ICICI’s K.V. Kamath Shapes a Business Plan in Rural India’s Uncertain Financial Terrain
Monday, August 14, 2006
In an interview with Michael Useem, Wharton professor of management and director of the school’s Center for Leadership & Change Management, Kamath discusses ICICI’s foray into rural banking and other challenges. Excerpt: The key challenge is to look to new horizons. Our growth so far has been based on our ability to identify opportunity horizons very early and build businesses to scale those horizons. In our case, we had to get the capital right, get the people right, get the technology right and get the processes right.
We believe that to break into the top league of global banks, ICICI will have to follow a course that few banks in the world have done — and that is, leverage the rural economy. This is something that most banks don’t do because it requires hard work. Market share is not easy to achieve because you need to widen your product tree. An even greater challenge is that you need to learn to do business at a fraction of the cost that you are used to.
So our challenge is to invent a new business model where we can create a distribution base effectively in 600,000 villages in India, and to learn to do that at one-tenth the cost of urban India. Just to put that on a scale that someone could understand, we believe that to succeed in urban India, we need to do be able to do business at one-tenth the cost of the West. The reason is that the ticket size of the banking product in India is one-tenth that in the West. If it is a deposit of $10,000 in the West, it will be $1,000 in urban India and $100 in rural India. Loans operate at a similar scale. ?
We need to be able to conceptualize how to deliver value to this market at an extremely low cost. That’s where the challenge is, as well as the opportunity and the excitement. The challenge is to be able to work with partners because we believe that the branch-led model will not work in this context. The branch-led model would simply replicate our existing structure, and even though we might try to scale things down, the costs are unlikely to go down as much as we need to succeed in rural India.
