Integrated Project Report: Strategic Diagnosis of ICICI Bank Limited
Integrated Project Report: Strategic Diagnosis of ICICI Bank Limited
Under supervision of Prof Venkatraman S
SMP 13, Saransh Jain
ICICI Bank Limited
ICICI Banks History
ICICI was formed in 1955 at the initiative of the World Bank, the government of India & representatives of Indian Industry with primary objective for providing medium term and long term financing to Indian businesses. In 1994, the ICICI Bank was established as a wholly owned subsidiary of ICICI.
In 1990 as Indias economy became more market-oriented and integrated with the world economy, ICICI capitalized on the new opportunities to provide a wider range of financial products and services to a broader spectrum of clients. In 1999, ICICI Bank became the first Indian company and the first bank or financial institution from Non-japan Asia to be listed on New York Exchange. In 2016 Reserve Bank of India has classified ICICI Bank as domestic systematically important bank (too big to fail) and it continues to be in same bucketing structure till 2025.
The bank in 2024 is the second largest Pvt sector Bank in India with a network of close to 6900 Branches, 16500 ATMs and a presence in 16 countries.
Challenges of Indian Banking Industry
There are many challenges in the Indian banking industry, which are there along with the growth this sector is watching in past few years, One of the major problems is that it must find ways to handle the increasing costs of deposits in a highly competitive market. The fact that ICICI Banks cost of deposits keeps going up shows how hard banks have to fight for customer funds in an increasingly crowded field where one banks gain is another banks loss. Another complication arises from fluctuating interest rates which compel banks to give attractive rates to clients thus making them squeeze their profit margins even more through this route alone; operational efficiency also presents difficulties since they are torn between saving costs and generating income.
ICICI Bank is merely an example but its variable cost-to-income ratio reflects what other players are going through in terms of trying control expenses while investing heavily into digital transformation and technology advances at the same time.
It can be seen that asset quality remains very much at stake considering last years heavy provisions against loan losses were still not enough though there have been some recent positive changes made here too but non-performing assets (NPAs) have continued being risky thus calling for strong risk management systems plus credit appraisal processes which should be put in place so as enable them deal effectively with these kinds of issues.
For any banking institution to operate within legal framework, it must adhere all regulatory requirements and adapt continuously new rules given capital adequacy standards are stringent coupled with need show transparency during operations because things keep changing around finance industry hence banks need stay flexible always; besides emphasis on digitalization has brought about heightened cyber security awareness meaning most financial organizations will have no option but spend more money protecting themselves against growing number cyber related crime activities.
ICICI Banks Strategy:
In 2018 the bank was going through the yet another financial crisis due to corporate loans going bad and Videocon scam all over the news, & the prime accused was Managing director of the bank Ms Chanda Kocher and finally she took retirement in 2019.Post her retirement the Board appointed Mr Sandeep Bakshi as the new Managing director and the Bank had a total change in their strategic approach.
The approach was to maximise the core operating profit i.e. PBIT within the guardrails of risk and compliance. The focus was to grow loan book in a granular manner with capital preservation being a key imperative.
The key elements of strategic approach were 360-degree customer centric approach, focus on ecosystems, focus on Micro markets, process decongestion, Leveraging technology, One Bank one team and risk and compliance culture.
The Bank also started working on twin principles of One Bank One RoE emphasising the need to maximise the Banks share of the target opportunity across all products and services, & Fair to Bank, Fair to customer emphasising the need to deliver fair value to customers while creating the value for shareholders. The Bank decided to sell only those products and services which were in the interest of their customers.
The Bank decided to build four strong business pillars for growth & every business had an approach which was followed without deviating from the path.
Retail Business
The major focus shifted to retail banking business and the core objective was to grow retail assets and build a strong retail liability franchisee by targeting granular CASA/deposit. In retail segment bank decided to sell product & services which were in the best interest of their customers & third party products like insurance were discouraged from the branch channels which had resulted in dissatisfied customers. The focus was on leveraging technology and lot of advancement was done over the years for new customer acquisition and creating an ecosystem which focuses on 360-degree approach.
SME Banking
The SME lending business was one more focal point where bank was lacking for last few years & the business was seen as one of the engines for future growth. Lot of focus was brought into the business and lot of digital solutions were brought in to build a strong granular asset franchisee. The main objectives of the business were to bring in current account balances which is cheapest source of money, deposits, fee income etc.
