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An era ends in development banking

ICICI is dead. Long live ICICI Bank.

It has been a long journey from the Evans Fraser building on Dadabhoy Naoroji Road, Fort, Bombay, where the Industrial Credit & Investment Corporation of India started operations on January 5, 1955, to the Bandra Kurla complex, a western suburb in Mumbai, where ICICI will breathe its last on Friday.

The board of the new entity will meet Friday to consider the financial performance of ICICI Bank, relegating ICICI to history.

From a development financial institution focused on project funding, ICICI will become a multi-product universal bank.

In a way, the death of ICICI signifies the end of development banking in India - a concept that is becoming obsolete in the changing matrix of the Indian financial sector.

The institution was set up at the initiative of the World Bank, which was looking for an agency to channel its funds to Indian industry.

The Industrial Finance Corporation of India, which came into existence well before 1955, did not catch the World Bank's fancy.

Eugene Black, the then World Bank president, sent a team headed by investment banker George Woods to explore the possibility of setting up a new financial institution. The then finance minister, C D Deshmukh, extended a helping hand by forming a steering committee comprising Ramaswami Mudaliar, A D Shroff and G D Birla.

The Industrial Credit & Investment Corporation of India was born with a paid-up capital of Rs 50 million, 30 per cent of which was picked up by investors in the UK and the US, with the rest of the equity being bought in India.

The Commonwealth Development Finance Company was the largest foreign stakeholder. S Beale, chief cashier of the Bank of England, was its first general manger.

In its first year of operation, between March and December 1955, ICICI extended five loans and sanctioned another 11. It was sitting on Rs 120 million of liquidity. There were not many takers for loans.

The holding pattern of the 100 per cent privately owned company changed dramatically in the 1970s when the government's stake went up to 82 per cent after it nationalised the Life Insurance Corporation of India, the General Insurance Corporation of India and banks.

The trend was reversed after a string of public issues at home and abroad brought down the government's stake to 22 per cent and pushed up the foreign stake to 50 per cent.

The World Bank extended a $10 million line of credit at an interest rate of 4.6 per cent and the government of India provided a long-term 30-year, interest-free loan of Rs 75 million to kick off operations.

Forty-seven years down the line, ICICI had an asset book of over Rs 700 billion and a net worth of around Rs 80 billion.

At the first annual general meeting of the institution, held on April 2, 1956, at the boardroom of the Associated Cement Companies in 121, Queen's Road, Bombay, 36 members were present, 20 in person and 16 by proxy.

That year, it declared a dividend of 3.5 per cent. Now, before its demise, it boasts of a shareholder base of over 5,00,000. The last annual general meeting was held at Sanmukhananda Hall, one of the largest auditoriums in Asia.

Its net profit in 1955 was Rs 2.5 million. In 2001, the figure stood at Rs 5.37 billion. Its highest profit was recorded at Rs 12.06 billion in 2000.

Who takes the credit for ICICI's success?

Four names come to mind: H T Parekh, S S Nadkarni, Narayan Vaghul and Kundapur Vaman Kamath.

It's another matter that ICICI has also produced another luminary-Reserve Bank of India governor Bimal Jalan was chief economist at ICICI in the mid-1970s.

But Parekh laid the foundations for ICICI while Nadkarni taught it to look beyond the highly regulated environment and tread into areas such as investment banking and leasing.

Vaghul expanded ICICI's horizon by setting up Crisil, the country's first rating agency, and ICICI Venture, the venture capital company.

He also brought in foreign joint venture partner JP Morgan for the investment banking arm and floated SCICI for infrastructure financing.

Vaghul also broke the hierarchical barriers at ICICI. He was an informal chairman, given at times to wearing slippers or sandals in office. Anybody could walk into his room, anytime. Till then, ICICI executives met the bosses at the lunch-room once a month on the sixth floor of the ICICI headquarters at 163, Backbay Reclamation.

"At the lunch, which was a monthly affair, the bosses used to discuss business. We used to hear them out, and there was no interaction, barring an exchange of pleasantries while entering and leaving," says a former ICICI executive.

Kamath-with his lateral thinking and obsession with quality-built the new ICICI. He also killed ICICI as it had outlived its time.

With the barriers between banks and institutions being pulled down, it's better to do banking by becoming a bank instead of through an institution which does not have the cost advantages. This seems to have been his theory.

Even before he formally took over from Vaghul in 1996, Kamath drafted the blueprint for the new ICICI in Jakarta in late 1995 where he was with the local Bakrie group, consolidating the conglomerate.

It was a remote-controlled exercise through e-mail. He planned the new structure of the organisation with people he knew in ICICI between 1971 and 1988, when he left ICICI to join the Asian Development Bank.

The day he took over, Kamath shifted ICICI's focus to profit alone and made all the employees accountable for all they did.

He emphasised capital, because size was important to back the risk-taking ability of a financial intermediary.

A slew of public issues at home and abroad followed. He also focused on consolidation. SCICI, Anagram Finance and ITC Classic were gobbled up by ICICI, and Bank of Madura by ICICI Bank.

Finally, in the grow-big game, child ICICI Bank killed its parent. In a changing financial world, it was the bank that could survive and not the institution.

In 1996, when Kamath took over, the size of the ICICI book was Rs 230 billion, with project financing accounting for 80 per cent of the book. Today, the new entity boasts of a book of over Rs 1,000 billion and the share of project financing has come down to 30 per cent.

Kamath has also given ICICI its retail face, with Amitabh Bachchan in every nook and cranny of the country as its brand ambassador.

ICICI and ICICI Bank share the same birthday -- January 5. Vaghul wanted to float ICICI Bank in 1994 as a division of ICICI but the Reserve Bank of India did not allow it.

Eight years later, Kamath used the vehicle to reposition ICICI.

How does he feel today?

He says philosophically that the soul lives on even though the body is consigned to flames: "The soul of ICICI lives on in the merged ICICI Bank, characterised by a will to succeed, a unity of purpose and a close-knit familial culture."

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