K. Vaman Kamath, managing director and CEO of ICICI Bank (Mumbai, $22 billion in assets), leads the second-largest bank in India, having a customer base of approximately 10 million. What's more, the bank has been growing at the rate of about 250,000 new customers per month.
Such amazing growth rates have not been achieved entirely by enticing customers away from other banks, such as the state-owned financial institutions. About 60 percent of the bank's new deposit customers are entirely new to the banking system, while almost 90 percent of retail consumer credit customers are first-time borrowers, according to Kamath. "India is an old country, but it's a country which is young by population-we have 55 percent of the population below the age of 35," he says. "They are in the sweet spot, as it were, in terms of their needs- homes, cars, motorcycles, a credit card, and so on."
While this is indeed spectacular growth, there's a catch. "We find that the average loan that a customer takes in India, or the average deposit that a customer makes in India, is a fraction of what it is in the U.S.," says Kamath, who estimates per-capita asset levels of the former at about one-tenth that of the latter.
That's why ICICI Bank has been driven to operate at or under one-tenth the cost of a comparable financial institution in the United States. So far, the bank has capitalized technology costs of $150 million dollars, and has an annual technology spend of approximately $25 million to $30 million.
The bank's annual operating expense: under $15 million. "I'm told that banks one-third my size in Asia are paying that to a single system provider," says Kamath.
The first rule in running a tight ship: Don't get locked into any particular technology. "We are technology-agnostic, meaning we do not believe in any technology gods," says Kamath. "We believe in creating value for the organization by using those vendors, hardware and software which gives us the maximum flexibility in doing our business."
So nothing moves forward that doesn't move backward. "When my people look at things, I ask them the question, 'Are you able to migrate out if you need to?'" says Kamath. "And the answer has to be 'Yes' before we do migrate."
For that reason, ICICI Bank has stayed away from mainframes. "Three or four years back, we were told that in the credit card business, if you've got 500,000 cards, you'd better have access to a mainframe, or outsource it to someone who's running a mainframe environment," says Klamath. "We are now at two million and we're able to run it on a Sun (Microsystems) machine."
Another strength of the ICICI Bank infrastructure is its recent vintage. "We did a rollout of technology bypassing all legacy traps," says Klamath. "Since we rolled out technology only in the last four years, we could catch the wave in terms of the latest available stuff in the IT world."
Counting on Moore Growth
But there's still a leap of faith involved with the agnostic approach, in that if growth rates continue apace, the bank's hardware may reach its limits. "The rate of increasing technology development-like Moore's Law-is good enough for us," says Kamath. "Despite a 30 percent growth in our banking business, technology's growing at a faster rate."
Indeed, Moore's Law should help the bank to drive significant growth outside of its original footprint as well. ICICI Bank recently opened subsidiaries in the U.K. and Canada, and also has a presence in Bahrain, Singapore and in the free-trade zone in Mumbai. "We will serve the non-resident Indian customers, because we know these customers," says Kamath. "This is what we'll concentrate on doing."
Furthermore, since the bank's subsidiaries can rely upon ICICI's back office in India, the company should be very competitive on price. Accordingly, in the same way that ING Direct has made inroads into the U.S., Canada, and several European countries, ICICI Bank may be able to use its cost advantages in order to gain new deposit customers outside of the Indian diaspora. "I should be able to roll out an Internet platform for my new subsidiaries in the U.K. and in Canada, and then basically attract business from every customer in those countries-not necessarily just the non-resident Indian customers."
ICICI Bank's back office, and for that matter its entire IT infrastructure, is operated by ICICI Infotech (Edison, N.J.), a spin-off formed in 1999. "Today, we don't have an IT department," says Kamath. Instead, he has about a dozen people in his technology group, tasked with keeping their eyes on the horizon for new business opportunities.
The sourcing philosophy runs deep at the ICICI organization, with intra-company services negotiated using comprehensive service-level agreements benchmarked against outside providers. "We look at almost everything that we do at the bank as something that is sourced out to a group within the bank," says Kamath. "We have looked at these as very tightly controlled service centers."
ICICI Infotech handles the bank's core systems along with key Internet systems including online brokerage, bill payment, and remittances. "We're probably getting things done at one-tenth or one-fifteenth what it would cost us to buy these ready-made," says Kamath.
"And the platforms have proved robust enough-for example, the online trading platform processes 100,000-plus trades per day."
With footholds in Asia and Australia, ICICI Infotech has been looking at the U.S. market. "Most of the core systems in the U.S.A. are on the mainframe-and outdated," says Manoj Kunkalienkar, executive director and president at ICICI Infotech. "Our products are completely new."