In 1999, Mumbai-based Pantaloon Retail India Ltd. consisted of five Western-style clothing stores in five cities. Revenue for the chain was Rs1.35 billion a year. Kishore Biyani, Pantaloon’s owner, had ambitions to grow much larger. All he needed, he says, was the financing to expand. Then, a Mumbai firm called ICICI Venture came to him and, in exchange for a 7.5% stake in the company, invested Rs43 million.
Today, Pantaloon is India’s biggest publicly traded retailer, with 140 department stores and hypermarkets in 32 cities and revenue of Rs19.3 billion for the year ended on 30 June.
Biyani, 45, calls ICICI’s investment a turning point. “We were nobody at that time,” he says. “If someone recognizes you, the outside world starts viewing you very differently. Your power to raise money increases.’’
ICICI Venture and ICICI Bank Ltd., the financial institution of which it is part, have been Pantaloon’s corporate partners ever since. Though ICICI sold its stake in the company in 2003 — recouping five times its investment — the bank still lends Pantaloon money and issues co-branded credit cards to its shoppers. Last October, ICICI Venture invested Rs1.2 billion in Home Solutions Retail India Ltd., a new Pantaloon subsidiary that sells furniture, hardware and paint.
India has emerged in the past decade as the world’s second-fastest-growing major economy; it expanded at a rate of 9.2% for the quarter ended on 30 Sept, trailing only China, at 10.6%. Middle-class consumers are driving India’s boom.
No. 1 in Loans
And the bank for that middle class is ICICI. The bank says it made a third of all consumer loans in the country last year, including home, auto and credit card loans, which makes it No. 1 in India in all of those categories. ICICI Bank’s shares are up 63 % for the year ended on 20 February.
ICICI also serves India’s more-affluent citizens as an investment bank, insurance company, brokerage and fund manager. ICICI Venture, which does both venture capital and private equity investing, has helped fund many startups such as Pantaloon.
“ICICI Bank represents the growth of the Indian economy in general and the Indian consumer in particular,’’ says Rajiv Anand, who manages $3 billion in Indian stocks and bonds at Standard Chartered Mutual Fund in Mumbai. “ICICI has taken consumer lending to the masses.’’
ICICI has thrived in part because foreign consumer banks haven’t made much of a footprint in India; they control just 5% of bank deposits, according to a May 2006 study by New York-based consultant McKinsey & Co. That will begin to change in 2009, when analysts expect the government to allow foreign investors to take over Indian private banks.
“Every guy and his uncle wants to be in India,’’ says Bala Swaminathan, a managing director for India and South Asia at London- based Standard Chartered Plc. “Everyone wants to come in.’’
ICICI may also suffer if India’s torrid growth slows, analysts say. Consumer finance in India has been expanding at 25% to 30 % a year, says Ajay Bimbhet, head of retail banking for Deutsche Bank India. ICICI’s consumer loans, including mortgages, car loans, cash loans and credit cards, are growing at about the same pace, bank officials say.
ICICI is everywhere in India: on billboards in every major city and along rural roads, on the phone to prospective customers with incessant calls offering loans and in ads on television featuring Bollywood star Shah Rukh Khan.
In one ad, Khan walks around a room opening windows, each of which looks out on a different world landmark — the Statue of Liberty, London Bridge, the Toronto skyline. He then opens a door to an ICICI branch and says, “Wherever my travels take me, it’s good to know there’s someone I can always bank on.’’ ICICI has branches in 17 countries, catering to Indian expatriates.
20 Million Customers
ICICI says it has 20 million customers and that its roster is growing 35% annually. The bank’s network of 670 branches is expanding by 50 to 100 every year, and it operates 2,680 automated teller machines.
The man behind ICICI’s fast growth is Kundapur Vaman Kamath, chief executive officer since 1996. “In the last three to four years, Kamath has delivered on whatever he has promised,’’ says Gulbir Madan, a fund manager at Neptune Capital Management LLC in New York. Madan manages $300 million in Asian equities, including ICICI stock.
