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COMPETING THROUGH BUSNIESS MODEL - PROJECT

BUSINESS MODEL OF ICICI BANK


Under the Guidance of Prof Prashant Salwan
Venkatesan J ( 006EPGP2010)

2011

CBM PROJECT

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Table of Contents
Industry Analysis Indian Banking Industry ............................................................................................. 3 Major Issues & Challenges: .................................................................................................................. 4 Porter 5 Forces: Analysis ..................................................................................................................... 4 PEST Analysis: ........................................................................................................................................ 11 Political / Regulatory Factors:............................................................................................................. 11 The entry of new Banks .................................................................................................................. 11 Deregulation the SB interest .......................................................................................................... 11 Relaxation of the maximum of 10% voting share: If relaxed, the investment by the FIIs and foreign banks are bound to increase. Also there shall be more activity under the merger & Acquisitions. .. 11 Merger & Acquisition of the PSBs: .................................................................................................. 11 BASEL III: The Indian banks have to raise an additional capital of about Rs.60,000.00 crores in 9 years period till 2013 to comply with the strict BASEL III requirements........................................... 11 Economic Factors: .............................................................................................................................. 11 Social Factors: .................................................................................................................................... 12 Technological Factors: ....................................................................................................................... 12 ICICI Bank Ltd: - Company Brief .............................................................................................................. 12 Financials of ICICI Bank: ......................................................................................................................... 13 Critical Success Factors and Weight ages of each factor: ........................................................................ 14 Value Chain for ICICI Bank:..................................................................................................................... 15 Value Loop: ICICI Bank ........................................................................................................................... 16 Business Model for ICICI Bank: ............................................................................................................... 18 Business Model Innovation: ................................................................................................................... 18 Unpacking the business model:.......................................................................................................... 18 Innovation of Business Model: ........................................................................................................... 20 The 12 dimensions of business innovation: ........................................................................................ 24 The Innovation radar:..................................................................................................................... 26 Conclusion: ............................................................................................................................................ 26 References: ........................................................................................................................................... 26

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Industry Analysis Indian Banking Industry


The India banking industry is 100% organized and regulated by the Reserve Bank of India. The RBI uses its monetary tools CRR, Repo rate, etc and Capital adequacy ratios and provisioning norms to regulate the banking industry. Since liberalization, the competition among the banks has increased along with the increase in customer service. The private sector banks were pioneer in introducing advanced technology. Also there has been a remarkable increase in the size, spread and scope of activities of the Banks in India. The business profile of the Banks has increased dramatically to include nontraditional activities like merchant bank, investment banking, mutual funds, Insurance, new financial services, etc. The banking Industry is still dominated by the public sector banks( Including SBI & its associates) , which accounts for nearly 70% of the banking assets. The banking industry is closely related to the economy of the country. The advance to GDP ratio is 68%. The contribution from the banking industry to the GDP is also growing. The average growth of advances closely follows the GDP growth and is approximately about 2.8 to 3.1 times of the GDP growth. The ratio of value add to GDP by the banking industry is about 8% and provides employment to about 1.5 Million people. High Inflation impacts the banking industry as well. RBI in its measure to contain inflation has increased the repo rate nine times during the past 16 months from 4.75% to 7.50%. The saving rate is 32.50 % of the GDP. The contribution of the household sector to the savings is 70%. Banks are penetrating to the more areas like village and remote areas to increase the market share. As a result the CASA A/C per 100 populations increased from 59 to 96. The number of borrower account per 100 adult populations increased from 12 to 20 in 5 year s period during the period 2005 to 2010. The Banking industry has increased the profitability through increased net interest margin, fee based income and containing the NPAs. The Banks increased the spread by shedding of high cost bulk deposit, concentrating on increasing the low cost CASA share and in faster re pricing of advances. To maintain the high Net interest margin all Banks are focusing on increasing the CASA share. The growth of the Banking Industry in the coming years is likely to be more qualitative than quantitative. However the bank penetration is limited to only a few customers and geographies.

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Major Issues & Challenges:


 Requirement of high capital as per the BASEL III requirement, to take care of near term growth in business.  Asset Liability Mismatch: Most of the Bank loans are for period above 3 years but the deposits
mostly are in the bracket of 1 3 years.

 Maintaining and reducing the present NPA level. Restraining growth of NPA is critical to maintain health profitability. Higher NPA levels necessitate higher provisions.
 Increasing the share of low cost deposit by increasing the CASA Share  Branch expansion, requires RBI license and 25 % of the new branches to be in tier 5 & Tier 6 areas.

