New Technologies for Small and Medium - Size Enterprise Financing

Washington D.C.December 6, 2002

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ICICI Bank - The e-Universal Bank

Assets of US $ 21 bn

Globally held (ADR, FII own 47% stake )

Second largest Bank

in India - Technology

LeaderRated by Moodys above

sovereign rating

First Indian Bank to be

listed on NYSE

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Retail Financial Services Corporate Financial Services

Term Loans

Project Finance

Commercial Bank

Investment Bank

Venture Capital

Genl. Insurance

IT Services

Car Loans

Mortgages

Credit Cards

Personal loans

Deposits

Life Insurance

Mutual funds

A universal banking powerhouse...

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Establishing an international presence

Canada UK

UAE

Singapore

USA China

Phase I : Offices opened/to be opened shortly

Phase II : Geographies under advanced stage of evaluation

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Smart Card

Technology

Universal Banking Theme

Empanelled expert for tax and accounting

advice

Web Trading

Internet Banking Mobile

Banking

Call Centre

B2B SolutionsPortals

e-Commerceinitiatives

Leveraging Technology to enhance delivery capabilities

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SME SectorSME Sector

Higher productivityHigh quality- greater competitivenessSustainable revenue models

Higher productivityHigh quality- greater competitivenessSustainable revenue models

Use of Technology

Use of Technology

Enables virtuous cycle of technology, innovation, competitiveness, openness to market economy and globalisation

Enables virtuous cycle of technology, innovation, competitiveness, openness to market economy and globalisation

Virtuous cycle

Virtuous cycle

Single largest employerFastest to adopt innovationEnsures equitable wealth distribution

Single largest employerFastest to adopt innovationEnsures equitable wealth distribution

Importance of SME Sector in Technology

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Financing options for SME

Upto breakeven

Long

Sustainable

growth

VC / Bank / Debt markets

Bank Finance / Debt/ IPO

Short term

Growth Loan/ Debt/ IPO

Mid Term

Creation PromotersLong Seed capital / Subsidy

SME Lifecycl

e

Suitable type

Duration of financing required

Suitable Channel

Start upVC / Angel investor / Subsidy/

Tax incentive

Long VC / Promoters

Maturity

Public Debt/ Capital Market

Short term

VC / Angel investor / Subsidy/ Tax incentive/

VC/ Angel Investor / Promoters

VC / Bank / Promoters

Capital Market/ Debt

markets

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Financing for SMEs

Financing for SMEs

Unit Level - Standalone Cluster Financing

Unique for

clusterProductis

ed

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Financing intervention for technology

Financing intervention for technology can happen at 2 levels

Unit Level

Direct Finance to SME by

•VC•Equity•Loans•Capital Markets

Cluster & System Level

•Cluster financing•B2B models•Internet payments in closed user groups•Smart cards in closed loops •Technology based financing solutions

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Constraints in Financing SME’s..

Banks perception of SME’s

Lack of transparency of information Low technology Low capitalization / Collaterals Vulnerable to market changes High risk sector Low profitability

Banks perception of SME’s

Lack of transparency of information Low technology Low capitalization / Collaterals Vulnerable to market changes High risk sector Low profitability

SME’s perception of Banks

• No special schemes for technology financing • Inadequate and delayed credit• Cumbersome procedures• Insistence on collaterals and guarantees• High rates of interest

SME’s perception of Banks

• No special schemes for technology financing • Inadequate and delayed credit• Cumbersome procedures• Insistence on collaterals and guarantees• High rates of interest

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SME Financing

Approaches to SME FinancingPrudent SegmentationCash flow based evaluationMultiple channels offerings by leveragingTechnologyMigration to non-branch channels

Approaches to SME FinancingPrudent SegmentationCash flow based evaluationMultiple channels offerings by leveragingTechnologyMigration to non-branch channels

Key aspectsMeasurement of risk and mitigationReduction in cost of transactionsDelivery – cost and reach

Key aspectsMeasurement of risk and mitigationReduction in cost of transactionsDelivery – cost and reach

