India’s most valuable bank by market capitalization, ICICI Bank Ltd, plans to launch retail banking business in Russia and Sri Lanka, two of the 18 countries where it operates.
“We are closely watching these two markets. We plan to launch mortgage products in Russia and auto loans in Sri Lanka,” said ICICI Bank’s deputy managing director Chanda Kochhar in an interview. She did not specify the timeframe for the launch but hinted that these products could be available in these two markets before March, the end of the current fiscal year.
As part of a plan to ramp up overseas operations, ICICI Bank plans to raise $10 billion in foreign currency loans this year, up sharply from the $6 billion it raised last year. The bank’s overseas asset book jumped from $8 billion at the end of March 2006 to $17.5 billion by this March. It is around $19 billion now.
Kochhar declined to predict the bank’s overseas asset growth through this financial year, but said plans to raise $10 billion in overseas loans should give a sense of the growth that the bank is shooting for overseas.
Kochhar also declined to discuss the profitability of ICICI Bank’s overseas operations but said the UK subsidiary, which has an asset base of $6 billion, recorded a 23% return on assets last year.
“That should give you an idea of the profits made by our overseas operations,” she said.
Launched in 2003-04, ICICI Bank’s overseas asset book has been growing much faster than other Indian banks.
For instance, State Bank of India, the country’s largest commercial bank with its presence in 32 countries, has an overseas asset base of around $18.5 billion. The comparable figures for Bank of Baroda and Bank of India, two public sector banks with large overseas presence, were about $7 billion and $5.4 billion, respectively through March.
“These banks are present in many more countries than ICICI Bank but their business has not been growing at a fast pace even though they had entered the overseas market much earlier,” said one senior executive of a banking consultancy firm who does not wish to be named as many Indian banks are also his clients.
What distinguishes ICICI Bank from others in this regard appears to be its strategy of betting on Indians abroad.
“We did not follow the Indian firms but Indian consumers overseas when we started our operations,” said K.V. Kamath, the bank’s managing director and CEO. ICICI Bank now remits 30% of the total $30 billion that non-resident Indians send home every year. Globally, the remittance volume is $280 billion and ICICI Bank wants to have a larger pie of this business.
“Now overseas Indians are sending money through us. We will remit money of Sri Lankans working in the UK to Sri Lanka and so on,” said Kochhar. Riding on the remittance business, ICICI Bank’s fee-based income has been growing by more than 35%. In the quarter ended June 2007, its fee income was Rs1428 crore, more than 15% of its overall income.
Kamath attributes the success of the ICICI Bank model of overseas business to its massive deposit-raising programmes through the Internet. The back-end of the Internet-only deposits, known as “high save deposits” is managed in India, giving the bank cost advantage over foreign banks in their home turf.
“We have raised $4.5 billion through this route, paying marginally higher than local banks overseas even though our cost is much cheaper than them,” said Kochchar. The bank has 100,000 such depositors and 70% of them are now non-Indians. Normally, the bank offers a quarter percentage point higher interest rate than competition on such deposits which can be opened and renewed on the Internet, or transferred to banks with brick and mortar branches after they are due for maturity.
After tapping individual consumers, ICICI Bank is now walking along with Indian corporations, meeting their fund needs for acquisitions overseas. The bank has opened an investment banking wing within the bank to advise on merger and acquisitions and raise syndicated foreign currency loans. Incidentally, its investment banking arm ICICI Securities functions independently of the bank in the same space.
Kochhar singles out loan syndication as one of the major fee income earners, besides the remittance of NRI money into India. According to her, the investment banking wing of the bank has a 53% share in the $18 billion overseas M&A deals since January in which Indian corporations are involved and 9% of $11.5 billion foreign currency convertible bonds that local firms have raised.
Currently, the bank’s overseas assets account for 20% of its total assets of Rs3.57 trillion. Retail loans, the main driver of ICICI Bank’s growth, account for 62% of its assets and corporate loans the rest. Its Rs1.3 trillion retail asset book, after growing by over 60% for two consecutive years, may grow at around 25% this year, according to the bank’s executive director V. Vaidyanathan.
Its UK business, run through six branches, grew from $2 billion to $6 billion last year while operations in Bahrain doubled to $6 billion. The third important overseas centre, which accounts for about $6 billion assets, is Singapore. “The UK is the hub for our European operations, Singapore for Asian operations and Bahrain for the Middle East,” said Kochhar. It has wholly owned subsidiaries in the UK, Canada and Russia; offshore banking units in Singapore and Bahrain and branches in Sri Lanka, Hong Kong, Belgium, Qatar and Dubai. It has representative offices in US, China, the United Aran Emirates, Bangladesh, South Africa, Indonesia, Thailand and Malaysia.