What happens when the old guard of Indian banking leaves
The thick, dusty ‘bank book’ — weighing over a stone — delayed the trip back home almost all working days. Bank bosses of the ’70s and 80s desired a perfect trial balance, even if it meant keeping their staff up all night. Junior bank officers were made to account for every missing anna or paisa before the ledgers were locked back in the safe.
“Even a 2-paisa shortfall had to be reconciled at the end of the day… The ‘day book’ kept us in office till 8–9 pm those days,” reminisces Arundhati Bhattacharya, former chairman of State Bank of India.
Cross-checking counterfoils, sharp pencil ticks against individual entries and poring over humongous numbers of daily transactions for that missing paisa late into the evening must have irked Arundhati then, but the probationary officers’ training she received at SBINSE 1.45 % — hyped to be the best training ground for any aspiring banker -– prepared her to take charge of India’s largest bank four decades later.
“We were lucky to get good training back then… We were all generalists and it suited the business we did. We knew a bit about every banking function,” she says.
Public sector banks rotate their employees even now, across functions and geographies. Their logic: role rotation helps junior bankers learn most banking functions on-the-jobs, and is also a measure to mitigate risk. New generation private banks, however, do not believe in moving around their employees a lot; they like to spawn area specialists, and not generalists like they did in old-world banking.
The pertinent question then is would there be enough well-rounded bankers when the old guard bows out in a few years’ time? The MD/CEO positions of several private banks will come up for renewal over the next few years. Poster-boy bankers such as Aditya Puri of HDFCNSE 0.99 % Bank and Romesh Sobti of IndusInd Bank would retire soon; ICICI’s Chanda Kochchar and Axis Bank’s Shikha Sharma bowed out in the last quarter of 2018.
“Senior bankers of present times have learnt from old-timers who believed in prudent ways of banking… This breed is dwindling fast,” believes K. Cherian Varghese, who started his banking career in 1970, and went on to head Union Bank of India, Corporation Bank and South Indian Bank.
“New-age bankers are not trained properly these days… There’s no grooming whatsoever. That age-old practice of elders hand-holding their juniors is not there anymore,” Varghese adds.
CHANGES AT THE HELM
Aditya Puri took charge of HDFC Bank in September 1994, and has been at the helm for over 24 years. Sobti of IndusInd Bank has held the MD-CEO chair for over 10 years. Shikha Sharma and Chanda Kochchar have led Axis Bank and ICICINSE 1.17 % Bank for over nine years while Uday Kotak spearheaded Kotak Mahindra Bank since its inception in early-2000. Puri and Sobti would vacate their corner room offices in 2020, as they would touch the RBI-mandated CEO retirement age of 70. Kotak has some more years at the top provided the bank’s shareholders and RBI want him there.
“Some of these banks may see changes at the top after enjoying 20 – 25 years of management continuity… Am not saying the changes would be drastic, and therefore risky; but there could be a lot of changes in strategies when new leaders take charge,” says Ashish Gupta of Credit Suisse, a global investment firm.
Gupta and his team had put out a report hinting changes at the helm of a few private banks, but did not include any ‘advisory bit’.
“Banking (in India) is practised within a tight regulatory framework. There are inbuilt processes… But still individuals do matter. The incoming CEO may have his own plans for the bank he inherits,” Gupta explains.
The views of most bankers and banking analysts, whom ET consulted, coincide with Gupta’s reading of the situation. They expect almost all banks with new leaders (at the helm) to change little by little, over a period of time. And these changes would be mostly “strategy-related,” and not really around daily operations.
Now there’s no denying the fact, several bank MDs have taken critical decisions at various points in time that would alter the course of banks they represent. Take, for instance, Aditya Puri of HDFC Bank; when other private banks decided to expand overseas for more business post-2006, Puri decided to go slow, and used the interlude to grow HDFC’s retail book.