Porter 5 Forces: Analysis 1. Threat of new entrants:


Yes (+) 1. Do large firms have a cost or performance advantage in your segment of the industry? X No (-) Remarks Yes, Larger firms with increased branch presence have assured source of retail deposit & Higher CASA Share and a better market share. But PSUs unable to leverage their size advantage X But for Brand and subsidiary offerings, there are no proprietary product Existing Banks are recognized with their brand. But the customer usually switches to the Bank offering better service Switching cost by way of time in case of shifting of operative account. In case of shift of Advance account It is even more difficult. As per present RBI norms minimum capital of Rs 300 Crores stipulated. RBI may raise it further to Rs.1000 Crores.

2. Are there any proprietary product differences in your industry? 3. Are there any established brand identities in your industry? X

4. Do your customers incur any significant costs in switching suppliers?

5. Is a lot of capital needed to enter your industry?

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) 6. Is serviceable used equipment expensive? 7. Does the newcomer to your industry face difficulty in accessing distribution channels? X But for ATMs - No

Yes. Establishing of physical branches requires license and time. Internet Mobile banking has reduced the importance of the attribute Long experience might help to reap the benefit of learning curve and increase the Brand exposure In most situations, getting serviceoriented people is a tough job, more so for the top level positions.

8. Does experience help you to continuously lower costs?

9. Does the newcomer have any X problems in obtaining the necessary skilled people, materials or suppliers? 10. Does your product or service have any proprietary features that give you lower costs? 11. Are there any licenses, X insurances or qualifications that are difficult to obtain? 12. Can the newcomers expect strong retaliation on entering the market? X X

No

RBI controls the license.

No such history as of now. But the existing players will try to retain the market share by way of reduction in fees, and increased customer service

2. Bargaining power of buyers: to what extent are the customers locked into your?
Yes (+) No (-) Remarks

1. Is there a large number of buyers relative to the number of firms in the business

There are large number of depositors and Advance companies.

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) 2. Do you have a large number of customers, each with relatively small purchases? 3. Does the customers face any significant costs in switching suppliers? X But for the bulk deposit and corporate offices, Yes

Switching cost by way of time in case of shifting of operative account. In case of shift of Advance account It is even more difficult. X They have access to virtually all the information from the net. Special information is required. More concerned with the timely availability of the loan. Yes Customers not capable requires license from RBI and nation / international wide presence & Trust

4. Does the buyer need a lot of important information? 5. Is the buyer aware of the need for additional information?

6. Is there anything which prevents your customers from taking your function in house?

7. Your customers are not highly sensitive to price?

Corporate and bulk depositors are sensitive to price. Other, mostly retailers are not that much sensitive to pricing. They are concerned with the timely availability of the loan and better service X No

8. Your product is unique to some degree or has accepted branding? 9. Your customers businesses are profitable? 10. You provide incentives to the decision makers? X

Depends on the general economy of the county. Performance based salary linked to the performance.

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

3. Threat of substitutes: (some other products or services which perform the same job as yours)
Yes (+) No (-) X Remarks

1. Substitutes have performance limitations which do not completely offset their lowest price, or, their performance advantage is not justified by their higher price 2. The customer will incur costs in switching to a substitute X

Deposit & Loans from other players like NBFCs available. But cannot replace the full banking service

Time & resource wastage. Shifting of SB account to other bank takes time. In case of loans it is even more difficult. For an account with cheque book facility - Yes Yes

3. Your customer has no real substitute. 4. Your customer is not likely to substitute.

4. Bargaining Power of Suppliers


Yes (+) No (-) Yes Remarks

1. My inputs (Financial resources) are standard rather than unique or differentiated. 2. I can switch between suppliers quickly and cheaply. 3. My suppliers would find it difficult to enter my business or my customers would find it difficult to perform my function in house 4. I can substitute inputs readily.

Customers loyalty are moderate

Yes.

Yes

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) 5. I have many potential suppliers. 6. My business is important to my suppliers. 7. My cost of purchases has no significant influence on my overall costs. X Yes

Yes

Cost of deposit important factor directly affecting the profitability

5. Determinants of rivalry among existing competitors


Yes (+) No (-) Remarks

1. The industry is growing rapidly. 2. The industry is not cyclical with intermittent overcapacity. 3. The fixed costs of the business are a relatively low portion of total costs. 4. There are significant product differences and brand identities between the competitors. 5. The competitors are diversified rather then specialized. 6. It would not be hard to get out of this business because there are no specialized skills and facilities or long-term contract commitments etc. 7. My customers would incur significant costs in switching to a competitor.

