ICICI’s K.V. Kamath Shapes a Business Plan in Rural India’s Uncertain Financial Terrain

K. V. Kamath, CEO of India’s second largest banking and financial services conglomerate, ICICI, is a man in a hurry. When he occupied the driver’s seat at ICICI more than a decade ago, it was a financial institution hamstrung by political constraints. Kamath was a key member of the top team at ICICI, including chairman Narayanan Vaghul, that led the organization into new businesses such as insurance and banking. Kamath, who spent his early years with the Asian Development Bank in Manila, used technology effectively, including online banking, to pry open market expansion. Today, his top challenge is to retain the talent ICICI trains, which is keenly sought by other financial services players. 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.



Useem: What are two or three of the bigger challenges that ICICI faces as you look to grow globally and to hit the target of being a Top 50 or maybe even a Top 25 bank in five years?



Kamath: 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.



That is why we need to work with partners who are either already present in the local community or who need to be there. For example, we might partner with a local financial institution, a micro-finance agency or a company — someone who is already in the village for a business purpose. We might even partner with someone who is selling fertilizer or seed or tractors. How can we leverage these partnerships to do business? That question drives the need for a new business model to reach out to this market. If we can do this — and we are fairly sure that we can — I think the rewards could be enormous.



Meeting this challenge of lending to India’s farmers also involves other complexities.  Agriculture here heavily depends on the monsoons or rains. The biggest risk is the failure of the monsoon. Now can you lend to rural India without fixing this risk? What we did was to ask if this was an insurable risk. Could we get such insurance? The answer was yes. Could we then sell this insurance to the farmers? Again, the answer was yes. Finally, we asked if this insurance could be further reinsured outside India so that the risk was shared even more widely. Yet again, the answer was yes.  



This strategy allowed us to develop a viable proposition where we could scale up the rural lending model realistically. I don’t believe anyone has implemented this model before. The typical approach to rural lending has been through micro-loans, and that has certainly had some degree of success. But a large-scale rural banking model where you are ultimately trying to reach a population of 600 million people has not been done. That is our challenge — and also our opportunity.  



Useem: You have already built an outstanding senior management team. As you look ahead, how will you ensure that your top executives bring the leadership skills and capabilities to these areas and that they have the skill sets they need to do what you hope to do by 2010?



Kamath: You need to go back a bit in time. The way we built this organization was to take the talent that was there in 1996 — by and large, that was the talent that built the bank, with some exceptions. This talent did not have any of the core skills required to build or run a commercial bank. What this team had, at that point in time, was the core skills needed to run a finance business. They also had something else — rare intellect and entrepreneurship.



To build a successful business, you have to be able to pick entrepreneurs very early and get them embedded into the business. They need to go out into the ecosystem, demonstrate their abilities, nurture the business and build it up. We have succeeded in doing this. Sometimes we may have made wrong calls, but those have been few and far between. Our organization has now learned to use this as a core skill — the ability to empower people and to let them grow the business. That will be exactly the same way we are going to build this new business.



Today ICICI is an organization with a lot of other strengths. We have good HR practices, the ability to train and mentor people, and we have excellent technology capabilities, which is crucial for success in this business.



Useem: In a sense you have had people learn by doing. How did you learn to lead and to develop your own capacities? What do you point to as your formative experiences?



Kamath: I was lucky to be mentored by two outstanding leaders, two former chairmen of ICICI. One … chaired ICICI until 1985, and he was followed by N. Vaghul, who took over as chairman in 1985. Both were extraordinary people with outstanding intellect. They both believed in giving you a lot of space and allowing you degrees of freedom, when other leaders might have hesitated. So I guess what I learned from them was how to put my mind to good use and also to give my team space to do things.



Useem: Did you seek out their mentoring, or did they volunteer it before you asked?  



Kamath: This was during the period when I was working with them, so it was learning on the job. In 1996, when I came back, we formed an organization that had this great team of people. But they probably were getting caught in what I would call a time warp. This was because the whole structural business in India had been turned upside down. And we as a product finance company operated in a closed, regulated market and now had to deal with customers who did not know how to manage these problems.



Some of these things came as hard shocks, and frankly, our first action was a holding action. The first thing we needed to put in place was enough capital. We had good people whom we could point in the right direction, but we were running short of capital.



Then we realized we needed to diversify. Initially we thought we would diversify within our own corporate customer arena, but within a year I realized that this wouldn’t take us very far. We needed to go in a much deeper growth direction. We needed to get into something that we had not tried before. We needed to enter the consumer credit market, which we saw as an emerging opportunity. That is where our directional change began — and it has taken us to where we are today with leadership in the market and a one-third share of the consumer credit market.  



It was a bold decision, but frankly we didn’t have a choice. The biggest task at that time was selling this concept to the board. Surprisingly, the team never once felt that this was not doable. For me, that was an important lesson. You need alignment of interests for a team and a strong belief in your ability to execute. You need a can-do attitude. After that, you need to pick entrepreneurs who will lead businesses. We went out and hired people who had the skill sets we needed for production and distribution in the consumer credit market, and then we launched our new business. The whole process began with creating confidence. Then the entrepreneurial spirit kicked in, and we delivered.



When I look back and wonder if I would do it again, I would say yes because, frankly, I had no choice. But would I do it with the same degree of fearlessness that I had back then? Probably not. In hindsight, it is now clear to me that we took a huge risk. Although we had no alternative, it was a frightening step that we took.



