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ICICI Bank: The Indian diaspora in Dubai and DIFC

Analysis by M. Aftab / 25 December 2005

I have an instinctive distrust of self styled philosopher-kings and global statesmen, the proverbial imperial CEO, in international banking. After all, my compatriot Agha Hassan Abedi ruined the lives and careers of so many of my friends while seeking to reinvent the Third World at BCCI.

Walter Wriston, the CEO of Citcorp who I idolised while a Wharton undergrad, left the largest bank in America in the Federal Reserve ICU with his dud sovereign loan book.

Countries do not go bankrupt was Wriston's mantra while Citi led the petrodollar recycling stampede to the oil, copper, banana and coffee satrapies of Latin America. David Rockefeller, the prince of the Eastern Establishment, confused the Chase Manhattan Bank with the State Department. 

Chase, my banking alma mater on Wall Street in the 1990's, felt more like a feudal court than a bank. Mr, Rockefeller's handpicked heirs were eventually swept away in a merger tsunami with Chemical, Manny Hanny, JP Morgan and Flemings. 

It is surely the irony of ironies that the incoming CEO at Chase, Jamie Dimon, learnt his trade under Brooklyn  superbroker Sandy Weill, not lunching with kings and sultans in the WASPY court of King David  at Mama Chase.

However, KV Kamath, the CEO and managing director of ICICI Bank, who I was privileged to meet one on one last week in Dubai, is anything but imperial, despite his regal appearance and Savile Row suits. 

The man who has led the most successful and profitable strategic transformation in Asian banking of our generation, believes flawless execution, the right management  team and the power of technology defines success or failure in finance, not hobnobbing with the world's captains and kings.

Of course, readers of my column have benefited big time from my infatuation with ICICI's business model, Mr. Kamath's  blueprint of change and the capital markets renaissance of Asia's third largest economy.  After all, I last recommended UAE investors buy ICICI's New York ADR in this column two years ago  this week.  While the Sensex is overvalued, I would use any correction to buy ICICI Bank. 

This is the classiest banking model in Asian finance whose growth footprint in India and the world will only accelerate in time.  It is a tribute to Mr. Kamath and a testament to the bank's spectacular sustainable growth potential that ICICI Bank commands a valuation multiple of 22 on Wall Street, double the P/E of Citigroup, BankAm, Barclays, BNP Paribas and Stan Chart. 

This is no longer an Indian bank in any case, at least in terms of ownership.  Singapore's Temasek Holdings and Japanese institutions are strategic shareholders . I bought ICICI at $7 in New York's in my babies trust fund so I have very tangible reasons to track and applaud Mr. Kamath.  This bank, I believe,  is the scalable  Starbucks of Asian finance.

It is only natural that ICICI should seek a DIFC  license  Mr. Kamath explained to me that his international strategy was oriented around the existence of the Indian diaspora and the globalisation of the Indian corporate sector.  The UAE is home to some of the most affluent Indian expatriate communities in the Diaspora. I refuse to use the bureaucratic  taxation code term "NRI" for a global human treasure trove of talent that includes everyone from Dr. Amritya Sen to Lakshui Mittal ,from Vinod Khosla to Anita Desai and Ismail Merchant.

The Sindhi textile seths of Meena Bazaar have provided the nucleus client base for Merrill Lynch, Man's hedge fund products or the Swiss private banks since the 1970's. The Gujerati bullion merchants of the Deira Gold Souk are some of the biggest gold traders on COMEX in New York. 

The top Indian businessmen in Dubai — Manu Chabria's Jumbo, the Jashanmals, the Pancholias, Ram Buxani, the Shroffs, the Choitrams, the Tourani's, Harishbhai Pawani, BR Shetty, Arun Datwani, Siraj Rahmatulla — not only trade and invest all over the world — but are often bellwether  investors in India.    Projects as diverse as the Indus Bank to Cochin airport would be unthinkable without the Dubai chapter of the desi diaspora. The Merrill Lynch wealth report estimates that there are 33,000 Indian dollar millionaires in the UAE.  This fact alone is the ICICI Bank's raison d'etre  at DIFC.

ICICI immediately enhances DIFC's value proposition.  After all, most of the cookie cutter  global private banks active  in the UAE primarily service HNW Indian clients.  But ICICI Bank offers its clients Indiacentric proprietary venture capital, real estate,  secondary offerings, private placements and fund products unthinkable  for, say, UBS  or Credit Suisse. 

After all, Swiss banks which manage  $ 1 trillion in private client assets worldwide simply have no alternative but to hire masses of NRI deposit salesmen,  brand them as private bankers with ritzy new visiting cards and snappy Lobo suits, then let them loose on some of the most sophisticated Amil and Bhaiband global investors in the  Middle East. 

The feast-famine syndrome in UAE private banking, with salesmen/smile-dial-dive for dollars guys switching from bank to bank faster than you can whistle "Su che, saro che", is a disgrace  to any idea of relationship banking or client confidentiality in a business whose timescale is measured in decades, if not generations.