Yes, closely follows the Economy

It follows the economy

Yes

Not much

Most of the Banks are diversified offering the whole gamut of financial service under their fold X Requires permission from the RBI

Not much

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) 8. My product is complex and requires a detailed understanding on the part of my customer. 9. My competitors are all of approximately the same size as I am. X But for the derivatives and equity related products - No

There are big gaps among competitors in terms size

Overall industry rating


Favorable Moderate Unfavorable 1. Threat of new entrants 4 6 2 RBIs recent relaxation and plans to permit new players Buyer power (Borrower)is relatively low, except the big corporate the consumers are not highly price sensitive. Substitutes are not a threat as of now. As the deposit source is wide spread, Supplier power is relatively low. Its strong

2. Bargaining power of buyers

3. Threat of substitutes

4. Bargaining power of suppliers

5. Intensity of rivalry among competitors

CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Threat of new entrantsHigh RBI recent liberal policy on new branches, Foriegn branches higher willingness to set up new branchs in India

Rivalry among existing firms- High Determinants of Supplier Power- Low Larger client base, lower reliance on Bulk deposit Higher competition for the share of fee based income, deposits, CASA share and good quality loans

Determinants of Buyer Power-Lower Lower for the retail loans, SMEs, Higher for the stronger corporates

Ne Threats of Substitute Products - Low As of now, no alternative to 100% banking

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

PEST Analysis:
The banking Industry s environment is presently very dynamic. The environmental factors are changing faster.

Political / Regulatory Factors:


Regulatory framework, be it RBI norms or the BASEL norms, plays an important role in the Banking Industry. This is even truer with respect to India, as the Industry is still not liberalized to a greater degree. The entry of new Banks, requires license from the RBI. RBI in its recent publication is contemplating to permit the existing stronger NBFCs and corporate to start the banking business. Hence the competition in the Industry is bound to increase. Deregulation the SB interest. In its recent release of monetary policy, RBI has increased the interest rate of the Savings account by 50 bp to 4.00%. This has effectively increased the cost of the capital by 6 bps to 8 bps (proportion of the savings balance to the total assets vary from 14% to 20%). The margin also gets affected to that extent. If RBI goes ahead with the deregulation of the Savings interest rate, the competition for the savings deposit through offering of higher interest rate is bound to happen. Though beneficial to the customer and it ensures effective transmission of the monetary policy of the RBI, it might lead to ALM Mismatch. Due to increased competition the concept of core deposit under the savings gets diluted, so Banks shall be deprived of their long term source. Asset reconstruction & Securitization: The trading in stressed asset and securitization has not taken off as in the western countries. It is expected to improve in future. Also RBI has permitted credit default swaps & Interest rate swaps. The prominence of these exotic products, as a means of hedging shall grow in future. Relaxation of the maximum of 10% voting share: If relaxed, the investment by the FIIs and foreign banks are bound to increase. Also there shall be more activity under the merger & Acquisitions.

Merger & Acquisition of the PSBs: The government of India is contemplating the merger of the PSBs into 3 4 stronger Banks. The consolidation shall lead to increased completion. BASEL III: The Indian banks have to raise an additional capital of about Rs.60,000.00 crores in 9 years period till 2013 to comply with the strict BASEL III requirements.

Economic Factors:
The Banking sector closely follows the economy of the country. Higher and better the growth, higher is the growth rate in advances and lower is the NPA level. High Inflation has a negative effect. RBI in its effect to contain the inflation increases the repo rate. This leads to increase in deposit rate and the cost

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) of advances. As banks non SLR investment are marked to market, the increase in interest causes the bond value to go down leading to a reduced treasury profits.

Social Factors:
The proportion of the aging population has increased. This segment of the customers requires different level of service. As the risk appetite of the senior citizens is low, the Banking deposits are bound to increase. The new generation youth, prefer to spend through borrowings. They also wish to own a house at an early age through bank loan. This augurs well for the growth of the retail portfolio of the Banks. Increased concentration of wealth among the few people requires specialized and differentiated service to them. Hence the private banking / wealth banking is expected to grow faster.

Technological Factors:
Technology has enabled branch free, 24 hours banking. Mobile banking shall be the prominent driver In this decade. RBI is also incrementally permitting higher amount of transaction through the mobile banking. As the penetration of the mobile phone in India is more than 65%, it enables to reach the unbanked people at a lower cost.