The 59-year-old Kamath, a 6-foot-2-inch banker who enjoys Formula One racing and Lagavulin single malt whiskey, has been at ICICI since 1971, with a hiatus from 1988 to 1996, when he worked at the Asian Development Bank funding projects in other developing Asian nations. He says the experience helped him position once- state-owned ICICI to become the powerhouse it is today.
Women at the Top
ICICI stands out in India’s male-dominated corporate culture for its heavy concentration of female executives. Two of the five members of the bank’s executive board and 13 of its 40 top managers are women.
The bank is serious about equality, says Renuka Ramnath, CEO at ICICI Venture. That became clear to her in 1995, when the bank sent her to set up an office in Dubai. “Other people would have said the Middle East is a very male-dominated business environment and should we send a woman?’’ Ramnath, 45, says. “The question didn’t arise. If you have the aptitude and the risk-taking ability, what sex you are not a consideration.’’
Vishakha Mulye, 38, chief financial officer and treasurer, says she encountered little discrimination in her rise to the bank’s top tier. “You get the satisfaction here that there is no distinction,’’ she says. “If you’re good, you’re good.’’
Top Female Students
Kamath says one reason there are so many women in top management is that when the bank started recruiting finance and accounting majors from India’s elite business schools in the 1980s, it picked the top students, and they were mostly women. “Thereafter, in terms of promotions and giving them scope, we have not differentiated,’’ he says. “It’s merit driven, and that’s what gave us this mix that we have. It’s not conscious at all.”
ICICI has been a growth machine in the past five years. For the year ended on 31 March 2006, the group held Rs2.77 trillion in assets, up from Rs1.78 trillion the previous year. Net income was Rs24.2 billion on revenue of Rs257.6 billion in 2006, up from Rs169.3 billion a year earlier.
ICICI’s shares, listed in Mumbai and on the New York Stock Exchange, jumped 52% in 2006 and, as of 19 February, had a market value of $19.5 billion. December 2005 was a milestone; that was the month ICICI passed the much larger State Bank of India in market capitalization. The State Bank is 59.7% owned by the Reserve Bank of India, the central bank.
The State Bank is potentially ICICI’s most formidable domestic competitor. It manages $156 billion, almost triple ICICI’s assets, operates more than 9,000 branches in every Indian state and is the main savings vehicle for India’s 1.1 billion people. It’s one of 27 state banks that together control 75% of India’s financial assets.
Investors in ICICI include some of the biggest names in international fund management: Deutsche Bank Asset Management, Fidelity Investments, Franklin Templeton Investments and T. Rowe Price Group Inc. The biggest investor is the government of Singapore, which owns 9.7% of ICICI shares through state- controlled Temasek Holdings Pte and Government of Singapore Investment Corp., according to ICICI’s investor relations office.
“If you’re really bullish on the Indian market, then ICICI is a good pick,’’ says Pauli Laursen, who manages $700 million of emerging-market equities at Sydinvest Asset Management in Aabenraa, Denmark, including ICICI shares. For his part, Laursen doesn’t see an end to India’s, or ICICI’s, boom anytime soon.
“People and companies need to borrow,’’ he says. “ICICI is very aggressive, and in a bull market, they will make a lot of money.’’
Lately, the Reserve Bank has been trying to cool the economy by raising borrowing costs. On 31 January, it raised the interest rate at which it lends overnight to commercial banks by a quarter point to a four-year high of 7.5%. That was the fifth hike in the past year. One of its goals is to tame inflation, which accelerated to a two-year high of 6.73% in the week ended on 3 February.
On 6 February, ICICI responded to the central bank rate hike by raising its own benchmark lending rate for consumer loans to 11.75% from 10.75%. Interest on five-year certificates of deposit was also raised, to 9.5% from 8.25%. “When interest rates go up, then consumption will slow a little, and that will hurt aggressive lenders like ICICI Bank,’’ Laursen says.
Spending with Abandon
Kamath says everyone expects that rising rates will cool demand. He’s not so sure. “Nobody has tested at what point the consumer will feel pain,’’ Kamath says.
For now, Indian consumers are spending, and borrowing, with abandon. Consumer credit accounts for as much as 12% of India’s gross domestic product, according to ICICI estimates.
