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ICICI Bank - Operations Strategy


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Operations Strategy

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ICICI Bank - Operations Strategy

  1. 1. Abirami (29001) G Chandramouli (29011) J Rachel Priyanka (29038) Sathesh Kumar S (29046) Manikandan (29026) ICICI Bank - Operations Strategy Banking & Financial Services Industry
  2. 2. Banking Industry Analysis 3/13/2014 2ICICI Bank - Operations Strategy
  3. 3. Banking Industry Analysis - Overview 3/13/2014 3 • State-owned Imperial Bank of India was the only bank existing •Closed market •RBI was established as the central bank of country •Quasi central banking role of Imperial Bank came to an end •Imperial Bank expanded its network to 480 branches •In order to increase penetration in rural areas, Imperial Bank was converted into State Bank of India •Nationalisation of 14 large commercial banks in 1969 and 6 more banks in 1980 •Entry of private players such as ICICI intensifying the competition •Number of banks increased to 27 public sector banks, 22 private sector banks and 41 foreign banks •Advent of mobile and internet banking •Growing FDI in the Indian banking sector 1921 1935 1936-55 1956-2000 2000 onwards ICICI Bank - Operations Strategy
  4. 4. Banking Industry Analysis 3/13/2014 4ICICI Bank - Operations Strategy
  5. 5. Banking Industry Analysis - Financial Products of Banks 3/13/2014 5 1.Retail Banking 2.Wholesale Banking 3.Treasury Banking Loan Products • Auto Loan • Gold Loan • House Loan • Credit cards • Education Loan • Loan against Securities • Retail Banking Business Deposit Products • Deposits • Saving Accounts • Current Accounts • Fixed / Recurring • Corporate Salary A/C Other Products / Services • NRI services • POS Terminals • Private Banking • Demat Services Commercial Banking • Term Loan • Guarantees • Bill Collection • Letter of Credit • Working Capital • Forex & Derivatives • Wholesale Deposits Transaction Banking • Cash Management • Custodian Services • Clearing Bank Services • Tax Collections • Banker to Public Issues Commodities(Inc Hedging) Key Segment: Large Corporates, Emerging Corporates, Financial Institutions, Government/PSUs, Agriculture Commodities Product Segement • Equities • Derivatives • Capital Market • Debt Securities • Foreign Exchange Other Financing • Cash Management • Statutory Reserve • Financial Decisions • Asset Liability Management ICICI Bank - Operations Strategy
  6. 6. Banking Industry Analysis – Porter Five Force Model 3/13/2014 6 Indian Banking Industry : Not Attractive, unless differentiated Threatofnewentrants Licensing Requirements are very tough Product differentiation very difficult Threatofnewsubstitutes NBFCs, Mutual funds, Government Securities and t-bills increasing rapidly CompetitiveRivalry Large no. of banks Low switching costs High fixed costs High exit barriers BargainingPowerofSuppliers Banks have to meet many regulatory criteria, made by the RBI (fairly complex in India) BargainingPowerofCustomers Provides homogenous kinds of services, so there is high chance that customers switch their banks ICICI Bank - Operations Strategy
  7. 7. Banking Industry Analysis – PEST Analysis 3/13/2014 7 Political Factors - Monetary Policy - Regulatory Framework - Budget & Budget Measures - Changes in interest rates Social Factors - Increase in population - Changes in lifestyle - Easy way of lending money - Exploring banking facilities in rural areas Technological Factors - Internet Banking - IT Services & Mobile Banking - Credit Cards - Improvement in efficiency Economic Factors - More savings - More Capital Formation - Increase in production of goods and Services - Banking Channels ICICI Bank - Operations Strategy
  8. 8. Banking Industry Analysis - Growth Drivers 3/13/2014 8 • Growth in infrastructure, industry, services and agriculture is expected to grow corporate credit in the economy • Nearly 35% of the Indian population has a median age of 25.5 years which signifies that India will gain from its demographic dividend High Growth of the Indian Economy & Favorable Demographics •Given that 40% of Indians lack access even to the simplest kind of formal financial services, the RBI on July 2011, mandated banks to allocate at least 25% of the total number of branches proposed to be opened during a year in unbanked rural centers •Banks considering FI as a banking opportunity rather than a Regulatory obligation are likely to see long term profitable growth and a cushion against market volatility Financial Inclusion (FI) • India not only enjoys a favourable demographic dividend but also has a strong population of High Net worth Individuals (HNWI) •Given the improved performance of the equity markets in 2012 & increasing affluence beyond urban and metro areas the number of HNWIs is expected to rise further, HNWIS will continue to demand better or more sophisticated service Private Banking & Wealth Management •New channels in banking services such as internet banking, mobile banking have increased productivity and help in acquiring new customers •As per a survey conducted by PwC, today banks spend 15% of the total expenditure on technology today Technology Innovation ICICI Bank - Operations Strategy