ICICI Bank Ltd: - Company Brief


ICICI Bank Ltd is a major banking and financial services organization in India. ICICI Bank Ltd was incorporated in the year 1994 as a part of the ICICI group with the name ICICI Banking Corporation Ltd. The initial equity capital was 75.0% by ICICI and 25.0% by SCICI Ltd. Pursuant to the merger of SCICI into ICICI, ICICI Bank became a wholly-owned subsidiary of ICICI. In September 10, 1999, the name of the Bank was changed from ICICI Banking Corporation Ltd to ICICI Bank Ltd

The Bank is the second largest bank in India and the largest private sector bank in India by market capitalization ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank used both organic and inorganic growth strategies. To circumvent the difficulty of branch licensing, the Bank used acquisition strategy to increase its branch network. It acquired the Bank of

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) Madura, Sangli Bank and the Bank of Rajasthan. The Bank has a network of 2,532 branches and 6,301 ATMs in India, and has a presence in 19 countries including India.

Financials of ICICI Bank:


Key Ratios Credit-Deposit(%) Investment / Deposit (%) Cash / Deposit (%) Interest Expended / Interest Earned (%) Other Income / Total Income (%) Operating Expenses / Total Income (%) Interest Income / Total Funds (%) Interest Expended / Total Funds (%) Net Interest Income / Total Funds (%) Non Interest Income / Total Funds (%) Operating Expenses / Total Funds (%) Net Profit / Total funds (%) RONW (%) Gross Non-Performing Assets (Rs. Cr) Net Non Performing Assets (Rs. Cr) % of Net Non-Performing Assets to Net Advance Capital Adequacy Ratio (%) Tier I Capital (%) Tier II Capital (%) Return on Assets (%) Business Per Employee (Rs. Cr) Profit Per Employee (Rs. Cr) Price Earning (P/E) Price to Book Value ( P/BV) Price/Cash EPS (P/CEPS) EV/EBIDTA Market Cap/Sales 11-Mar 92.97 59.77 11.32 65.28 20.38 20.28 6.74 4.4 2.34 1.73 1.72 1.34 9.65 10,034.26 2,407.36 1.11 17.63 11.77 5.86 1.35 7.35 0.1 25.9 2.33 23.25 17.68 3.93 10-Mar 95.04 53.28 10.72 68.44 22.54 17.66 6.91 4.73 2.18 2.01 1.58 1.08 7.96 9,480.65 3,841.11 2.12 19.14 13.48 5.66 1.13 7.65 0.09 27.51 2.06 23.71 15.44 3.2 9-Mar 95.93 46.35 10.14 73.09 20.82 19.25 7.97 5.83 2.14 2.1 1.94 0.96 7.83 9,649.31 4,553.94 2.09 15.92 12.16 3.76 0.98 11.54 0.11 10.27 0.75 8.64 11.17 0.94

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Critical Success Factors and Weight ages of each factor:


The CSF of the Banks depends on the Business strategy adopted by the Bank. As per the Miles and Snow (1985) Study s four types of strategy, which is one of the "best known" and most widely accepted models for bank growth, are 1. Prospector : The Prospector usually attempts to enter a new market and adjusts his/her products and services in a timely manner 2. Analyzer: An analyzer is identified as a cost saver and/or efficiency promoter, especially in risk and innovative businesses and is always the second company to enter a new market 3. Defender: A defender is an expert on managing an experienced task in a stable market, with stability and security as key principles 4. Reactor: A reactor is a contingency player and typically lacks a consistent strategy. A prospector normally desires to develop new products and penetrate unknown markets and thus the establishment of the bank trademark would be a critical dimension in this struggle to develop. Similarly, the analyzer and defender strategy has a relatively high to ability of bank marketing, when compared with prospector strategy. This result seems reasonable because the prospector bank is often less focused on traditional business situations. As to the ability of financial market management, it is of more important to the prospector and analyzer banks, rather than in defender banks ICICI Bank has been in the market since 1990s and can be classified under Analyzer and defender The CSF required for following these strategies is, S No 1 2 3 4 CSF Ability of bank operation management Ability of bank marketing Ability of developing bank trademarks Ability of financial market management Weight Age 35% 40% 10% 15%

The First 3 include success items, which the bank can control, such as computerization, speed of handling business, and staff politeness and kindness, etc. However, the fourth factor includes certain items, which the bank can control, such as the quantity and contents of service items; but others, such as government deregulation and the prosperous stock and securities market, are external environmental factors.