When private banks decided to lend more to corporates, Puri held himself back by lending only to quality corporate borrowers – even if it meant lesser gain-spread or slower growth of the asset book. Likewise, when M. Venugopalan emerged to lead Bank of India in 2003, he urged his officers to grow the retail book. The idea was to create a healthy mix of corporate and retail business for the age-old bank. The case in point being, even though banking is highly regulated, and within a tight framework, new leaders have the leeway to alter the distant course of the bank.
“Every new leader would like to leave his own footprint…,” says Shyam Srinivasan, MD-CEO of Federal Bank.
“Now if the new leader is hired internally, there could be some continuity in strategy. If the hiring is external, some level of course-correction is imminent,” he adds.
Industry-watchers foresee strategy-related changes when new leaders take charge. Well-run banks such as HDFC may not see much deviation from its tried-and-tested operational policies in the short-run; but over a period of time, the leader replacing Puri may want to stamp his own mark.
“No CEO would undo the good work of their predecessors… But they may make some well-meaning changes,” says Arundhati. “See, when a new CEO is appointed, the regime of the past will not continue,” she adds.
GENERALISTS AND SPECIALISTS
According to veteran banker PH Ravikumar, chairman of Bharat Financial Inclusion (formerly SKS Microfinance) and one of the founding members of ICICI Bank, the trend of moulding “area specialists” was started by private banks. Till 1995, banking in India was more a generalist function -– with most officers knowing a bit about everything.
These days most mid-level bankers (of private banks) specialise in one sphere of banking. It could be anything — as diverse as treasury management to corporate banking, retail banking, compliance or credit. Very rarely private bankers get all-round working exposure.
“A bank officer who only knew one aspect (of banking) was not considered a banker at all,” says Ravikumar.
“But this has changed over time… In fact, skillsets required for banking has also changed,” he adds.
Most new-age bankers are specialists; they spend decades mastering a small-but-significant banking function. Would these ‘specialist bankers’ make good CEOs?
“The job of a CEO is to get the required work done… If the CEO, who is a function specialist, manages to appoint officers with complimenting skillsets under himself, he’ll be able to do his job well,” says Ravikumar.
Rajiv Anand, ED (retail banking) of Axis Bank can be a good example of this seamless career switches. Rajiv specialised in treasury operations, fund management and capital markets before taking charge as retail head of Axis.
“I was lucky to get opportunities across treasury, financial markets and retail operations in my 25 years as a banker,” he says.
“As you become a senior banker, you don’t need to know in detail all aspects of banking. You just need to a fair idea about how things work… But you need to know how to build an efficient team around you,” Rajiv adds.
Four decades ago, banking was not as complicated as it is now. The lone job of a banker was to mobilise deposits from savers and lend to the needy. The first leg of the transaction was easy as customers were “more loyal to the banks that accepted their money.” Bankers did not chase depositors back then. They only had to identify good borrowers and lend.
Young officers joining the bank were taught to pick out “fibbers” and “possible defaulters” prior to getting a loan approved. Even foreign banks lend money after a thorough “in-person verification” by senior bank officials. When Shyam Srinivasan joined Citibank in 1990, he was a given a “negative list” of low quality borrowers.
“Those days we did not have credit score companies… Our only tool was the negative list, which was not always accurate. The only sensible way to lend was to understand the borrower well,” Shyam says.
The thumb-rule of lending those days was very simple -– if not outright rudimentary. Never lend to any borrower who agrees to all the conditions put forth by the banker. A good borrower will always bargain, according to several veteran bankers.
Other checkpoints in the old bankers’ list are: never lend to flashy borrowers. Check the family background of borrowers; don’t lend if the family is profligate, or if the borrower is related to wastrels or close relatives with vices such as gambling or excessive drinking. Never let a borrower only service interest cost, while rolling over the principal amount; the banker has to collect the entire principal amount. A fresh loan can only be given 15 days after the previous loan is “completely closed”.
“Those practices were very good… we could keep away from a lot of trouble-makers and fibbers back then,” admits Arundhati.
