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Sep 09, 2010, 07.15 PM IST | Source: CNBC-TV18

How financial inclusion can bridge Indian rural-urban gap

The ICICI Foundation for inclusive growth in its present avatar was setup only in 2008 but its activities took route almost a decade ago. The foundationís challenge is to create a society, one in which everyone has equal opportunity to develop and grow.

How financial inclusion can bridge Indian rural-urban gap

It is Indiaís largest private sector bank and it now wants to bank on financial inclusion. Two years ago it started its own foundation. It gives 1% of its profit annually to the corpus of the foundation. We are talking about ICICI Bank .

The ICICI Foundation for inclusive growth in its present avatar was setup only in 2008 but its activities took route almost a decade ago. The foundationís challenge is to create a society, one in which everyone has equal opportunity to develop and grow. With this in mind the ICICI Foundation has setup five independent organisations to deliver the essentials for inclusive growth, primary health, elementary education, access to finance, strong civil society and environmental sustainability.

In Bagdunda village in Gogunda block, 35 km from Udaipur city, a group gathers together once a month. Men and women come bearing their passbooks and money lockers. For years, Pyari Bai, the wife and mother of a migrant labourer has had to defend for herself, making do with paltry sums of money left behind or sent across from distant towns in Gujarat or in cases of emergency borrowing from thekedars at interest rates as high as 60%. But her life changed a year back.

Anil Ghamot is the branch manager for Gogunda with the Rajasthan Shram Sarathi Association, a branch of the Aajeevika Bureau that works with migrant labourers in Rajasthan. Aajeevika, IFMR and the ICICI Foundation have been working on this basic banking model since 2007. The rationale behind organising public meetings like this one is to make every borrower socially accountable. Bansilal was given a loan of Rs 10,000 at 2% interest to renovate his house. Anil encouraged customers to put in at least Rs 20 everyday into the money locker and add bigger sums whenever possible. The key of the money locker always stays with Anil.

Chanda Kochhar, MD & CEO, ICICI Bank, in an interview with CNBC-TV18's Shereen Bhan, spoke about the companyís initiative to make India's growth an inclusive one.

Q: Starting with something Mr. Kamath said and I am going to quote that to you. He said, ďOur social initiatives are aimed at capacity building in specific areas that we view as key to the long-term economic and human development of India.Ē So thatís the driving philosophy both for ICICI Bank as well as ICICI Foundation?

A: Absolutely right, for the entire group in fact. As we look at Indiaís growth I think itís important for us to see how we can make the growth inclusive. Itís very important for us as financial services players as well to look at that because as growth becomes more and more inclusive we will have a bigger role to play.

Q: Criticism towards the banking industry in India has been that you are not looking at servicing the rural community or the rural landscape in this county because the cost of servicing is not commensurate with the kind of returns that you make. Are you now looking at it beyond generosity and corporate social responsibility? Yes, all of you are meeting what you are required to do in terms of priority sector lending because thatís what the regulation tells you to do. But are you satisfied with what you have done so far and what is the vision then as far as the rural landscape is concerned going forward.

A: I donít think the banking industry today can sit back and say that a lot has been done. I think a lot more needs to be done. But why I still feel very optimistic about it is the fact that actually if we look at it a lot of enabling conditions have been put in place now. So there is always a stage of evolution where some of these thingsÖ..

Q: Is it looking viable as a business proposition now?

A: Absolutely. This is because technology has come off age, the regulations have come off the age. The ability to do business through business correspondence, the cost of technology through mobile telephony, all that when you put together it is maybe now that all these enabling conditions have happened. I think you know the growth that you would see in financial inclusion from hereon would be kind of a multiple of whatís happening.

Q: What is the target that you have set for yourself in terms of rural banking?

A: What we have said is in about four year time we would be present in about 85,000 villages and 60% of those villagers will be with less than 2,000 people population. We are saying we would cover almost 20 million people through this. We are quite set to make this happen. We have found models which today look viable.

Q: What has been the experience with the Financial Information Network & Operations (FINO) technology solution that you have promoted within ICICI and that other banking institutions are also benefiting from. What has been the experience with that?

A: As we kind of developed the FINO technology or the smartcard technology to take banking to take banking to the unbanked, we said that this is not an initiate that should be restricted to ICICI Bank. We should actually make it open for the entire banking industry because the amount that needs to be done in this country, every bank will have to work upon it. There is no need for us to kind of hold it as a proprietary technology. I am so glad that we did that because today there are so many banks using the same platform.

Q: How are you going to further your own aspirations or your own ambitions with regards to tapping or creating micro-entrepreneurs and so on?

A: We are already doing some of these things. If you look at our non-life insurance company, we have very low cost insurance product that again we are giving to rural population under the Rashtriya Swasthya Bima Yojana (RSBY) scheme. We have millions of customers there. Now what we are saying as a group can we combine this insurance product under the RSBY scheme and the no-frills account from the bank and then add something more to it and make it an even more meaningful proposition?

But the way you start is that in some locations you start with the small value insurance under the RSBY scheme and in some locations you do pilots on microfinance, in some you do through the business correspondent and go through no-frills account. You learn across each model. Then you arrive at a model which is a combination of all these.

Lachi Ramís tea stall near the Gogunda bus junction does brisk business. He makes about Rs 1,000 everyday, leaving him with enough margins to meet the easy monthly installments (EMIs) on his loan. Lachi Ram once a runner for a chaiwala in Surat is in his third loan cycle and he is contemplating taking a fourth.

ICICI Bank stock price

On September 19, 2014, ICICI Bank closed at Rs 1570.45, up Rs 5.10, or 0.33 percent. The 52-week high of the share was Rs 1617.85 and the 52-week low was Rs 878.55.


The company's trailing 12-month (TTM) EPS was at Rs 88.06 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 17.83. The latest book value of the company is Rs 632.57 per share. At current value, the price-to-book value of the company is 2.48.

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