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Value Chain for ICICI Bank:


Firm Branch Network ATM Net Banking Mobile Banking Infrastructure Foreign Subsidiaries Foreign Branches Call Centre

Human Resource Management

Develop Appropriate Client Facing Employees

Simulation Training

E Learning Program Performance based Incentive

Technology Development

Net Banking, Safe & Secure trading Portals Money2india.com Core Banking Solution Call centre, Mobile Banking, ATMs, Data Analytics, Plastic Cards

Source of Revenue / Deposits

CASA Time Deposit Borrowings from the RBI, Market Higher Fee Based Income through Forex dealings, Guarantees, LCs, private banking and cross selling of Insurance products. Increased NIM through high CASA share and high CD ratio ( Through Borrowings)

Convenience to the customers ( Khayaal Aapka) Higher Quality Loans exposure to industry based on anticipated economic and Market trends Structured finance Customized to the corporate requirements

Global Branches Global Subsidiaries Technological platforms

Direct Sales Persons Technological , non branch channels Different subsidiaries supported by the direct sales team

Better customer service Phone Banking facility E Mail Query

Operations

Logistics

Marketing & Sales

After Sales Service

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Value Loop: ICICI Bank


Primary Choices:
y Investments in Technological Platform, Non Branch Banking Cannels, i.e., Net Banking, ATM, Phone banking, etc. It increased the convenience and security of customers transactions y Various Financial Subsidiaries, ie ICICI Securities, Ltd, ICICI Prudential Life Insurance Ltd, ICICI Lombard General Insurance Ltd, ICICI Prudential Asset Management Ltd, Etc, enabled the bank to cross sell its own financial products leading to higher fee based income y Performance Based Incentives and retainer schemes. One of the major CSF of the Banking Industry is operational management with respect faster and courteous customer service. The performance based incentive and the retainer schemes enable the bank to attract and retail high skilled staffs. y Training and Development of Employees sharpened the employees skill. It also ensures the availability of the future leaders to the Bank. y Higher Branch network( Both through organic & Inorganic mode) ensures higher market penetration and higher low cost CASA share. y y Effective marketing leading to effective market penetration. Frequent & Opportunistic (As per Market condition) rising of capital. This increases the capital adequacy ratio. Presently ICICI Bank has a CRAR of 19.50% and a tier I Capital adequacy of

13.20%, against the BASEL III requirement of 8.50% to 11.00% of Tier Capital (Including buffer) and a total capital adequacy (Including Buffers) of 10.50% to 13.00%. This adequate capital enables the bank to pursue its near term growth strategy of increase in advances. y y Lower Exposure to unsecured Retail loans, leading to less NPA levels. Higher borrowings from RBI, Overseas Market & Call money Market. Though the rate of interest is higher, the Bank need not have to maintain CRR and SLR for the amount borrowed. So the adjusted interest rate is equal and it enables the Bank to have a high incremental CD ratio and a higher NIM.

Rigid Consequences:
y y Safe, Convenient and comfortable Banking Solutions Higher Cost Deposit Ratio

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) y y y y One Stop Financial Service Satisfies all segment of customer financial needs Higher Fee based Income Cross Selling

Consequences:
y y y y y Higher WTP Higher profitability High Quality Loans Higher Net Interest Margin Lower Provision Requirements

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

Business Model for ICICI Bank:


Excel workbook containing the Business Model & the value Loop attached.

ICICI Busniess Model.xlsx

Business Model Innovation:


ICICI Bank is the market leader amongst the private sector banks. To retain the market leader position in an industry, which is very dynamic, the bank has to constantly innovate, thereby creating substantial new value for the customers and the Bank. The bank can innovate either through product / service innovation or by innovation of the business model. The blue ocean strategy requires business model innovation. Also to compete effectively against the competitors the bank needs to strategically interact in the field, innovating its business model to affect its choices but at the same time reacting to the changes in other player s business model. ICICI bank can innovate its business model through either or all of the following, y y y Serving unmet or unsatisfied customer groups Providing new or different benefits Delivering and/or extracting value in an unconventional fashion.

AS the business model includes a whole set of integrated components, all of them can be looked on as opportunities for innovation. To effectively innovate at the level of business model, we need to first unpack these individual components and understand how all these pieces fit together in a holistic way.

Unpacking the business model:


Unpacking the business model y Segments : Corporates, SME segments, Middle & Upper middle class y Geographies: Mostly in India. y Customers: IT professionals, Educated & Employed youths, Professionals, Business organization

Who do we serve?

