The more important fact is that ICICI is responding to the market's need for choice between products. By tuning the product profile to an annually resettable, floating rate loan system of credit delivery--almost like writing call and put options in the loan contract--ICICI is meeting the corporate need for products which fit their projections of the future course of interest rates. A 13 per cent, fixed rate product with an average maturity of 18-24 months is different from a floating rate, 12-month product at 12.5 per cent. Corporates can lock themselves into long-term loans at current prices if they think interest rates will move up after some time. Correspondingly, they can stick to the short loans and keep rolling them year after year if they think interest rates will stay flat or will fall lower. The days of plain vanilla type financing are clearly over and it is not a sellers market any more. Financiers need to tune their products according to client needs and ICICI has made a small attempt in that
direction.
The larger significance of ICICI's strategy lies in that it has shown that though demand for money at cheaper rates exists, banks are structurally not equipped to service it. In fact, banks are as much beneficiaries of the surplus liquidity scenario as ICICI is. But the difference is that ICICI's strategy is framed around balance sheet financing. In effect, this amounts to "no questions asked" financing, solely based on the leveraging available in the balance sheet. In contrast, banks had till recently fixed norms as to the levels of inventory and receivables they could finance. The fixed norms have been dismantled but banks have been slow in coming out with working alternatives. Corporates may have strong balance sheets, which ironically enables them to tap international finance at much cheaper rates, but as far as norm-based financing is concerned they draw a blank at bank counters. The point remains that banks are still working as if they operated in a sellers market, with a limited range of products
that provide no flexibility to corporates. ICICI has shown that it is possible to work within various constraints and yet provide what customers want.