New Technologies for Small and Medium - Size Enterprise Financing

Washington D.C. December 6, 2002

ICICI Bank - The e-Universal Bank

Assets of US $ 21 bn

Rated by Moodys above sovereign rating

Second largest Bank in India Technology Leader

Globally held (ADR, FII own 47% stake )

First Indian Bank to be listed on NYSE

A universal banking powerhouse...

Car Loans Mortgage s Credit Cards Personal loans Deposits Life Insurance Mutual funds

Retail Financial Services

Corporate Financial Services

Term Loans Project Finance

Commercial Bank Investment Bank Venture Capital Genl. Insurance IT Services

Establishing an international presence

Canada USA UAE Singapore UK China

Phase I Phase II

: Offices opened/to be opened shortly : Geographies under advanced stage of evaluation

Universal Banking Theme

Leveraging Technology to enhance delivery capabilities
Empanelled expert B2Bfor tax and Solutions accounting advice

Smart Card

Portals

Web Trading

Technology

e-Commerce initiatives

Internet Banking

Mobile Banking
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Call Centre

Importance of SME Sector in Technology

Single largest employer Single largest employer Fastest to adopt innovation Fastest to adopt innovation Ensures equitable wealth distribution Ensures equitable wealth distribution Higher productivity Higher productivity High quality- greater competitiveness High quality- greater competitiveness Sustainable revenue models Sustainable revenue models Enables virtuous cycle of technology, Enables virtuous cycle of technology, innovation, competitiveness, openness to innovation, competitiveness, openness to market economy and globalisation market economy and globalisation

SME Sector SME Sector

Use of Use of Technology Technology

Virtuous Virtuous cycle cycle

Financing options for SME

SME Lifecycl e Creation Start up Duration of financing required Long Long Suitable type Seed capital / Subsidy VC / Angel investor / Subsidy/ Tax incentive VC / Angel investor / Subsidy/ Tax incentive/ Loan/ Debt/ IPO Bank Finance / Debt/ IPO Public Debt/ Capital Market 7 Suitable Channel Promoters VC / Promoters
VC/ Angel Investor / Promoters

Upto breakeve n Growth Sustainab le growth Maturit y

Long

Mid Term Short term Short term

VC / Bank / Promoters VC / Bank / Debt markets Capital Market/ Debt markets

Financing for SMEs

Financing for SMEs

Unit Level Standalone

Cluster Financing

Unique for cluster

Productis ed

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 SMEs..

Banks perception of SMEs Banks perception of SMEs
Lack of transparency of Lack of transparency of

SMEs perception of Banks SMEs perception of Banks

No special schemes for No special schemes for

technology financing technology financing Inadequate and delayed Inadequate and delayed credit credit Cumbersome procedures Cumbersome procedures Insistence on collaterals Insistence on collaterals and and guarantees guarantees High rates of interest High rates of interest

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

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SME Financing
Approaches to SME Financing Approaches to SME Financing Prudent Segmentation Prudent Segmentation Cash flow based evaluation Cash flow based evaluation Multiple channels offerings by leveraging Multiple channels offerings by leveraging Technology Technology Migration to non-branch channels Migration to non-branch channels

Key aspects Key aspects Measurement of risk and mitigation Measurement of risk and mitigation Reduction in cost of transactions Reduction in cost of transactions Delivery cost and reach Delivery cost and reach

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Enabling Framework for Technology Financing

Technical education/ skilled manpower Fiscal Measures, System and Infrastructure Enabling technology transfer incentives Financing Quality Initiatives

Priority Sector Mandated Lending

Cluster Development

Technology Financing

Specialised Stockmarkets

VC/ Angel incubators Institutional framework of nodal agencies for refinance/ guarantees

Competitive pressure to encourage innovation Industrial extension services 12 Protection to nascent technical units

BIS 2 Proposals Advantage SME

Banks free to evolve capital allocation according Banks free to evolve capital allocation according

to internal rating based approach to internal rating based approach SMEs with turnover less than EUR 50 mn will SMEs with turnover less than EUR 50 mn will have explicit lower capital charge have explicit lower capital charge Small businesses with loan size less than EUR 1 mn Small businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocation with collateral will get beneficial capital allocation Recognition to collaterals, credit derivatives, Recognition to collaterals, credit derivatives, guarantees for allocating capital guarantees for allocating capital Risk sensitive capital framework holds promise that Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by the regulatory framework will support SME lending by banks banks
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ICICI Bank Initiatives

SME Portal -- Internet Banking Gateway for B2B SME Portal Internet Banking Gateway for B2B sites sites

Supply Chain Financing on B2B loops Supply Chain Financing on B2B loops

Subsidiary network role in technology financing Subsidiary network role in technology financing

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Case Study I - Supply Chain B2B Solution

ABC Ltd ICICI Bank
Purchase Purchase Order Order

SME SME Dealer Dealer

Dealer Dealer Overdraft Overdraft Account Account

ERP ERP Interface Interface

Despatch Despatch Invoices Invoices

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Case Study II - Smart card solution for FSCs

Input Merchant Store
Credit Debit e-purse

Farmer Service Center

Bank Account/ Credit History

Output Sale
Collect Money

Online update of Bank accounts

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Innovations in Delivery Channels

Sustainable Access for Rural India (SARI) project Partners: MIT Media Labs, Harvard University, IGyan, Providing reliable Internet access through Kiosks using corDECT WiLL 100 kiosks managed by entrepreneurs to be setup Providing egovernance, and information services Delivering banking services through Internet kiosks
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Innovative Delivery Innovative Delivery Mechanisms Mechanisms

Other initiatives - I
Bill Junction Utility bill payments Pay Seal electronic payment system Corporate Infinity online transfer/ settlement system

e-banking in ICICI Bank

Roaming Current Account web interface

ICICI Markets online FX, Debt, SME Portal

ICICI Direct and ICICI Select

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Other Initiatives - II
Fleet card for transporters Smart card for retailers Escrow payment services OTHER INITIATIVES Cluster Financing Facilitating e-Sales Tax/ Octroi payments Shopping Mall arrangements

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Subsidiary network support technology financing

ICICI Infotech Services Limited ICICI Web Trade Limited

Software consulting development IT enabled services IT infrastructure Internet based broking services

ICICI OneSource Limited ICICI Information Technology Fund ICICI Equity Fund ICICI Eco-Net Internet & Technology Fund
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Business process outsourcing Call Centre Activities Investment in equity Investment in medium sized IT companies Investment in equity Investment in securities of medium sized IT companies Investment in equity Investment in unlisted internet & technology companies

Our recommendations
Lifecycle approach to determine which Lifecycle approach to determine which channel to fund SME requirement channel to fund SME requirement Fiscal benefits to attract VC funds Fiscal benefits to attract VC funds Dedicated Institutions Dedicated Institutions Public-private partnership Public-private partnership Banks to be permitted to use non-bank Banks to be permitted to use non-bank infrastructure to deliver services infrastructure to deliver services
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Road Ahead
Directed lending norms to include all tech intensive SME

Tax incentives Infrastructure status Public to IT, Bio-tech, telecom

- Private

Re-finance , Partnership guarantees, subsidies, VC funds

Liberalised norms for tech transfer JV with foreign VC

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Thank You