Corporate Banking/Transaction Banking
In corporate banking, the objective was to keep things simple. No to lumpy exposures & build a strong risk management system where all units are held accountable for any stress in business loans. If bank participates in any exposure, the company will have to mandatorily route their inflows in proportion to loan facilities & to have complete 360-degree banking i.e. employee salary accounts, credit cards, mortgages & promoters account with the bank.
The transaction banking business gained lot of significance in recent years and the major products covered under this business vertical are cross border remittances, Trade finance deals, cash management services, short term trade loan facilities, treasury services etc. This business is one of the most profitable business and helps any bank to ring-fence its SME/ corporate banking customers. The bank has invested heavily in terms of employee strength and technological advancement to grow this business line.
International Banking
The bank has a presence in 15 international locations and post 2018 there was a complete overhaul in banks strategy for overseas branches/subsidiaries. The investors invested in bank for Indias growth story and following same principle, the international strategy was to do business which is India linked. The NRI population overseas has been growing phenomenally & the bank wanted to use its network of overseas branches to gain market share in NRI segment. In last few years, the bank has grown its team size overseas for new customer acquisitions in NRI business & has used its technological advantage by launching various products and services which customer can avail while he is overseas.
In corporate Banking/wholesale banking, the objective was to be the banker of choice for Indian corporate subsidiaries/Joint ventures. In Trade finance & bank line business, the export or import should be India linked. The strategy has worked pretty well over the years and has helped in generating sustainable revenues from these businesses. The NET NPA levels have also reduced & are at desired levels.
New Initiatives & Digital transformation of Products and services in last 4 years
Retail Banking I-mobile Pay
(Universal Super App)
More than 40 Million users with 350+ services on mobile app
10 Million Non-customers using I-mobile services I-Lens
( E-lending solution)
More than 90% mortgage Lending through I-lens Digital journey
Unique offering of paper logins and digital sanction letters Credit cards and personal loans
With improvements in discretionary spending the major focus shifted to unsecured loans
Achieved higher activation rates through digital on boarding Auto Loans
Dream car search one stop digital solution for customers in their buying journey
More than 85% digital processing for car loans
SME/Start-up ecosystem InstaBIZ
(Business banking solution)
600+ services in browser and 400+ services in app
Universal app for business banking providing merchant, trade, loan serving etc
Trade Emerge
First bank in India to offer end to end solutions to exporters and importers
Exporters and importers get access to verified details of nearly 15 million buyers and suppliers and access to 181 countries
Digital solution for Merchant Ecosystem
Merchant overdraft facility up to INR 2.5 million instantly
New services like digital store management & and buy now pay later schemes for consumers
Supply chain solutions
Bespoke solutions leading to operational excellence in clients supply chain
Helped in increasing the loan look by 48% in FY 23
Corporate Banking Corporate internet Banking
A comprehensive digital banking ecosystem launched for corporates like vendor payments, tax payments etc.
Syndicated loans
ICICI Bank over last few years has helped corporates in arranging foreign currency loans.
The service is backed by a vast network of 700 correspondent banks Treasury services
Bank offers customised trading and hedging solutions to corporates. Have invested heavily in providing digital solutions to the corporates.
Investment Banking
The group helps the client through the entire length of the project.
Have created a strong team to provide complete advisory services for mergers and acquisitions and private equity syndication.
International Banking I Mobile App for NRIs
Preferred App for NRIs with more than 2.0 Million downloads
First bank to Enable UPI services in select 10 countries
Money to India Solution
Volume of more than US$ 10 Billion & 11 Million transactions from ICICI Bank M2I solution
Credit in instant to 2 hrs and services available in around 40 currencies
Private Banking Solutions
Private banking solution for HNI and UHNI customers
Risk based product offerings like FCNR leverage, Indian corporate bonds and USD/INR mutual funds. Trade Online Platform
Digital solution for Exporters and importors.
Facilitates cross border remittances and trade transactions
ICICI Financial Ratio Analysis
Analysis of Key ratios of ICICI Bank for the last 4 financial years.