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) What do we provide? y Products / Services : Banking - CASA, deposit, advances, forex; Credit cards, Life Insurance, General Insurance, Share trading brokerage service, Mutual fund Benefits / convenience: 24 hours safe internet banking, faster service, large base of ATMs, customized services to the corporates, online money remittances. Distribution Channels: Branch, ICICI Direct banking website, ATMs, Direct sales persons Core processes & activities that translate the competencies into value for customers & Banks: Use of technology and data analytics for bringing out customized products / services, Fee Based income: Fees on Non Fund Based Business, Derivative contracts, Processing charge on loans, forex remittances, Insurance, Share trading Proprietary trading on shares and Government securities. Major Cost: Cost of deposits, Employees cost & Administration cost. Extracting value: Net Interest Margin: Interest on advances less cost of deposit Pricing Model: Loans based on the risk level with the minimum of the base rate. For Fee based income, a % of loan sanctioned or transaction done is charged. Differentiating from Competitors: 1. Tech savvy bank, giving the benefit and comfort of safe 24 hours banking experience from home. 2. Use of business analytics and offer the services most required by the customers. 3. Performance based incentives and use of direct sales persons thereby ensuring achievement of the target at a much lower cost. Customer experience: The major segment targeted is those who are employed and are unable to visit the bank branch during business hours for each transaction. Through convenient use of technology product like ATMs, 24 hour online banking, customers needs are satisfactorily met. The customized products through use of analytics is also a win win situations for both the bank and the customers What differences do customers value the most: Technology aspects of the bank and faster service

How do we provide it?

y y

How do we make money?

y y y y

How do we differentiate and sustain in advantage?

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) How sustainable is the Banks differentiation: 1. The culture aspect of the faster and responsive service by the staff is a differentiating factor vis a vis the public sector banks. But the main private sector competitors like HDFC, AXIS bank and foreign banks offer higher / same level of services. 2. With respect to technology and boutique services, the competitors are also fast catching up. Hence the bank needs to constantly invest in upgrading the technology and be ahead of competitors.

Innovation of Business Model:


Who do we serve?

The bank right now doesn t focus much on the HNIs and senior citizens. As discussed in the future banking environment in India, there are concentration of wealth and major share of grey and rich population. The requirement of these segments is different when compared to the existing practices of the bank. The ICICI Bank also doesn t provide educational loans. The bank has to build relationships with its prospective customers of educated & employed youths, at an early stage. The Bank should take proactive steps in bringing out customized products for HNIs and the senior citizens. There should be more customized and dedicated service offerings to the HNIs. Also as the senior citizens prefer to do transaction offline, the Bank should open dedicated / priority counters for senior citizens in special branches. By offering educational loans, the bank can establish early relationship with its prospective customers. With respect to the existing products, the online travel insurance and foreign remittance facilities should be well marketed. What do we provide?

Could we deploy the customer benefits we provide in new ways or settings? The banking facility through mobile platform should be strengthened and made easier and convenient to the customers. To enable the customers to avail of the tax advantages, the Bank can start with the leasing finance. The share trading platform to be made easier and additional investment options in shares, currency trading, mutual funds and futures to be offered.

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) Share trading should be offered through mobile as well, with an IVR security code. The share investment opportunities arises for a short duration at any time during the day. Hence the stock tip coupled with mobile trading creates more value to the customers. Can we change the benefit bundle in ways that will surprise customers and frustrate competitors? The assets financed can be offered the insurance coverage as part of the loan package at a bundled premium. Also housing loan bundled with a low premium to cover the life of the borrower and the property. All the assets financed by the Banks are to be insured. The Bank also offers the general insurance through its subsidiary ICICI Lombard general insurance company ltd. Have we defined the customer need we are trying to address broadly enough? Conversely, are we delivering benefits that customers don t really care about? Phone banking is becoming redundant now a day, especially for those doing online transaction in web. It would be better if the company instead refocuses its resources to the internet chat facility. As more customers start using the internet for their banking needs, the chat facility, facilitates faster problem solution through the same medium. Have we looked critically at where we draw the boundary between what we do and don t do as a company? The bank has to operate within the boundaries set by the Reserve Bank of India. The bank doesn t have much of rural branches and is not able to achieve the minimum stipulated target of priority sector credit under agricultural. Hence the bank has to invest in lower interest bonds, Rural Infrastructure Development Fund (RIDF). As at March 2011, the Bank had to make an investment of Rs.15080 Crores in RIDF. The bank has to develop different services to cater to the rural segments and also achieve the target set for the inclusive banking. They can also scale up the offerings of credit products across the agricultural value chain, by developing appropriate product positions for the agriculture segment. On the negative side the rural population is dispersed and requires additional infrastructure and resources for tapping the resources of the segment. The Bank can leverage its strengths in the technological domain to minimize the requirement of the physical infrastructure. The Bank should also make use of the business correspondents, permitted by the RBI. Through this method the banks can tap the rural segment and cost is also contained. How do we provide it?