  9. 9. Banking Industry Analysis - Opportunities 3/13/2014 9 Mortgages to cross Rs 40 lakh crores by 2020 Wealth Management to be a big business Rapid growth of branches & ATMs Mobile banking to see huge growth Infrastructure financing to reach over Rs. 20 trillion on Commercial banks book by 2020 New Models to serve the Small & Medium Enterprises (SME) ICICI Bank - Operations Strategy
  10. 10. Banking Industry Analysis - Challenges 3/13/2014 10 • Indian Banks will have to bring in an additional capital of Rs. 5 Lakhs Crore to meet the Basel III norms. •Basel III norms will be implemented in a phased manner starting from January 2013 (now pushed to April) 2013, to be implemented to the fullest by March 2018 Introduction of BaselIII Norms •High competition due to a large number of players in the banking industry and other players such as NBFCs (less regulation) •Such competition in the industry has decreased the market share of the existing banks Intensifying Competition • Economic slow down and aggressive lending by the banks has turned loans into non- performing assets •This has impacted the profitability of the banks as they are required to have higher provisioning amounts Increasing NPA •For commencing a banking business in India, a banking license from the RBI has to be acquired which has served as a associated protocol and formalities •The last licenses issued were to Kotak Mahindra Bank and Yes Bank in 2003 and 2004 respectively (as Kotak Mahindra Bank was earlier a NBFC) Licensing Requirement •Banks have to incur substantial employee costs as the attrition of the employees in this sector is very high Managing Human Resources ICICI Bank - Operations Strategy
  11. 11. ICICI Bank – An Overview 3/13/2014 11 • Corporate History o Industrial Credit and Investment Corporation of India • Vision o To be the leading provider of financial services in India and enhance our positioning among global banks through sustainable value creation. • Mission o To create value for our stakeholders by • Being the financial services provider of first choice for our customers by delivering high quality, world – class products and services • Playing a proactive role in the full realisation of India’s potential and contributing positively in all markets where we operate • Maintaining high standards of governance and ethics; and balancing growth, profitability and risk to deliver and sustain healthy returns on capital ICICI Bank - Operations Strategy
  12. 12. ICICI Bank - Subsidiaries 3/13/2014 12 ICICI Bank Insurance Finance Asset Management Securities Fund Management ICICI Bank - Operations Strategy
  13. 13. ICICI Bank – Corporate Strategy 3/13/2014 13  Higher increase in full year margins & fee growth  Continue to strengthen funding profile  Improvement in cost - income ratio  Strong profitability in insurance businesses  Improving returns in banking subsidiaries  Diversified portfolio  Selective underwriting & close monitoring  Strong operating performance to absorb  any higher credit losses  Domestic loan growth targeted at 2% - 3% higher than system, driven by retail  Continued focus on secured retail loan products; leveraging increased presence to improve market share  Cautious approach in corporate & SME  Focus on growth in insurance businesses ICICI Bank - Operations Strategy
  14. 14. ICICI Bank – Business Strategy 3/13/2014 14 • Retail Banking o Building long term relationship • “My Savings Rewards” • 24 X 7 fully electronic • Product Customization • SMEs o Strategic Partnership • Financing, Transactions and Investment needs • Cluster based approach • Wholesale Banking o Collaboration for Inclusive Growth • Customized, Structured and Comprehensive products ICICI Bank - Operations Strategy
  15. 15. ICICI Bank 3/13/2014 15ICICI Bank - Operations Strategy
  16. 16. ICICI Bank – Deficiencies wrt Business Strategy 3/13/2014 16ICICI Bank - Operations Strategy High Service Charge Less Credit Period Low focus on SMEs
  17. 17. ICICI Bank – Operations Strategy 3/13/2014 17 The Bank continues to scale up its retail business and invest in strengthening the franchise and distribution infrastructure Sustained Growth in granular deposits Pick up in portfolio growth Growth in fee income Healthy Asset Quality Trends 1.Retail Banking ICICI Bank - Operations Strategy
  18. 18. ICICI Bank – Operations Strategy 3/13/2014 18 1.Retail Banking Infrastructure ICICI Bank - Operations Strategy  Advanced mobile banking platform  Enhanced ATM functionality  “MySavings Rewards” program  “Money2India Mobile App” for NRIs  24x7 electronic branch  Leveraging social networking platforms Technology  ~ 25% increase in Home and Auto Loans Retail Lending  Healthy growth in retail fees Retail Fees  Network of 3,507 at Sep 2013; largest in private sector banks • Supplemented by >11,000 ATMs  Largest rural branch network among private sector banks • ~75% of branch additions since March 2012 in rural and Semi - urban areas
  19. 19. ICICI Bank – Operations Strategy 3/13/2014 19 2.Corporate & SME Lending ICICI Bank - Operations Strategy  Moderation in growth with focus on working capital  Continued focus on credit selection  Close monitoring Domestic corporate (33% of total loans)  Maintain low share of SME in the near term SME (<5% of total loans)  Growth calibrated to global funding markets; continued focus on margins  ALM profile matched; no refinancing requirement Overseas Branches  Consolidation of balance sheet  Continued focus on capital rationalisation: USD 100 mn from UK & CAD 75 mn from Canada received International Business 3.Subsidiaries & Others  Life insurance: sustained profitability resulting in healthy returns on invested capital and dividend payouts  General insurance: significant improvement in profitability Insurance  Focus on maintaining market position  Business performance linked to market conditions; however franchises remain profitable Asset Management & Broking
