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ICICIS GLOBAL EXPANSION

Ashutosh Kedawat | Krittika Adhikary | Rohit Singh Sahani | Vishal Kedia

Opportunity sizing: Domestic retail market (1/3)

ICICIs contribution in Housing loans to reach $70 mn in 2006


Year

Domestic Retail (Exhibit


6a)
Base year
Housing Loans
2001 Market size
Market Size ($ bn)
Annual Growth Rate
Incremental Market Size ($
bn)
Share in Incremental Loans
ICICI's Share
ICICI's Loan Size ($ bn)
ICICI's Incremental Loans ($
bn)
Spread
Fees
Assumption: ($ mn)
Contribution

6.38
32.50%

3%

1.80%
4%
10.33

2002

2003

2004

2005

2006

8.46
32.50%

11.20
32.50%

14.85
32.50%

19.67
32.50%

26.06
32.50%

2.07

2.75

3.64

4.82

6.39

11%
3%
0.42

11%
3%
0.72

11%
3%
1.12

11%
3%
1.65

11%
3%
2.36

0.23

0.30

0.40

0.53

0.70

1.80%
4%
16.68

1.80%
4%
25.09

1.80%
4%
36.23

1.80%
4%
50.99

Annual growth rate assumed to be 32.5%; given to vary between 30-35% in Case

1.80%
4%
70.55

Opportunity sizing: Domestic retail market (2/3)

Contribution from Auto finance will also close in on $50 Mn in 2006


Domestic Retail (Exhibit
6a)
Auto Finance
Market Size ($ bn)
Annual Growth Rate
Incremental Market Size ($
bn)
Share in Incremental Loans
ICICI's Share
ICICI's Loan Size ($ bn)
ICICI's Incremental Loans
($bn)
Spread
Fees
Contribution
($ mn)
Assumption:

Year

Base year

2002

2003

2004

2005

2006

1.81
27.50%

2.31
27.50%

2.94
27.50%

3.75
27.50%

4.78
27.50%

6.10
27.50%

20%
16%

3.50%
2.50%
12.79

0.50

0.63

0.81

1.03

1.31

20%
16%
0.39

20%
16%
0.52

20%
16%
0.68

20%
16%
0.88

20%
16%
1.15

0.10

0.13

0.16

0.21

0.26

3.50%
2.50%
16.10

3.50%
2.50%
21.22

3.50%
2.50%
27.76

3.50%
2.50%
36.09

Annual growth rate assumed to be 27.5%; given to vary between 25-30% in Case

3.50%
2.50%
46.71

Opportunity sizing: Domestic retail market (3/3)

Contribution from Credit cards to sky rocket to $170 Mn

Year

Domestic Retail (Exhibit


6a)

Base year

2002

2003

2004

2005

2006

Credit Cards
Market Size (mn cards)
Annual Growth Rate
ICICI's Current Share
Incremental Size (mn)
Share in Incremental Size
Number of ICICI cards (mn)
Income per card ($)
Contribution ($ mn)
Total Contribution ($ mn)

5.00
22.50%
5%

15%

31.91
7.98
31.10

6.13
22.50%
5%
1.13
15%
0.42
31.91
13.36
46.14

7.50
22.50%
5%
1.38
15%
0.63
31.91
19.96
66.27

9.19
22.50%
5%
1.69
15%
0.88
31.91
28.04
92.02

11.26
22.50%
5%
2.07
15%
1.19
31.91
37.94
125.01

13.79
22.50%
5%
2.53
15%
1.57
31.91
50.06
167.32

Assumption:
Annual growth rate assumed to be 22.5%; given to vary between 20-25% in Case

Following the Indian diaspora


Historically, banks have expanded abroad by first going to customers with strong ties to the
home country e.g. HSBC

Opportunity: Retail
20 million NRIs/PIOs worldwide (2001)
Growing at 10% over the next 5-10 years
10% of the worlds remittances are sent to India ($15 bn out of $150 bn annually)
Public sector banks enjoy trust but lack technology and product innovation
Foreign banks provide services to HNI customers but lack deep branch network in India
Nonbank players are major competitors
Opportunities to cross-sell products like housing loans
Diversification

Opportunity: Corporates
International acquisitions and investments (600 subsidiaries of Indian companies in UK)
Shift in revenue sources: from India to international sources
Leverage existing relationships following existing (strong) network of corporate customers

