Business Today

Transforming the Way Banking Is Done

Chanda Kochhar        Print Edition: Dec 9, 2012

When the new generation private sector banks started operations in 1993, they had to compete against established players, some of whom had been in business for over a century. The market was dominated by the state-owned banks, which had strong branding as well as a widespread branch network.

There were also foreign banks operating in India. While the foreign banks were not big in terms of the branch network, they had innovative products and a very customer focused approach to the business. The new generation private sector banks had to carve out a niche for themselves within this framework.

Thus the first decade was spent focusing on the corporate banking model. The second decade - post 2000 - saw them scaling up the retail banking and consumer lending businesses.

The differentiator
will be a bank's efficiency and innovation. How well it manages risk - and, therefore, profitability - will also be a key factor.

What impact have the new banks had? Today, they have a market share of 20 per cent in deposits and advances. This has been achieved in a growing market, indicating that private sector banks have successfully capitalised on the growth of the Indian economy. But more than acquiring market share, the real contribution of private sector banks has been to transform the way banking is done in India. In the late 1990s, there would have been maybe a few hundred ATMs.

But we at ICICI Bank decided to set up 2,000 ATMs in two years. In those days it seemed like a big innovation, but today, every bank has a large network of ATMs. The expansion of ATM networks has transformed customer experience. We went on to encompass Internet banking, phone banking and mobile banking.

The new banks developed the concept of direct selling agents who reached out to customers with credit products, taking loans to the customer's doorstep. Not only did the private sector banks expand in this manner, their example forced public sector banks to also adopt similar strategies.

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It can also be said that the new private sector banks in general, and ICICI Bank in particular, catalysed India's economic growth. In the post-2000 period, India's growth was driven by the growth in consumption. It was not the industrial sector but the new services-led economy, the age demographics and rising incomes that fuelled growth.

It was banks like ours which made sure that housing loans and other kinds of loans were made available in hundreds of cities and towns in India. It is one thing to say that the demand existed, but what was also required was products and the distribution network to reach those products to the people. This was a major contribution of the new generation private sector banks.

The Indian market is a growing market and to keep succeeding one has to explore the existing opportunities well. The banking sector is expected to grow at 2.5 to three times the country's GDP growth rate. For individual banks, a lot will depend on their underlying business strategy. The differentiator will be a bank's efficiency and innovation. How well it manages risk - and, therefore, profitability - will also be a key factor.

The author is MD & CEO, ICICI Bank

(As told to Anand Adhikari)

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