Every year around August, scribes go scouting for people born in the historic year India became free, 1947. One such independence child is also known for spearheading a revolution at the nation's largest private sector bank, ICICI Bank.
Kundapur Vaman Kamath first joined Industrial Credit and Investment Corporation of India in 1971, when it was still under state control. As a young management graduate, he implemented the bank's computerization program and businesses like venture capital and credit rating.
After a stint with the Asian Development Bank (ADB) in the 1990s, Kamath returned to ICICI in 1996 as its chief executive officer. Two years after ICICI set up its subsidiary ICICI Bank (nyse: IBN - news - people ), Kamath worked to expand its reach through a series of acquisitions of non-banking financial companies.
He proceeded to lead the bank through several firsts, making an aggressive push into the untapped retail market and taking it online in 1997 despite skepticism that such a model would succeed in a country with abysmal rates of Internet penetration. The Mumbai-based bank started with an online customer base of 500,000 and now reaches out to about 2.5 million. It is in 18 countries, including the U.K. and Singapore, and 65% of its balance sheet is retail, while 20% is international banking.
Kamath, who often emphasizes that the bank's growth story is the story of India, made an early push into markets abroad. In 1997, ICICI became the first Indian entity to list on the NYSE; a year later ICICI Bank followed. And in 2002, Kamath merged parent company ICICI and other subsidiaries with ICICI Bank.
The last four years saw ICICI Bank double its profits. Its market capitalization touched 1 trillion rupees ($24.7 billion) last month, after a public offer in India and overseas raised a record $5 billion. The offering was oversubscribed about 11 times.
Kamath's team is now looking at rural India as the next growth driver, reaching out to the villages in partnerships with local groups to set up kiosks and give customers biometric cards for credit.
In a conversation with Forbes, Kamath talked about how he put lessons learned from the Far East into practice in India, how the bank remains ahead of the curve and what makes him proud of India.
Forbes: How has the banking sector changed in the last few decades?
Kamath: The Indian economy was a closed system. Now, not just in the banking space, but if you look at the financial services space, there's been a tremendous degree of opening up that sometimes we don't give credit for--whether it's in investment banking, private equity or asset management.
You left ICICI in 1988 for a stint with the ADB. To what extent did your experiences there help when you came back to the organization?
The time I spent in the Far East opened my eyes to a newly emerging Asia that had fully capitalized on "opening up" policies, whether it was countries like Malaysia, Thailand, Indonesia, the Philippines or China. What policy change could do to a country was very stark and gave me the ability to think through what we wanted to do in India, where I was sure policy change would happen. One driver of growth I saw in all the countries was the power of the consumer, and the momentum it gave the economy. I tried to build our own business models on those lines. Initially there was skepticism this would happen, but in the last six years the consumer has ruled.
Has competition from foreign banks that are increasingly looking at India had any effect on ICICI's operations? Given the reach of state-run banks especially, are they a threat?
When we started in early 2000, foreign banks had a lion's share of the market with most products. So they have ceded territory, and dramatically so, in the last six/seven years.
Today, ICICI Bank and other Indian banks have captured 85% to 90% of the market, and this is a fairly mature market, so anybody now trying to compete starts with a major disadvantage. We'll watch out for foreign banks, but I don't think they're a threat in the medium term. As for state banks, they need to get their product and distribution equations right. Just having a branch everywhere doesn't work. If they get it right, they're potent competitors.
As you compete with foreign banks in their traditional markets, what do you think attracts potential customers to ICICI Bank?
If we have to succeed in any global territory, we have to have a value proposition the customer likes. For instance, remittances into India, one of the fastest-growing sides of any business here and one that's growing at 25% to 30%. We have succeeded in bringing down the costs of remittance and providing online remittance capabilities. We now have about 30% market share. We believe our technology costs are about one-tenth of what global financial institutions spend per transaction. We back-end everything from our global offices to India. When we translate those gains to the customer in terms of higher interest rates, they migrate to us.
When ICICI introduced services like online banking and ATMs in a market that wasn't used to them, what was the initial response? How long did it take to catch on?
We rolled out 1,000 ATMs in a year [2002] when there were about 100 ATMs in the India. There was a great deal of skepticism even within the bank. But we found out the customer seeks convenience above everything. We were pleasantly surprised at the way Indians embraced technology.
The same thing happened with the Internet, which was initially seen as an elite feature. It now accounts for 20% of our transactions. We've come to a stage when whatever was done on the Internet can be done on a cellphone. The moment you do that and look at the fact that 7 million subscriptions are being added every month, think what sort of convenience we'll be able to put in the hands of the consumer. There's another revolution about to happen, you'll have a mass of customers transacting on cellphones in two years.
ICICI has made a concerted effort to tap the rural population. What sort of growth do you see in the sector? And on a more broad scale, to what extent do you see rural demand, whether it's for consumer products or financing, driving India's growth in the next decade?
Rural India will be the next big driver of economic activity. You start on a very low base, so there's a lot to do. Till whatever you have to do is fully done, the growth momentum is rapid.
In agriculture, consider the fact that 35% of green produce goes to waste, and there's no proper price distribution because of intermediaries eating profits. But initiatives in organized retail are attempting to connect rural to urban markets without intermediaries, so there's new economic activity. They're bringing in value addition through activities like grading and storing for fresh produce. This not only adds to the farmers' wealth but to the entire rural wealth. The next stage will be when rural customers want what people in urban India wanted seven years back: televisions, cars, etc.
[ICICI's rural business accounts for about 10% of its balance sheet and is doubling every year, but officials say the numbers are misleading because the base they're growing off is quite small.]
ICICI was a pioneer in the Indian American Depositary Receipt story. What made you take such an initiative at the time? Are you satisfied with the growth you've seen in markets there?
Going to the NYSE was an exercise in discipline. It was a tough call because we were not sure if we'd measure up to U.S. GAAP and SEC standards. But we thought that the Indian markets were not broad enough to meet even our modest capital requirements. It was probably one of the best decisions we took, since our appetite for equity kept increasing as India grew, and we grew with it.
As someone who's seen the growth of this country since independence, what are its achievements you take most pride in? And as a doyen of the industry, what are your concerns for India's growth?
I take great pride in the fact that we could grow along with democracy. We have seen so many countries grow at very rapid rates, but you didn't see democracy in any of them.
Another key takeaway I have is, when you look back in history, India will be seen as a nation that transformed itself using its knowledge, and that revolution provided momentum in the last 10 years. Going forward, the challenges I see are in terms of keeping the social fabric intact of the nation. If we don't bridge the gap between the haves and have-nots, this fabric could come under stress. But the growth path that we're on now is irreversible. There may be temporary speeding up or slowing down, but the foundation of knowledge that spurred the growth momentum will stay
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