The Bank should strive to make the process of fulfillment and support substantially easier and enjoyable for the customers. In the service industry like banking, this becomes even more pertinent. The bank should continuously strive to make the online banking experience safe, convenient and easier for the customers. The customers should also be able to transact all activities through web.

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) The old processes developed for each activity are becoming redundant at a faster rate in the dynamic environment and due to technological improvements. The bank should constantly review the old process and refine them removing the redundancies. As this is an ongoing and a continuous process the bank should establish, business reengineering committee, constantly looking out to remove the redundancies. The bank has to reposition them in the value chain to generate and appropriate more value. But for this the public, RBI and the government system should have a positive image of the Bank. ICICI continues to suffer an image crisis from a slew of customer complaints, government actions, and court verdicts. An ICICI Bank officer was recently caught in a Rs. 5 Crore cheque forgery case, ICICI s huge suspense accounts created with unclaimed cheques have drawn Right-To-Information (RTI) submissions, Reserve Bank of India (RBI) has issued warning notes to ICICI Bank twice, Bihar Government has pulled up ICICI for not supporting farmers, students, & entrepreneurs, and ICICI Bank has lost in consumer courts over illegally hiking the home loan rates. ICICI needs to do some serious introspection over why there is such an image crisis and whether there is something intrinsically wrong in their operation. To improve the image, ICICI shall shift loan recovery in-house and restrain on sanction of unsecured retail loan. The internet banking platforms model can be represented as

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) The visual representation of the banking service provider through mobile phones can be represented as

How do we make money?

With respect to credit cards, the Bank can restrain on issue of cards to risky customers. The Bank can make use of analytics to segregate the risky clients. To attract the better and credit worthy customers, the Bank should reduce the exorbitant charges and make the charges reasonable. The bank can start this and decrease the number of pain points with the customers, thereby improving its image. The Bank should embrace transparency and openness and restrain, if there are any hidden charges. The customer should be informed before hand on any charges, so that they make informed decisions. The bank strategy of reducing cost through its 5C strategy, in which cost optimization was one of the C s. The Bank can also strive to make the burden ratio, i.e. fee based income to cost, to negative. The bank is not able to attract the retail deposit. The reasons are non availability of widespread physical branches, customer accessibility, and comfort with the public sector banks by the depositors on account of security and direct customer relationship. The Bank hence borrows through CDs and from RBI. As the rate of interest is higher, the bank s net interest margin takes a beating. Though the bank compensates them through higher CD ratio, the attraction of retail deposit ensures sustainable fund flow to the Bank. The bank should develop a technological platform which facilitates easier & online deposit making by the customers. Also the bank branches should focus more on bring new clients into their fold, which requires more compliances. The existing customers can easily make the deposits without much documents and procedures. How do we differentiate and sustain an advantage?

The Bank s competitive advantage is through the well developed technological platform, use of business analytics, faster service and responsive staffs, and a network of Branches and ATMs. With regard to sustainability, the bank should continuously nurture the above competitive advantages to sustain it, as competitor banks are also constantly improving their resources & platforms.

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) The Banks are to operate within the regulatory restrictions of the RBI. Hence the opportunities arise as when the regulatory authority relaxes or changes the boundary of the regulations. The bank should constantly watch out for the opportunities and move in first. After the introduction of the BASEL norms, there is more requirement of capital, and the prominence of asset liability management has gained significance. The capital base has become one of the major resources and a source of competitive advantage. The bank can scale up its business and increase the advance portfolio only if it has sufficient capital. The bank has raised capital at frequent intervals, and as a result as a healthy CRAR of 19.50%. The bank shall require additional capital as the asset base of the bank increases. The same will be the case with other banks. Hence the banks which were earlier competing for the deposit and advances shall in future, compete amongst themselves for raising additional capital as well. The bank should do financial engineering to raise both tier I and tier II capitals.