Useem: I’m going to ask you a question, though I think you may have already answered it. Throughout your career at ICICI, what has been your single biggest, or most challenging, or most consequential decision?



Kamath: The one I just described, because it involved venturing into the unknown. That’s why when my colleagues say they are venturing into the unknown today I feel we are much more confident. Another decision we made, which wasn’t under the most stable conditions, was the decision to go global three years ago. There again, except for one or two of my core team, nobody believed that this was a terrible decision. Again, we faced many unknowns and we had no skill sets. But we did it with a lot of confidence because it was not a do-or-die sort of situation.



Useem: Let me ask you about the role of the board in each of these decisions. For the first one, the board needed more convincing; for the second one, less so?



Kamath: That is right. The board had fewer issues when ICICI decided to go global than when we decided to enter the consumer credit market.



Useem: What gave you the sense of confidence — you called it “fearlessness” — knowing that some people on your team and many members of the board did not see the decision to go into the consumer market as wise?



Kamath: My team saw it as the right decision. The board did also; there was a healthy dialogue with the board. I don’t think the board ever sensed a doubt in our minds. If it did, I probably would have started to wonder, but no one doubted that we would succeed. The board asked questions, and we answered them, and then the board backed our decision in the end.



Useem: Do you lose sleep over these decisions?



Kamath: No.



Useem: Do you look back at these decisions?



Kamath: Yes, when I look back sometimes I think that you truly need to believe that you have very long legs to cross that chasm. But other than that, I don’t lose sleep.



Useem: If you were to look back, would you do anything differently, not about the biggest decisions but within those decisions?



Kamath: I would do a few things differently, probably by sequencing a few things differently. I would ensure that I had the ability to hire the right people. These are lessons you learn as you go along. In our case they did not harm us. You are wiser for having gone through it.



Useem: How do you know when you have the right people working for you? What do you look for?



Kamath: You need four or five key attributes.  First, I look for intellect or a high level of competence. Second, I seek out entrepreneurial leaders who have the ability to pick the right people. That means looking at how the person has performed in other contexts to build teams. People who have the ability to build and manage teams are very valuable. Third, the person must have a can-do attitude. What sort of reaction do you get when you talk to him or her about a challenge? Will he go for it or is it a problem? Fourth, the right people have the ability to withstand shocks without getting flustered or losing direction. Finally, whether this is an entrepreneurial quality or not — I think it is an important quality that I look for in people whom we pick as leaders — it is the ability to focus, focus, focus without getting diverted from the core business.



Useem: So a final word to the wise. If somebody would like to know the secret of ICICI’s success in the last 10 years and would like to know why you are going to succeed in the next five, what would you point to?



Kamath: I think it’s the outstanding human talent that we have and the ability to leverage that talent to enhance our value. This is seen in the execution capability, the ability to run businesses seamlessly, the ability to learn to live with diversity, to live with ambiguity and yet to stay focused and do our job. I have given you four or five attributes, but I think the first two are really the key — the right mental make up and the right ability to execute it.



One thing I tell people when I am mentoring them is, “Don’t look for clones.” I’ve had to say that to a lot of very bright people. I use a very simple example. If you enter a public building where there is a doorman and there are several people you need to see, you need people to unlock the doors for you.



Here is another example based on a team game like football or soccer. In these games, you need people who will throw the ball so that other people can score on behalf of the whole team. So you need to make sure you have people who can throw the ball when you are in the right position to score. You may be an outstanding scorer, but you will have to wait all day or all year if no one passes the ball to you. Anybody owning a business very quickly understands this.



Useem: If there is one thing that you could point out in the field of execution that is critical, what would that be?



Kamath: I would say it is the ability to correct your course when things start going off track. In executing any strategy, whether you are setting up a new business unit, or trying to reach profit or budget targets, things never happen quite the way your models may have predicted. That is why you need the ability to correct your course as you go along. A CEO basically has to keep his or her eyes on several instruments at the same time. If you see the oil pressure doesn’t look right, you have to pump up the oil; if you look at the gas tank and you’re running out of gas, you need to fix that as well.



If CEOs fail to do such course correction, they won’t succeed. I have seen this over and over again. You can’t depend on someone else down the line to do it for you. You need to do it yourself. You need the ability to keep your eye on several things. But of course no CEO can succeed by micromanagement. You ought to know when to give someone space and when to push.



Useem: As you look to become a Top 50 or even a Top 25 world bank, what would be the one or two features out there in the landscape that you would look at that would tell you to course correct?



Kamath: For example, let’s say a particular business is not going the way it should, and this could have an implication on the budget. What do you need to do to get the budget trimmed? What you need is the ability to say, “I see that the budget is going wrong, and I need to do A, B, C and D to get the budget right. You need to fix the problem as you go along. You have to keep scanning the environment and your own situation and be proactive about it. These are critical qualities in a CEO. You have to be proactive in identifying what could go wrong and take preventive measures before things do go wrong.



Useem: As you look ahead over five years, many things can go wrong. What do you most fear in the Indian economy and the global economy that could derail your plans?



Kamath: I guess in the Indian context, I would say something that is unforeseen, like social strife, because we are living in a world of haves and have nots. And there is a divide. Now is this going to be something that could bother us? To me, this is the single most important thing which could impact business.


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