NRI deposits
Year
2001
2002
2003
2004
2005
2006

Total NRI
Deposits
23.07
23.80
24.56
25.34
26.14
26.97

ICICI's
share
0.50%
1.50%
2.00%
2.50%
3.00%
3.50%

Income
($mn)
0.72
2.23
3.07
3.96
4.90
5.90

Assumptions:
1. Growth rate of NRI desposits (overall) =3%
2. Margins are between 0.5-0.75% (assumed 0.625%)
3. ICICIs share increases to 3.5% in 5 years

Remittances have the


highest potential; NRI
deposits smaller but
significant
Different market
segments,
geographies- blue
collar vs white collar;
US/UK vs GCC
Can use technology to
reduce branch
investment

Opportunity Sizing: Remittances market


Year

2001

2002

2003

2004

2005

2006

15.00

16.50

18.15

19.97

21.96

24.16

10%

10%

10%

10%

10%

10%

Share Capture by ICICI

3%

5%

7%

9%

10%

Average Transaction Size ($)


Number of Transactions
(mn)
Revenue per Transaction ($)
(@5%)
Income ($ mn)

250

250

250

250

250

1.98

3.63

5.59

7.91

9.66

12.50

12.50

12.50

12.50

12.50

24.75

45.38

69.88

98.83

120.79

Total Remittances Market ($


bn)
Market Growth

Opportunity sizing: Corporate lending and trade financing


Treasury and corporate lending

Income from trade finance

Follow the Indian corporate ?


Large Indian corporate houses expanding abroad require loans to subsidiaries, trade finance, nonfund based business such as letters of credit
Require:
Existing relationship
Technology

Present Value of expected incomes


Corporate lending
Trade finance

PV

NRI Deposits
Remittances
0.00

50.00 100.00 150.00 200.00 250.00 300.00

International expansion decision


ICICI should go ahead with International expansion due to following reasons:
High Growth potential
Both NRI services and BPO services have large potential market size and growth rate
Early mover advantage
ICICI could pre-empt competition in foreign locations by attaining large market share in early years
Leverage technological capabilities
ICICI could leverage its technological capabilities to gain competitive advantage in this space
Diversification opportunity
International expansion through either of NRI or BPO services provided ICICI with an opportunity
to diversify its business

Potential success factors in International expansion


Technological advancement
o ICICI has superior technology than other banks who tried abroad stint
o Technology is critical in most International locations to provide good service
Organization structure and culture
Lean organization with quick credit decision taking ability
Optimal pricing
From the lessons learnt, ICICI could price the products better for high market share capture
Marketing
Unlike other banks who had limited success in International expansion, ICICI can market its products aggressively to form large customer base
Product innovation
Backed by technology and its quick decision taking abilities, ICICI could come up with innovative products, say in NRI services
Alliance with local partners
ICICI could enter into partnership with local banks for
o Better understanding of customers and their requirements
o Reduction of regulatory risk

Third-party BPO platform

Few existing domain


experts in the market
Superior technological
expertise compared to
other banks
Costs may be less as
compared to setting up
branches abroad

Estimated revenues from third-party BPO unit

Income dependent on
international banks
acceptance of
outsourcing (exchange
rate risk)
Banks historically have
in-house operations

Countries we would like to invest in


US
UK
GCC

Thrust Areas
Remittances
It is a lucrative market as seen from the PV of cash flows
We can concentrate on US and GCC for starting off its remittances offering
In GCC, especially competency is needed in terms of physical presence and branches from where money can be
deposited to be transferred to India
ICICI can look to partner with Gulf companies for money collection on that side and leverage its domestic circuit for
delivery here.
NRI Deposits
With a growing India diaspora (10%) and a high GDP growth in India, higher interest rates in India (12.5%) as
compared to the low interest rates in the west (2-3%), the market can be captured quickly
Further, with ICICIs core competency in technology, it can make platforms for tech-savvy white collared NRIs and
workers to transfer money electronically into their ICICI INR accounts
NRI Deposits have a huge potential and can act as a cheap source of funding by (benefit of 0.5% to other sources)
the booming domestic loan market.
Corporate Finance
With large volume of trade with US and UK, corporate banking is another lucrative option to be looked at. This is true
for the non-oil sector.

Thank You