Icici Case

ICICI has emerged as one of India’s leading retail banks. Should it distract itself from the opportunities in the Indian market with its global strategy? Why should it believe that it can succeed where prior Indian banks’ forays overseas have failed? ICICI was formed in 1955 and it has transformed itself in recent years, diversifying into retail banking, insurance, asset management, and venture capital to become one of the fastest growing financial institutions in the country. The bank has made a foray into retail banking sector in early 1990s. This strategy was paying off and ICICI bank achieved high growth in this area. However, the MNC banks and PSU banks are also increasing their presence in this domain, hence, the competition in retail banking domain is going up and margin is getting squeezed. International market provides a number of opportunities that would not only further diversify ICICI’s business but also consolidate its position in India. But the question is whether ICICI can focus upon both the upcoming merger and Indian retail market. Alternatives should be evaluated on the basis of carefully thought out criteria and then arrive at a decision about ICICI’s global expansion strategy. The decision entails that ICICI should launch international operations and concentrate on corporate customers in regions with large Indian presence like Middle East, US, UK and Canada and ICICI can enter into housing loan and auto financing business but should put credit card and money transfer business plans on hold for the moment because of the risks involved and stiff competition. It should leverage on its strong hold in Ebroking services and mobile banking in international arena too. ICICI should follow a fullfledged approach whichever market it enters. The decision to go alone or in partnership would really depend on local market regulations and feasibility of a partnership out there. The contingency plan could be to concentrate on domestic market and Rural Indian markets and not let the failure of International expansion affect its brand image within the country. If you believe that ICICI should go global, on what geographies should it focus? should be its strategy in each of the suggested geographies?

What

ICICI can follow a similar strategy followed by other Indian banks for internationalizationmoving first to countries which had a significant share of the home population or which were trading partners with the home country. In the case, it is illustrated that many India Banks had met with limited success following this strategy and had started closing branches or scaled down operations substantially. However, when we look deeper into the reasons for the failure, it can be understood that a majority of the Indian banks having branches abroad are basically the public sector banks. From Exhibit 4b, it can be seen that there are around 94 Branch Offices of Indian banks operating abroad. Out of these, 72 branches (or more than threefourths) belonged to either Bank of Baroda or State Bank of India. These banks had extremely slow operations with credit decisions taking long periods, lack of technology even in locations abroad which had superior access to technology, a large percentage of non-performing assets and very little product innovation. Also, the employees were basically Indians and were not selected from the country of operations and thereby lacked local experience and knowledge. Ultimately, they were nowhere near the international players who had also operated in India. The company can first look at the Middle-East market which has the largest Indian diaspora of over 4 million people compared to the other regions. Also, the company can bring cheaper and better remittance products to attract customers to keep their deposits which can help the bank in accessing cheaper sources of credit. It can also help in cross-sales of other higher-value products like mutual funds and other local-banking services. Moreover, it can help the company in other indirect benefits as NRIs in this part of the world look for houses in India during their brief visits and ICICI can offer help to these individuals using their strong

customer base in India. NRIs send remittances very frequently back to the India to the tune of $100-$250 (exhibit 3) but they have to resort to money transfer companies which charge as high as 10% which can be a setback for the less-affluent NRIs which constitute a very large chunk of the total NRI population. Therefore, ICICI can provide a much better value proposition to them. The next biggest market for the company is the U.K which consists of an Indian diaspora of 2.2 million. From Exhibit 4b, it can be seen that there are already a large number of branch offices in U.K (18). However, since most of these braches belong to the National companies like Bank of Baroda or State Bank of India which have low access to technology, slow credit decisions, little product innovation and no marketing initiatives, it would not be a difficult task to get the customers. Also, from the case facts, it can be seen that U.K has a large number of subsidiaries of Indian Corporations and therefore, it is a very attractive market from a corporate banking perspective. The company ought to offer services related to Treasury and Corporate Lending to ICICI’s main Corporate Customers. The company can also target U.S and Singapore markets as they also consist of a large Indian diaspora totaling around 2 million. The company can offer Investment banking services in these regions as companies in these regions look for full range of investment banking services across equity, debt and for corporate banking for Indian companies which are making acquisitions here. There are few other countries which can be targeted. From Exhibit 4b, countries like Fiji, Guyana, Malaysia and Canada also have a significant fraction of Indian Diaspora which are not tapped by other players (in case of Malaysia, Guyana and Canada). Though there may be smaller contributions compared to countries in the Middle-East, the company can earn a firstmover advantage in these regions. However, the regulation environment must be perfectly understood before the company can decide to enter in these markets.