Key Ratios Analysis
Year NIM (%) Cost of Deposits (%) Cost to Income (%) Core Operating Profit (INR Million) Provisions (INR Million) ROAA (%) ROE (%) EPS (INR) Book Value (INR)
March 2024 3.46 5.92 46.46 442,563.70 37,124.10 1.87 16.4 63.01 384.48
March 2023 2.64 5.82 41.75 340,366.41 187,333.63 1.74 15.4 48.74 316.76
March 2022 2.10 4.97 43.15 251,100.96 174,340.86 1.43 13.4 36.14 270.60
March 2021 1.55 4.84 47.84 183,843.18 220,417.55 1.17 11.7 26.58 227.86
Analysis
Net Interest Margin (NIM)
Net Interest Margin (NIM) is a very important index of a banks profitability from interest income activities. ICICI Banks NIM has shown an upwards trend increasing to 3.46% in March 2024 from 1.55% in March 2021. An improvement in this metric demonstrates better efficiency in managing interest spreads by the bank, indicating a strong asset-liability optimization strategy.
Cost of Deposits
The cost of deposits ratio has been on the increase from March 2021 last year until March 2024 at which point it increased to 5.92%. From these figures, it can be deduced that the bank has been losing more money as it was trying to attract and retain its customers deposits. One reason behind the rising costs for deposits could be due to the fact that ICICI Bank operates within a competitive environment, hence deposit rates have to remain attractive for them.
Cost to Income Ratio
There have been fluctuations in cost to income ratio over time reflecting how efficient the bank is being run. The Ratios showed a drop from 47.84 % in march 2021 to about 41.75 % by march 2023 only then jumped up again to reach approximately 46.46 % . These differences indicate that although there have been positive steps taken by ICICI Bank with regard to bringing down overhead expenses compared with their earnings, there are still some issues which could hamper sustainability.
Core Operating Profit
One key measure of profitability derived from the main operations of banks is core operating profit; thus the rise experienced here is significant. ICICI Banks core operating profit reached INR4425637 million in March 2024 as compared to INR1183843 million in March2021. This huge increase tells that ICICI Bank has shown excellent performance in terms of financial operating performance, which is result of its consistent performance from last few years.
Provision for Loan Losses
Provision for loan losses is the money set aside to cushion against loans defaults. Provision figures have fluctuated in the past years. The figures peaked at INR 220,417.55 million in March 2021 and declined to about INR37124.10 million by March 2024. This decline would suggest that there is better quality of assets and a brighter picture regarding loan recoveries, which underscores good risk management practices.
Return on Average Assets (ROAA)
As such from last years 1.17% until march, 2024 it soared to a high of 1.87%. With regard to profitability if an increase shows a banks utilization of its assets to generate more revenue, then ICICI Bank has been performing well.
Return on Equity (ROE)
Return on equity had been increasing from just 11.7 %in march 2021 to 16.4 % by the end of 2024 , again it shows there is an upward trend and Bank is able to sustain its growth and provide good return to its shareholders and investors.
Earnings per Share (EPS)
Additionally, earnings per share climbed from INR 26.58 during March 2021 reaching INR 63.01 by March, 2024. This surge demonstrates strong earning capabilities while giving hope for future gains thus maximizing yields for shareholders.
Book Value
The companys book value went up from INR2278 billion in FY 2020-21 to INR3845 billion in FY 23-24 which represents over a hundred percent growth rate indicating financial strength and improved investor wealth creation. As it can be seen that ICICI Bank has increased its book value by almost 68% increase from years 2021 which is very huge rise in 4 years time period
Conclusion
Overall seeing the key ratios and their performance it can be concluded that Bank has a very positive health performance in the past 4 years, which is result of all its performance indicators showing a Positive and upward trend. It is result of customer centric approach which has helped the ICICI bank to perform so well. The banks affluent customer base has been growing over the years and the expectation is that ICICI Bank will outperform its peers for next few years.
References
Annual Reports and Financial Statements: ICICI Bank Ltd. (2021) Annual Report 2020-21. Available at: https://www.icicibank.com/aboutus/annual.page (Accessed: 10 July 2024).
Industry Analysis: PwC (2022) Banking and Capital Markets: Top Issues and Trends in 2022. Available at: https://www.pwc.com/gx/en/industries/financial-services/banking-capital-markets/publications/top-issues.html (Accessed: 10 July 2024).
Market and Economic Conditions: Reserve Bank of India (2023) Report on Trends and Progress of Banking in India 2022-23. Available at: https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=20437 (Accessed: 10 July 2024).
ICICI Bank Ltd, www.Investing.com ( Accessed: 10 July 2024)
