(Fortune Magazine) -- Chanda Kochhar knew nothing about retail banking when she took over ICICI Bank's fledgling retail operations in 1998 at the age of 36. That made Citibank and others think ICICI was only doing a "small flirtation," she says, and they "underestimated the growth in the market." They also underestimated this smart, assertive woman, known for her colorful saris and carefully matched jewelry.

Today ICICI, India's second-largest and fastest-growing bank, is the market leader in retail banking, with more than 15 million customers, accounting for more than a third of India's total retail credit. And Kochhar - No. 37 on this year's list of the world's most powerful businesswomen - added corporate banking to her portfolio in April and is a leading candidate to become managing director and chief executive of the Mumbai bank when the job becomes vacant at the end of 2008.

That a woman should achieve such success in a male-dominated industry, in an economy where women often play subservient roles, might be a surprise at any other Indian bank. But ICICI (Charts) has made a name for itself by recognizing female talent. Three of the five members of the bank's executive board are women, as are 13 of its 40 top managers and one of Kochhar's two rivals for the chief executive job - Shikha Sharma, the 47-year-old managing director of ICICI Prudential.

Once dubbed the "petticoat brigade" by Mumbai's chauvinistic banking fraternity, these highly competitive women have helped build a business known for its aggressive, risk-taking attitude and its growth from a sleepy, bureaucratic development institution into India's most diversified and customer-oriented bank. "Almost all the leaders we have picked have succeeded, and most have been women," says K.V. Kamath, ICICI's CEO, who has been responsible for empowering them.

Kamath has consistently chosen women rather than men to realize his vision for ICICI, where women account for 30% of the staff. But he denies he has given them preference for top jobs. "It's clearly a result of merit and of not distinguishing between a man or a woman," he says. His criteria has been to pick "leaders with ability, intellect, and the entrepreneurial ability to lead teams" - and he values women's "ability to think in a much more detached manner than men."

One reason that there are so many women: They are more willing than men to tolerate ICICI's low salaries, which are in the bottom quartile for the industry. (The comparison improves when stock options are taken into account.) That's better than for government-owned banks but lower than for foreign and other private banks. In most cases, the husbands are the main money earners. Renuka Ramnath, 45, who runs ICICI Venture, a private-equity business with $2 billion under management, says her salary was "just pocket money" until her husband died 12 years ago. Income then became more important, but she stayed at ICICI, with her family's encouragement, even though she could earn far more elsewhere, because "nowhere else could I have done so much."

Kamath has created a rare business culture free of gender bias that provides a working environment where women feel comfortable. The women gossip with one another about domestic problems and clothes. And they can leave for family reasons and return when they are ready. "If you come back with equal vigor, it doesn't affect your career," says Kochhar. Women can also take time off during the day for school events and other family duties.

"Even the most feminist among them value the support and don't walk out on you," says K. Ramkumar, head of human resources. The men gain too. Madhabi Puri Buch, 40, a senior general manager who heads operations, says men don't hesitate to take a sports day. "We recognize that if you are a father," she says, "you are not just an employee but have other commitments."

The first woman to rise to a senior position at the bank was Lalita Gupte, who was hired in 1971 and is now joint managing director. She played a leading role in transforming ICICI in the 1990s, then started the bank's international business in 2001, servicing overseas Indians and expanding investments abroad. That business now accounts for 15% of ICICI's $56.3 billion in net assets. She will leave at the end of October, when she reaches the retirement age of 58.

Kalpana Morparia, a lawyer and the other joint managing director, retires next May. Her peers at other banks say she has been the backbone of ICICI for the past ten years, looking after the raising of funds and the regulatory environment. She says she stayed at ICICI, when she could have earned far more elsewhere, "because the empowerment gives an entrepreneurial framework, where you have all the support systems."

Sharma, another early achiever and fast learner, admits she is "fiercely competitive." When she was 33 she headed ICICI's side of a securities joint venture with J.P. Morgan, initially knowing little about markets. That led to a two-year stint at Morgan, after which she ran ICICI's corporate planning department and started its retail banking operation. In 2000, knowing nothing about insurance, she set up the joint venture with Britain's Prudential, which is restricted by government policy to a 26% equity stake and has only a minimal management presence. That leaves Sharma in charge of India's largest private-sector insurance company, with 12.5% of the market. She says women are good at succeeding without prior experience because "they have smaller egos [than men], and it's easier for me to say, 'Hey, I know nothing about this.' "

Kochhar, the daughter of a civil-engineering school administrator in Jaipur, was 22 when she began working at the bank, fresh out of business school, where she studied accounting. Six years later she started ICICI's infrastructure-project financing division, and at 32 she led the team that launched a commercial-banking business. By the time she turned 36 she was running the retail banking operation and raising a family. Sitting in her spacious modern office in Mumbai's new Bandra-Kurla financial district, with electronic displays on a wall clocking ICICI's growing business, Kochhar says she "consciously tried to change the rules of the game." She kept branches open 12 hours a day, compared with other banks' four or seven, and focused on electronic banking ahead of the competition. Two thousand ATM machines were installed in two years. "We took the decisions to do this when retail banking was very small," she says, "and no one thought growth would be enough to justify 2,000."

The retail bank is now the largest provider of housing mortgages and auto loans in India, besting Citibank (Charts) on car loans and HDFC, another Indian bank, on home loans. It is also the country's biggest credit card operator and mutual fund distributor. In corporate banking Kochhar plans to use ICICI's extensive business relationships and project-appraisal skills to bid for a chunk of $200 billion in investments that ICICI estimates will be made by Indian companies over the next four or five years, including activity overseas.

ICICI, she says, gains a lot from its women executives: "It gets the benefits of a different perspective of gender diversity because of the different mix of ways women look at things, not just at numbers but more passionately on the impact on customers and employees."

Kamath is clearly happy with the results--even though, he says, women are more likely "to take a stand on matters, including corporate decisions, and are much more willing to articulate that than men." Buch says it's not a gender issue, that "we like people to have strong views--not obstinate--but who have the ability to lead and persuade." Either way, Kamath calls it a "win-win" situation, adding, "Only if male bosses have a closed mind does gender rear its head.... Then you could get into confrontation."