About 40 million households, accounting for 215 million people, have an income of $4,000-$10,000 a year, according to a 2005 study by McKinsey. On their income, they can afford to rent an apartment, have a bank account and own a refrigerator, television and a small car or motorcycle.
McKinsey says such households will grow to 65 million, or 350 million people, by 2010. Meanwhile, India’s upper middle class, with incomes above $10,000, has reached 1.2 million households and is growing at 20% a year.
ICICI is one of the few Indian banks to throw off the shelter of state ownership to compete for the new Indian consumer’s rupee. “India until a decade ago had state-run banks on one side and global banks on the other,’’ Standard Chartered’s Anand says. “ICICI bridged the divide by bringing the efficiency and technology of the global banks to the masses.’’
149 Years in India
Some global banks have already gained some traction. Citigroup Inc. employs more than 10,000 people in Indian consumer, corporate and investment banking. Standard Chartered has done consumer and corporate banking in India for 149 years and has 81 branches in 31 Indian cities, the most of any foreign bank.
There’s room for newcomers.
“The India market is still quite under-penetrated when compared to developed markets — or even other emerging markets,’’ Deutsche Bank’s Bimbhet says. “The retail finance market in India is growing strongly, and there is every indication that it will continue to do so for many more years.’’
India’s entire stock of financial assets, including equity, corporate and government debt and bank deposits, is valued at $1.1 trillion, according to a 2005 study by McKinsey. That’s a fifth of China’s financial wealth, the report says. Mortgages in India are the equivalent of just 3% of gross domestic product, McKinsey found, compared with 51% in the US.
Missing an Opportunity
Kamath says the overseas banks had a chance to buy local banks before the Reserve Bank tightened foreign ownership rules in 2005. The only bank that did so was Amsterdam-based ING Groep NV, which bought a controlling 44% stake in local lender Vysya Bank Ltd. in 2002. “Every global bank had an opportunity to come to India and buy something; nobody other than ING did it,’’ Kamath says. “Thank you. They allowed me to grow.”
Little in Kamath’s background presaged his success in the financial services industry. He was raised in the town of Mangalore in southern India, 182 miles (293 kilometers) northwest of Bangalore. His father ran a roofing tile company and later became the mayor of Mangalore.
Kamath attended a Jesuit secondary school called St. Aloysius College and then earned a bachelor’s degree in mechanical engineering from a local university in 1969. During his four years at engineering school, Kamath helped run the family business for a few hours a day while his father was busy in local politics.
After college, Kamath went on to get a graduate business management degree from the Indian Institute of Management in Ahmedabad, India’s top business school. ICICI was his first job. He married in 1972, and he and his wife, Rajalakshmi, have a son and a daughter.
Kamath takes as much time as he can to follow the fortunes of his favourite Formula One team, the Renault squad headed by managing director Flavio Briatore. The team’s top driver is Giancarlo Fisichella.
Kamath’s banking career has made him a wealthy man. He was paid Rs24.8 million, including bonus and benefits, in the year ended on 31 March 2006, according to ICICI’s annual report. He held 164,500 ICICI Bank shares and had 1,090,000 options as of August 2006, according to bank regulatory filings.
The company Kamath runs started life as the Industrial Credit and Investment Corporation of India Ltd. in 1955. For the first few years of its existence, ICICI was a conduit for World Bank development loans. Later, it became one of three banks that helped build India’s industrial companies. It raised funds for corporate loans by issuing government-guaranteed bonds, continuing to serve this role until the late 1980s.
“The market was highly regulated,’’ says ICICI Chairman Narayan Vaghul, who joined the bank in 1985 as managing director. “We had practically nothing to do. Everything used to be decided by the government, and we were mere implementers of policy.’’
Kamath started the transformation of the bank when he took over as head of strategic planning in 1985 and began hiring young business school graduates eager to westernize the bank’s operations.
In the late 1980s, the bank began making loans to blue-chip Indian corporations. In 1988, Vaghul, then CEO, started a venture capital unit. In 1993 he launched an investment bank. A year later, Vaghul, 70, started a commercial bank to gain access to savings deposits, a low-cost source of funds.