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Enabling Framework for Technology Financing

Technology Financing

Financing Quality Initiatives

Priority Sector Mandated Lending

Specialised Stock-markets

Competitive pressure to encourage innovation

Protection to nascent technical units

Technical education/ skilled manpower

Fiscal Measures, System and Infrastructure

Cluster Development

VC/ Angel incubators

Institutional framework of nodal agencies for refinance/ guarantees

Industrial extension services

Enabling technology transfer incentives

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BIS 2 Proposals – Advantage SME

Banks free to evolve capital allocation according to internal rating based approachSME’s with turnover less than EUR 50 mn will have explicit lower capital chargeSmall businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocationRecognition to collaterals, credit derivatives, guarantees for allocating capital

Banks free to evolve capital allocation according to internal rating based approachSME’s with turnover less than EUR 50 mn will have explicit lower capital chargeSmall businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocationRecognition to collaterals, credit derivatives, guarantees for allocating capital

Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by banks

Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by banks

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ICICI Bank Initiatives

SME Portal - Internet Banking Gateway for B2B sites

SME Portal - Internet Banking Gateway for B2B sites

Supply Chain Financing on B2B loopsSupply Chain Financing on B2B loops

Subsidiary network role in technology financingSubsidiary network role in technology financing

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Case Study I - Supply Chain B2B Solution

Purchase Order

Purchase Order

ERP Interface

ERP Interface

Despatch Invoices

Despatch Invoices

DealerOverdraftAccount

DealerOverdraftAccount

ICICI Bank

SMEDealer

SMEDealer

ABC Ltd

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Case Study II - Smart card solution for FSCs

Bank Account/ Credit History

Output Sale

Collect Money

Farmer Service Center

• Credit• Debit• e-purse

Merchant Store

Input

Online update of Bank accounts

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Innovative Delivery Mechanisms

Innovative Delivery Mechanisms

Sustainable Access for Rural India (SARI)

projectPartners: MIT Media Labs,

Harvard University, I-Gyan, Providing reliable Internet access

through Kiosks using corDECT WiLL

100 kiosks managed by entrepreneurs to be set-

up

Providing e-governance, and

information services Delivering banking

services through Internet kiosks

Innovations in Delivery Channels

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Other initiatives - I

e-banking in ICICI Bank

ICICI Marketsonline FX, Debt,

SME Portal

Corporate Infinityonline transfer/

settlement system

Bill JunctionUtility bill payments

Roaming Current Account

web interfaceICICI Direct and

ICICI Select

Pay Sealelectronic

payment system

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Other Initiatives - II

OTHER INITIATIVESCluster Financing

Fleet card for transporters

Smart card for retailers

Escrow payment services

Facilitating e-Sales Tax/ Octroi payments

Shopping Mall arrangements

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ICICI Eco-Net Internet & Technology Fund

ICICI Infotech Services Limited

ICICI Information Technology Fund

ICICI Web Trade Limited

ICICI OneSource Limited

ICICI Equity Fund

Business process outsourcing

Call Centre Activities

Internet based broking

services

Software consulting development

IT enabled services IT infrastructure

Investment in equity Investment in securities of

medium sized IT companies

Investment in equity Investment in unlisted

internet & technology companies

Investment in equity Investment in medium

sized IT companies

Subsidiary network support technology financing

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Our recommendations

Dedicated InstitutionsDedicated Institutions

Fiscal benefits to attract VC fundsFiscal benefits to attract VC funds

Lifecycle approach to determine which channel to fund SME requirementLifecycle approach to determine which channel to fund SME requirement

Public-private partnershipPublic-private partnership

Banks to be permitted to use non-bank infrastructure to deliver servicesBanks to be permitted to use non-bank infrastructure to deliver services

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Road Ahead

Liberalised norms for tech transfer

JV with foreign VC

Directed lending norms to include all tech

intensive SME

Re-finance , guarantees,

subsidies, VC funds

Tax incentives Infrastructure status

to IT, Bio-tech, telecom

Public - Private Partnership

Thank You