ICICI's unique corporate culture will, hopefully, help its clientele in the Gulf as much as its product menu.  The bank needs to scale up its GCC wealth management advisory business and the Rep office on Bank Street was an initial banking beachhead, not the optimal wealth management delivery system for the affluent Gulf diaspora market.

The ICICI Bank story is both inspirational for me because I once accepted conventional Street wisdom that growth investing and banking stocks was an oxymoron. 

Banks were just a leveraged bunch of dodgy, cyclical, mature, paper businesses that deserved a modest, below market multiple. The only way to score a ten bagger in Wall Street banking (impossible anyway) was to wait a lifetime for a spectacular failure, then act as white knight for the fallen angel, as Prince Waleed did for Citigroup in 1991. 

However, when I studied ICICI, I saw a high tech New Age consumer bank in a nation where Generation X was all set to shake, rattle and roll. Economies of scale, branding, the youngest hippiest and biggest middle class in the world, the consumerist dreams awakened by Bollywood, the new Silicon Valley hubs emerging in Bangalore and Cyberabad,transaction cost one tenth of HSBC or Citi.

Fifty years after Nehru's tryst with destiny, (and sadly Fabian socialist central planning) midnight's children were all set to dance to the tune of a different liquidity drummer, no longer Marx and Mahatma but Manmohan and Maximum  Moolah, no less than 300 million human beings were gate crashing into the Pepsi Generation.

This epic event in Indian history needed a universal bank to provide its myriad financial needs. 

Mr. Kamath and ICICI seized the moment. He built ICICI into the first universal bank in India, with total assets of $43 billion and 15 million customers. 

ICICI is now the most valuable Indian bank in the world, with a  market cap bigger than SBI, the legacy colossus of the License Raj. Its international footprint extends to subsidiaries in the City of London, Russia and Canada, an OBU in Bahrain, branches in Singapore and Hong Kong, now the new DIFC office.

It was the first Asian bank (outside Japan) to float ADR's on the Big Board in New York. It has overtaken HDFC in home mortgages and has more credit cards outstandings than Citibank in India.  ICICI Ventures, well known to the Diaspora in the UAE due to Renuka Ramnath's fabulous deal machine, dominates Indian private equity and venture capital. 

In a mere decade as CEO, KV Kamath has created the template of a high growth universal bank unmatched anywhere between the Bosphorus and Hong Kong.

Is the ICICI growth story over?  No.  Au contraire, it has barely begun.  International banking is 12 per cent of the bank's assets and profits.  Mr. Kamath informed me his aim was to scale the international book to 25 per cent ASAP. 

He eschewed grand globalist dreams (the hubris that bought down BCCI, Chase, Arab Banking Corp , Credit Lyonnais in my professional lifetime) in favour of an incremental strategy that has indentified 18 high growth countries across the world where significant NRIs exist and Indian corporates operate. Does ICICI deserve its Silicon Valley tech stock multiple? (higher than Cisco, incidentially!) Absolutely. The bank's bottom line has risen tenfold in the last thee years alone and an unbelievable 120 times since 1996.

The bank's growth metrics confused me to no end when Mr. Kamath first listed his shares on New York as I did not understand the sheer money machine calculus of his universal business model.  After all, as Don Rumsfeld proves, the scariest thing in love, war and investing is not to know what you do not know.  But I learn quick .Sophocles warned us against the hubris of imperial CEO's in global banking. 

But ICICI Bank has delivered with a vengeance — a bank share that rises from 5 to 29 in four years? Hello?

Merrill Lynch issued a sell signal on the Sensex in November, said India was the most overvalued emerging market in the world. I suggest the best and brightest at Merrill Lynch take the elevator down two floors in their same same office tower on Bank Street to visit ICICI to get some insights on growth machines in Asian finance. 

India the most expensive stock market in EM?  What rot! Merrill pundits need to check out the valuation metrics of Riyadh, Doha and Dubai first or lose their credibility to Nomura and the KT's own global capital markets strategist who happens to be, well, moi.

The Indian diaspora is one of the wealthiest groups of humans alive, with gross savings in excess of $60 billion per annum.  The Swiss private banking princes in Zurich's Bahnofstrasse and Geneva's Rue de Rhone are jumping cartwheels to get a piece of the  richy rich Indian action. 

Yet ICICI can originate India product, not the Swiss, Brits or, God forbid, the Germans, the French and the Bangladeshis. So watch Mr. Kamath's DIFC initiative like a hawk. It is the template of a powerful new force in international private banking, Alvin Toffler's future shock. Can the ICICI New York ADR drop to 24 if Sensex swoons, as it did in October?  Sure. My five-year target for the ADR?  Somewhere around $150. Mark my words : ICICI will emerge as emerging Asia's first $50 billion market  cap bank before 2010.

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