- Jagdishan has to navigate HDFC Bank in a new landscape which is changing very fast with consolidation of public sector banks
- Jagdishan's first big task will be to retain the senior management members
- The bank has to increase its share of revenue from rural, semi-urban branches
- Corporate banking opportunities are few and far between because of a slowdown
The uncertainty over the successor of HDFC Bank CEO Aditya Puri is over with the Reserve Bank of India (RBI) putting its stamp of approval. An insider Sashidhar Jagdishan who has spent 26 years in the bank will take over as MD and CEO of the bank for a three-year period from October this year. The largest private sector bank with lowest NPAs and best profitability track record has generated enormous amount of wealth for shareholders as well as employees. Puri, who was the first employee and the first CEO of the bank, is credited with laying the foundation of the bank. But Jagdishan is taking over at a time when the economy is in a slowdown mode and there are new challenges. Here are the five big challenges awaiting a Jagdishan.
A New Banking Landscape
Aditya Puri had built the foundation of the 'world class Indian bank' in a different era when banking sector was dominated by dozens of mid-sized public sector banks. A foreign banker Puri, with a strategy of sustainable growth and profitability, created the country's largest private sector bank by scaling up the retail banking space. There was a huge gap and potential in consumer banking.
Jagdishan now faces an altogether new emerging banking topography. The banking landscape is changing very fast with consolidation of public sector banks. There are now five large PSBs which have been created by merger a dozen banks. These new large entities could emerge as challengers to the private bank. Similarly, two competing private sector banks ICICI Bank and Axis Bank, which faced rough weather lately, have now stabilised with new leadership laying out a fresh road map for growth. The results are already visible. Another private bank, Kotak Mahindra Bank, has taken a big lead in terms of returns to shareholders. In addition, the old private sector banks with strong regional presence are also getting their act together. New challengers - Small Finance Banks and Fintech- are also in fray. Jagdishan has to navigate HDFC Bank in a new landscape, which is going to be highly competitive in terms of business and returns.
Keeping The Flock Together
Any leader needs a great team to deliver results. Succession is one big event which often leads to senior level exits. ICICI Bank, Axis Bank, Infosys are recent examples where some of the senior management team members left post the succession. Being an insider, Jagdishan's first big task will be to retain the senior management team members. Kaizad Bharucha and Bhavesh Zaveri were amongst the top two candidates along with Jagdishan for the CEO post. Bharucha was senior to Jagdishan as the executive director with maximum board experience. Bhavesh Zaveri was also screened by the bank's six-member succession committee as potential candidate to replace Puri. Jagdishan was part of the 20 plus senior management team which includes professionals like Parag Rao, Jimmy Tata, Srinivasan Vaidyanathan. While the bank has a very good bench strength at all levels, any exit does create some instability when the leadership transition is in the process.
Making The Right Moves In Digital Banking
Digital banking is challenging the time-tested banking model of branches, people, customer loyalty, etc. The bank has taken some early moves under Puri's leadership, but changes are going to be more frequent as new technologies revamp banking experience. For example, work-from-home post-pandemic is forcing banks to look at new ways of optimising office space and improving productivity. The bank did have some setbacks in terms of people in the digital leadership team. Nitin Chugh, under whose leadership the bank took big strides, had left to join Ujjivan Small Finance Bank. In the run up to the succession, Munish Mittal, Group Head (IT & CIO) also exited to pursue higher education. Apart from building and hiring talent for digital banking, the new area would also require equal attention from Jagdishan in cyber security and data privacy, which would come to the forefront in a full fledged digital banking space.
Revenue From Rural, Semi-urban Market
The bank has expanded big time in rural and semi urban areas with 52 per cent of its banking outlets in these geographies. These markets have a huge potential for both loans and deposits. The bank has to increase its share of revenue from these branches as metro and urban areas are already saturated. Jagdishan's big challenge would come from Small Finance Banks and new banking models like Bandhan Bank and IDFC First Bank which are focussing on lower ticket size micro and SME loans. These banks with lower current and savings account (CASA) are also plying higher deposit rate game to garner deposits. The new revamped old private sector banks are also well entrenched in these geographies, which will throw up new challenges.
Scaling Up Corporate Banking
HDFC Bank now has a balance sheet of over Rs 15 lakh crore, which puts it amongst the top banks in India. The bank, largely a retail bank with over 50 per cent of its advances in retail assets, has a huge corporate banking market to explore, especially for lending. The emerging corporates currently constitute 16 per cent, while large corporates have a share of 14 per cent. While the corporate banking opportunities are few and far between because of slowdown, the bank, however, at some stage will have to scale up the wholesale banking space to be part of the India growth story. This will also happen because of the margins in the retail banking which are already shrinking due to intense competition.