Romesh Sobti, MD & CEO, IndusInd Bank talks to Deepak Ranjan Patra on the performance and growth plans of IndusInd and shares his views on what the larger gameplan for the Indian banking sector should be
B&E: While a few of the Indian bank’s struggled to maintain their higher profits between 2009 and 2011, bottomline of IndusInd Bank surged by nearly 300%. What have been the biggest contributors to this performance?
Romesh Sobti (RS):
It was more of a restructuring story. So I would say, there were multiple factors involved in this. Recapitalisation of the bank was certainly one of them and so was the restructuring of the balance sheet, which resulted in increased profits in the bank’s profit and loss account. For example, a change in our structure helped us in reducing our cost of credit, helping our bottomline by some margin. Recapitalisation certainly played a great role in this. The third factor, and perhaps the most critical one, was of course, retalenting of the bank. The bank took steps to ensure that it had the best in class people to run the business. The fourth was perhaps the re-organisation of the bank. We organised it to give special importance to different segments like principal segment & public segment including different product categories. The fifth major factor I would say was the productivity element. We reworked on our infrastructure including technology, adopting better measures to reduce mismanagement & improving the quality of the premises. At the same time, we attempted to change the way we used to look at our business – the coordination between our front offices and back office. This helped us a lot in improving our productivity. I think these are the critical factors that we implemented and executed during our restructuring period and it delivered the goods for us.
B&E: When you are talking about increase in your productivity, there is no doubt that IndusInd has come a long way over the past few years. But on a comparative basis, while your current profit-per-employee figure is at Rs.0.8 million, industry big-wigs Axis Bank, ICICI Bank and Yes Bank are at Rs.1.4 million, Rs.1 million and Rs.2 million respectively. How are you planning to bridge the gap?
RS: I don’t think that the profit-per-employee is a true measure of productivity. For me, revenue per-employee and cost per-employee are much more critical productivity measures. Profit is a function of probability. For instance, even after you put a lot of effort, a bad debt may just take your profit away from you. So we look at measures like revenue per employee, because it’s the employee’s effort, which generates that revenue. And in this regard, we have our own set standards. You can call it like we are at point A and we have to go to point B. When we manage to reach there, we definitely see our improvement.
B&E: Recently, you have bought the credit card division of Deuschte Bank. How critical was the move for your growth aspirations? Do you have any more such plans ?
RS: The credit card business is a growing segment in India. And it was kind of missing in our bouquet of products. As a universal bank, we aspire to offer a wide range of products and services to both the corporate segment as well as the consumer segment. But a few of them were still missing, like credit cards and home loans till the recent past. So to include those two in our offerings, while we took over Deutsche Bank’s credit card business, we also tied up with PNB, which is one of the most efficient providers of home loans. The target is to widen our product portfolio. So as and when we come across such opportunities, which allow us to increase our portfolio and help us to serve our customers better, we would definitely look at those opportunities with a positive mind set.
B&E: One of your very recent initiatives is your first ever solar ATM in Maharashtra. Was it just an experiment off the book or IndusInd has some serious and consolidated thoughts about green banking initiatives?
RS: We have a very strong belief in the green concept and it is embedded in our slogan – Good ecology is good economy – that we use both internally as well as externally. What drives us to green banking is the fact that it adds to our sustainability platform. You tend to do sustainable business when you are efficient in that business. That’s why green projects not only involve power ATMs, but are also into thin computing. We even have e-learning as a part of our training program. Training on green banking is imparted at all of our branches. So our future sustainable business model is focused on the whole green banking initiative for we believe that it increases productivity in our bank. In fact, we have also published a report on the whole green banking initiative.
B&E: Though the Indian banking industry might have escaped the global meltdown, a noticeable fact is the increasing NPA levels. In the case of a few banks, it has gone up seriously, if not alarmingly. Do you this is a bigger problem that’s just setting in for the Indian banking industry?
RS: I think that there are good times or bad times and that is the truth and reality of doing business. However, I think that the overall quality of the loan books of Indian banks still looks decent and it is quite strong at some of the banks. But there are a few overriding concerns and I am sure that banks are quite alert about these facts. And we still do not see a delinquency wave hitting the banking sector in the near future.
B&E: There are some growing concerns around global economic conditions with Europeans economies falling prey to debt traps one after the other and US still not showing much resilience. If the situation moves from bad to worse, would Indian banks be in a situation to face a second global recession the way they did last time?