Modernizing the bank became imperative after the government deregulated the economy in 1991 — India’s Big Bang. Several changes affected ICICI. The government no longer set all interest rates.
It also stopped guaranteeing bonds issued by the bank, forcing it to raise money on its own. The Controller of Capital Issues, which set the size and price of all public stock offerings, was dismantled.
Kamath took a leave from the bank from 1988 to 1996 to join the Asian Development Bank, a Manila-based institution that funds economic and social development projects in Asia and is owned by its 67 member countries. Kamath’s job was to encourage the expansion of private enterprise in Southeast Asia. He was the ADB representative on the boards of several companies.
In 1996, after months of cajoling, Vaghul persuaded Kamath to return to ICICI as managing director. Vaghul then moved up to the office of chairman. “I made several stupid decisions in my life as a banker,’’ Vaghul says, “but all of them got compensated by one good decision — bringing in Kamath.’’
When Kamath took over, ICICI’s main business was making corporate loans. Used to operating in a sheltered environment, many companies found after 1991 that they couldn’t compete, Kamath says. They couldn’t pay off their loans or afford to take new ones. Kamath’s response was to steer ICICI toward consumer lending.
When he was working with the ADB, he says today, he saw that households in countries such as China, Malaysia and Thailand began taking out loans when per capita income reached $600 per year. “Things start moving in a country,’’ he says. “Certain aspirations are clearly visible in people — transportation, wanting a home, things to be put into that home.’’
Indian cities such as New Delhi reached the $600 threshold around 1995.
Kamath’s first step was to acquire two ailing car finance companies in 1997 and ’98. In ’99, ICICI started a mortgage finance unit and also began offering loans for items such as motorcycles, televisions and music systems. Then it branched out into credit cards.
To the Markets
To finance the bank’s aggressive expansion, Kamath raised money by issuing new shares. In 1997, ICICI Bank raised Rs1.44 billion through an initial public offering. Two years later, ICICI Ltd., the bank’s holding company, raised Rs3 billion from a share sale in India and $315 million through the sale of American depositary receipts. ICICI Bank followed with an ADR issue in 2000 that raised $175 million.
In 2002, the two companies merged to form the bank as it is today.
The bank’s new consumer loan business was helped by plunging interest rates. The rate at which the central bank lends to commercial banks fell to 6% by 2003 after peaking at 12% in 1991. ICICI’s own mortgage rate for a 20-year loan fell to a low of 8% in November 2003 from 9.75% a year earlier.
Kamath flogged his consumer loans with a pervasive advertising campaign. In November 2000, to raise its profile, ICICI hired Amitabh Bachchan, India’s most popular actor, to appear in its ads. Bachchan was the brand’s ambassador until 2003. Khan was hired in 2006.
ICICI’s golden year was the fiscal year ended on 31 March 2003. Following the merger of ICICI Ltd. and ICICI Bank, profit surged four and a half times, to Rs11.5 billion, on sales that rose almost fivefold, to Rs134 billion. That’s also the fiscal year ICICI went international, setting up subsidiaries to serve Indian expatriates in the UK and Canada.
Kamath expects his 17 international offices to produce 25% of revenue within the next three years, up from 17% today, as Indian expats invest in their home country and use the bank to remit money.
Kamath’s next target: the Indian countryside. “Rural India has 600 million people,’’ Kamath says. “If we can take that mass from maybe an average of $350 to $400 per capita to $600, we’ll see another opportunity for lending. But we must help them get there.’’
The bank has special products for its rural customers. It offers jewelry loans for marriages, weather insurance and warehouse receipt finance, which allows a farmer to take a loan against his produce if it’s stored in a bank-approved warehouse.
Rural banking accounts for about 10% of ICICI Bank’s loan portfolio, says CFO Mulye.
Kamath may not be at the helm when rural India blossoms with customers. He plans to retire in 2009. As fast as India has grown, Kamath’s bank has expanded even faster — something to contemplate as he watches Giancarlo Fisichella race around the Formula One track.