Over the years, the ways of assessing a borrower has changed. These are times when data and artificial intelligence rank above personal due-diligence reports. Credit scoring agencies spit out voluminous amounts of data, which can be used to evaluate a borrower.
“But that’s all past data… What if a borrower with good credit scores (assessed from past data) default?” quips Varghese. “Technology is good… and it has made banking easy and accessible to all. But somewhere we’ve to merge old-world banking with new-world technology,” he adds.
At some levels, new-age bankers will have to detach themselves from over-dependence on data and credit rating. They may have to reverse to the good old world of “judging” the borrower.
Cherian Varghese brings to fore a desirable trait that may turn a prerequisite for bankers in the future – the skill to splice old-world tenets of banking with technology.
A few industry experts have already started to see the emergence of banks helmed by “consumer-oriented, tech-savvy non-banker CEOs.” The new-age banker will have to keep pace with changing technology – to match strides with tech-savvy NBFCs, e-wallets and fintech companies.
“Our future bankers can also be from non-banking backgrounds… Some leading private banks may do just that,” says Rajeev Ahuja, ED of RBL Bank.
“As a CEO, you may need diverse skills to ensure the success of your bank. Success in banking does not follow a tried-and-tested recipe anymore. With technology and fringe-players (NBFCs, wallet companies, P2P lenders et al) coming in, bankers will have to bat everyday as if it is a new one,” he adds.
Dipak Gupta, joint MD of Kotak Mahindra Bank, takes the thread forward by explaining about “net-only banks” in developed countries, which are mostly led by technocrat bankers. “But that may be some time away for India… Our retail business is still very small,” he concedes.
THE HIRING DILEMMA
It won’t be difficult for top private banks such as HDFC or Kotak Mahindra Bank to find suitable replacements for their outgoing leaders. These banks have decent bench strength for the board to pick and choose from. Almost all these banks have six – eight senior-level managers manning core functions and reporting directly to boss at the top for several years.
“Bench strength is key requirement in any commercial organisation… every leader has to identify one or more successors as ready now or ready later,” says Kalpana Morparia, CEO – South & Southeast Asia, JP Morgan.
“There’s also great merit in a group of people who have a history of working together… This is good as long as these people refresh their skills and have exposure to multiple jobs within the firm,” she adds.
Having a sizeable bench strength could also mean adequate senior management representation on the bank board. Banks such as ICICI, Axis, Kotak and HDFC have 2 – 4 senior managers on the board.
“It’s good to have a few members of senior management on bank boards; this will improve the understanding of the board and also enable them to take well-studied critical decisions,” says Dipak Gupta of KMB.
The decision to hire a new CEO also wrests with bank board. For institutional stability, hiring internally is always the recommended option; but it works only if the bank’s operational markers are positive and is trending on a sustained growth path. External or lateral hiring is desirable if board decides to shake-up the existing set-up.
“Lateral hiring may have a demoralising effect on existing senior managers… There’s more to people than banking now,” says Parthasarathi Mukherjee, MD-CEO of Lakshmi Vilas Bank. “But if the board decides to hire externally, it may be to bridge capability gaps… One cannot insist on internal hiring then as banking has become very competitive now,” Mukherjee says.
ROAD BLOCKS AHEAD
A raft of challenges await bankers. First and foremost, they will have to keep pace with changing technology. New bankers will have to preserve their business from fringe players such as NBFCs, wallets, fintech companies and online platforms that sell bank-like services.
Down the road, banks would be under pressure to increase their fee income. Higher fee income is an attribute that supports high stock market valuations. Banks would turn more aggressive around ‘cross-selling’ of financial products. This, in turn, may give rise to instances of mis-selling, misconduct and misappropriation.
Banks, above all, are not seen as faultless entities anymore. The outcomes of their bad business in the recent years come to haunt them, time and again — when chargesheets are filed or when red-corner notices are invoked. These are tough times for banks and bankers.