The 12 dimensions of business innovation:


The 12 dimension of the innovation presents and relates all of the dimensions through which a firm can look for opportunities to innovate. It consists of 4 key dimensions that serve as the business anchors: 1. 2. 3. 4. The offering a company can create The customers it serves The process it employs The points of presence it uses to take its offerings to the market

Between these 4 anchors are embedded eight other dimensions of the business system that can serve as avenues of pursuit. With respect to ICICI Bank, the 12 dimension of business innovation are, Dimensions Offerings Platforms Opportunities for innovation y Separate and differentiated service offerings to HNIs, Senior citizens and the rural population y Internet and Mobile banking to offer all services offered in the brick & Mortar branch. y Empowered business correspondents to cater to the rural customers y The service offerings through ATMs to be enhanced to include online shopping y Use of business analytics to bring out the customized products to different customer segments. y Structured finance facility to the corporates y Channel finance to the supply chain vendors of the corporates, a win win situation for both customers and the bank. y Senior Citizens

Solutions

Customers

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) y y y y y y y HNIs Students Educational loan and specialized savings account Rural population and the agri sector To introduce Chat facility along with the internet banking facility To constantly train and empower the staff to enhance the customer experience while they are interacting in the branch To empower the phone banking officers To internalize the recovery wing and use outside agencies who are well trained and informed of the internal bank systems and guidelines. Use of business analytics for cross selling of its products offerings effectively To enhance the image of the bank as responsive and as a premium bank. This increases the WTP by customers and ensures higher value capture Business reengineering committee to constantly lookout for the redundancies in the process and remove them To leverage technology to further simplify the processes Presently hierarchical but comparatively to a lesser degree. Performance based incentive to the employees Use of technological platform Technological platforms ATMS, Internet, Phone banking Branches Direct sales persons To effectively use business correspondents Innovating on technological platforms, giving wider option to the customers and making it more safer and convenient To enhance the image of the bank as responsive and premium bank To start a subsidiary for private banking and wealth banking leveraging its present brand value

Customer experience

Value capture

y y

Process

y y y y y y y y y y y y y

Organization

Supply chain Presence

Networking Brand

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

The Innovation radar:

Based on the above dimensions, at present ICICI has implemented we can represent in the innovation radar as,

Offerings Platform Solutions Customers Customer Experience Value capture Process Organization Supply Chain Presence Networking Brand

Conclusion
ICICI Bank has a competitive advantage of its size and global presence across the world vis a vis the private sector banks. With respect to the public sector banks, the competitive advantage is more on account of the technological platforms and the responsive staff and faster service. It has already retained number 1 bank amongst the private sector banks business wise.

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010) The profitability of the bank is high due to higher incremental advance to deposit ratio and cross selling. The bank can still improve on attracting the stable retail deposits and improve its Net interest margin. On account of its high reliance on technological platforms, the bank is highly efficient and has a high profit per employee of Rs 28 Lacs. The Bank needs to focus on increasing the CASA share and reduce the NPA levels. The banks should also effectively use business analytics and bring out the customized products to its different customer segments. The bank shall leverage the different offerings from its subsidiaries. As a long term future plan, the Bank shall focus on new emerging customer segments of HNIs, Senior citizens and the rural populations. ICICI shall focus on moving up the value chain and provide a boutique of financial services. The sustainable competitive advantage over its competitors is based on their technological platforms which requires constant up gradations and investments to make it robust and sustainable. ICICI Bank being analyzer and defender should also focus much on its critical success factors of marketing and increasing the efficiency and the effectiveness of the bank operations. The staffs are to be well trained and succession path should be clear. If ICICI Bank diligently follows the strategy they have defined for company s growth, ICICI should be able to maintain long term sustainable competitive advantage over its competitors by continuously innovating its Business Model.

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CBM Project Business Model of ICICI Bank Venkatesan J (006epgp2010)

References:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. rbi.org.in RBI monetary Policy Mi d quarterly monetary policy review dated 16th June 2011 - by CRISIL Proposed Basel III guidelines: A Credit positive for the Indian Banks - by ICRA Critical success factors for various strategies in the banking industry, Tser-yieth Chen. The International Journal of Bank Marketing. Bradford: 1999. Vol. 17, Iss. 2; pg. 83 Icicibank.com Annual Financial statement 2011, 2010, 2009 of ICICI Bank Capitaline.com India Banks, Saving bank deregulation: Back to basics Prabhudas Lilladher Cygnus Quarterly performance analysis of the banking industry( Oct Dec 2010)

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