  20. 20. ICICI Bank – Terry Hill framework 3/13/2014 20ICICI Bank - Operations Strategy Design Infrastructure Promoting and balancing inclusive growth 1. Expanding to unbanked areas 2. Expanding to rural areas through Business Correspondents by leveraging technology 3. Delivering relevant products & services to rural people 1. Branch on Wheels 2. Number of Branches: 3126 3. Number of ATMs: 10481 1. Network expansion to 3507 branches 2. Upgrading facilities by leveraging technology: 24/7 Electronic branches Risk management 1. Bringing down the % of NPAs 2. Secured lending to retail sectors 1. Diversified portfolio 2. Strengthening secured lending 1. Regulatory capital requirements as per RBI 2. Stress testing 3. Evaluation of options to raise capital from domestic and overseas markets Increasing profitability 1. Increasing fee income 2. Increasing the home and auto loans 3. More lending to high profile corporates 1. Standardized process design 2. Increased operational efficiency 1. Increase in credit growth 2. Increased channel network to acquire new customers 3. Healthy trends in CASA 4. Good asset quality OPERATIONS STRATEGYCORPORATE OBJECTIVES MARKETING STRATEGY ORDER QUALIFIERS & WINNERS 1. Accessibility (Branch Location, Number of ATMs etc) 2. Leveraging technology (Mobile banking, Social networking, 24/7 Electronic branches, Mobile App for NRIs) 3. Providing world class banking products 4. High quality service (Relationship management, Customer service) 5. Brand Reputation 6. Customer friendly operations
  21. 21. ICICI Bank – Line of fit 3/13/2014 21ICICI Bank - Operations Strategy
  22. 22. ICICI Bank – Platt’s Gregory Procedure 3/13/2014 22ICICI Bank - Operations Strategy
  23. 23. ICICI Bank – Operations Strategy Matrix 3/13/2014 23ICICI Bank - Operations Strategy Accessibility Critical Speed Critical World classproducts Critical Customer service Critical Cost Critical Location Technology Channel Product Innovation Performance objectives Decision Areas
  24. 24. ICICI Bank – Hayes & Wheelwright’s Framework 3/13/2014 24ICICI Bank - Operations Strategy
  25. 25. ICICI Bank – Order Qualifiers & Winners 3/13/2014 25ICICI Bank - Operations Strategy
  26. 26. ICICI Bank – Impetus for Expansion into South Africa 3/13/2014 26ICICI Bank - Operations Strategy Increasing Bilateral trade •India-Africa bilateral trade will increase to $90 billion by 2015 & $15 billion bilateral trade with SA in 2014 •FinMin Dictum: PSB’s to scale up operations in Africa, Asia & Latin America to support diversification of India’s export market South Africa-Development Center of Africa •25% of Africa’s GDP, BRICS nation •Increasing trade and trade volumes Foray of International banks, other Indian PSBs and Pvt. Banks •Indian Banks such as Bank of Baroda, SBI, Canara Bank, HDFC have branches in SA •Focus on facilitating India-related trade by Indian PSBs •Presence of International Banks such as Bank of China, HSBC, Bank of Taiwan, etcIndian Corporations & Population •Major investments by Indian giants like TATA, UB Group, pharma companies •Investment in energy resources , infrastructure, mfg, IT •Significant population of Indian workers and tradersAttractiveness of financial sector •Well-regulated financial sector •2nd in “Soundness of Banks” rating by World Economic Forum •South African Reserve Bank-responsible for giving licenses •Rising financial inclusion –from 50% in 2003 to 77% in 2010 •High Market Potential
  27. 27. PEST Analysis of Banking Sector in South Africa 3/13/2014 27 Political Factors - Political Stability - Monetary Policy - Regulatory Framework Social Factors - Increase in customer base -Financial Inclusion -Growing Middle class Threat:Labor unrest Technological Factors - Internet Banking - IT Services & Mobile Banking - Credit Cards - Improvement in efficiency - Foray of foreign banks Economic Factors -Foreign investment & Growth - More Capital Formation - Increase in production of goods and Services ICICI Bank - Operations Strategy
  28. 28. Managing a new and unfamiliar set of risks Securing the talent to meet your objectives Breaking into new markets Following your customers Adapting operating models and governance structures Formulating the Operations Strategy - SA 3/13/2014 28ICICI Bank - Operations Strategy Representative Office Branches Subsidiary
  29. 29. • Focus on India linked opportunities • Subsidiary Route: Is it a viable option?? • Understanding financial sector regulations • Target Customers: NRIs, Indian corporates • Leverage NRIs • Expansion strategy-Scope for JVs, Alliances • Types of Services-Full range or Selective • Workforce issues o Recruitment, Type of talent o High wage rates Present Scenario: • MoU with Ecobank in 2012 • Representative Office in South Africa The Way Forward-Operations Strategy 3/13/2014 29ICICI Bank - Operations Strategy
  30. 30. 3/13/2014 30ICICI Bank - Operations Strategy