RS: Oh yes! Indians banks are still remarkably resilient. There are concerns on reduction in margin and growth. It might have been witnessed partially, but it is more because of the fact that they are stepping up for better risk management. They are bringing in more credit and risk compliances. So, it’s a right step in the right direction and I believe that they are strong and vibrant enough to be able to go through any such environment if the need arises.
Romesh Sobti (RS):
It was more of a restructuring story. So I would say, there were multiple factors involved in this. Recapitalisation of the bank was certainly one of them and so was the restructuring of the balance sheet, which resulted in increased profits in the bank’s profit and loss account. For example, a change in our structure helped us in reducing our cost of credit, helping our bottomline by some margin. Recapitalisation certainly played a great role in this. The third factor, and perhaps the most critical one, was of course, retalenting of the bank. The bank took steps to ensure that it had the best in class people to run the business. The fourth was perhaps the re-organisation of the bank. We organised it to give special importance to different segments like principal segment & public segment including different product categories. The fifth major factor I would say was the productivity element. We reworked on our infrastructure including technology, adopting better measures to reduce mismanagement & improving the quality of the premises. At the same time, we attempted to change the way we used to look at our business – the coordination between our front offices and back office. This helped us a lot in improving our productivity. I think these are the critical factors that we implemented and executed during our restructuring period and it delivered the goods for us.
B&E: When you are talking about increase in your productivity, there is no doubt that IndusInd has come a long way over the past few years. But on a comparative basis, while your current profit-per-employee figure is at Rs.0.8 million, industry big-wigs Axis Bank, ICICI Bank and Yes Bank are at Rs.1.4 million, Rs.1 million and Rs.2 million respectively. How are you planning to bridge the gap?
RS: I don’t think that the profit-per-employee is a true measure of productivity. For me, revenue per-employee and cost per-employee are much more critical productivity measures. Profit is a function of probability. For instance, even after you put a lot of effort, a bad debt may just take your profit away from you. So we look at measures like revenue per employee, because it’s the employee’s effort, which generates that revenue. And in this regard, we have our own set standards. You can call it like we are at point A and we have to go to point B. When we manage to reach there, we definitely see our improvement.
B&E: Recently, you have bought the credit card division of Deuschte Bank. How critical was the move for your growth aspirations? Do you have any more such plans ?
RS: The credit card business is a growing segment in India. And it was kind of missing in our bouquet of products. As a universal bank, we aspire to offer a wide range of products and services to both the corporate segment as well as the consumer segment. But a few of them were still missing, like credit cards and home loans till the recent past. So to include those two in our offerings, while we took over Deutsche Bank’s credit card business, we also tied up with PNB, which is one of the most efficient providers of home loans. The target is to widen our product portfolio. So as and when we come across such opportunities, which allow us to increase our portfolio and help us to serve our customers better, we would definitely look at those opportunities with a positive mind set.
B&E: One of your very recent initiatives is your first ever solar ATM in Maharashtra. Was it just an experiment off the book or IndusInd has some serious and consolidated thoughts about green banking initiatives?
RS: We have a very strong belief in the green concept and it is embedded in our slogan – Good ecology is good economy – that we use both internally as well as externally. What drives us to green banking is the fact that it adds to our sustainability platform. You tend to do sustainable business when you are efficient in that business. That’s why green projects not only involve power ATMs, but are also into thin computing. We even have e-learning as a part of our training program. Training on green banking is imparted at all of our branches. So our future sustainable business model is focused on the whole green banking initiative for we believe that it increases productivity in our bank. In fact, we have also published a report on the whole green banking initiative.
B&E: Though the Indian banking industry might have escaped the global meltdown, a noticeable fact is the increasing NPA levels. In the case of a few banks, it has gone up seriously, if not alarmingly. Do you this is a bigger problem that’s just setting in for the Indian banking industry?
RS: I think that there are good times or bad times and that is the truth and reality of doing business. However, I think that the overall quality of the loan books of Indian banks still looks decent and it is quite strong at some of the banks. But there are a few overriding concerns and I am sure that banks are quite alert about these facts. And we still do not see a delinquency wave hitting the banking sector in the near future.
B&E: There are some growing concerns around global economic conditions with Europeans economies falling prey to debt traps one after the other and US still not showing much resilience. If the situation moves from bad to worse, would Indian banks be in a situation to face a second global recession the way they did last time?
RS: Oh yes! Indians banks are still remarkably resilient. There are concerns on reduction in margin and growth. It might have been witnessed partially, but it is more because of the fact that they are stepping up for better risk management. They are bringing in more credit and risk compliances. So, it’s a right step in the right direction and I believe that they are strong and vibrant enough to be able to go through any such environment if the need arises.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
