Banks. Allahabad Bank was established in 1865, exclusively by Indians. The Reserve Bank of India was established in the year 1935. The Government of India came up with the Banking Companies Act, 1949 to streamline the functioning and activities of commercial banks. This was later changed to Banking Regulation Act 1949 as per the amendment act of 1965. After independence the government took major steps in banking sector reforms. It nationalized many banks and formed State Bank of India to act as the principal agent of RBI to handle banking transactions all over the country. The Government instituted a number of policies such as (i) 1949: Enactment of Banking Regulation Act (ii) 1955: Nationalization of State Bank of India (iii) 1959: Nationalization of SBI subsidiaries (iv) 1961: Insurance cover extended to deposits (v) 1969: Nationalization of 14 major banks (vi) 1971: Creation of credit guarantee corporation (vii) 1975: Creation of regional rural banks (viii) 1980: Nationalization of seven banks with deposits over INR 2000 million As the Indian economy opened up, several foreign banks came to India. ATM stations, phone banking and net banking were introduced in the country. Slowly the customers were introduced to foreign exchange. Indian banking industry’s business has increased from US$ 469.4 billion in 2002 to US$ 1171.29 billion in 2007. The aggregate deposits of Scheduled Commercial Bank have risen from 17.8 percent in 2005-06 to 25.2 percent as on January 4, 2008. With all these achievements Indian banks started aspiring 3 to become global and have a global presence. Many Indian banks started to expand their branches in foreign countries.