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Best Yet to Come

The 70-year-old Aditya Puri, who spent over two-and-a-half decades as CEO & MD, banked on risk mitigation, technology and retail/rural outreach to create India's second-largest bank from scratch
twitter-logoAnand Adhikari | Print Edition: January 10, 2021
Best Yet to Come
Aditya Puri, Ex-MD, HDFC Bank - Photograph by Rachit Goswami

He is one of Indias most admired and longest serving professional CEOs. During his 26-year stint at the top, Aditya Puri created India's second-largest bank from scratch. He may be an inspiration for many entrepreneurs and CEOs, but Puri himself looks up to three others. "Jamie Dimon, Satya Nadella and Mukesh Ambani," says Aditya Puri, who retired as CEO of HDFC Bank in October this year. He is being modest considering that he is in their league when it comes to shareholder returns, performance consistency and building a future-ready organisation. But he admires 64-year-old Dimon, the CEO of JP Morgan Chase, for building the most reputed US bank; 53-year-old Nadella for transforming the culture of technology giant Microsoft; and 63-year-old Mukesh Ambani for the phenomenal deals and bets on data-driven telecom and modern retail businesses.

But building a banking behemoth in a tightly regulated sector is no mean feat either. In two-and-a-half decades, HDFC Bank has emerged as the worlds 10th most valued bank, displacing Citibank and HSBC. Puri had incidentally honed his skills at Citibank in Malaysia and India. Today, his bank has a balance sheet of Rs 15.30 lakh crore, next to that of the countrys largest lender, State Bank of India. Its market cap, Rs 7.60 lakh crore, is higher than that of all public sector banks put together and next only to that of RIL and TCS.

The secret behind the bank's amazing run has been top-notch asset quality, focus on retail lending, where NPAs are usually low, staying away from risky project loans, digitisation and focus on rural and semi-urban areas. What about the future?

Looking Ahead

Puri has promised shareholders that the best is yet to come. His words must have allayed shareholder worries over his exit due to which the bank faced a period of uncertainty till Sashi Jagdishan emerged as his successor. "The share price has gone up after my leaving. So, why are people worried about my leaving?" says Puri.

Clearly, he has given the bank a strong foundation for future growth. HDFC Bank's revenues, profits and assets have been rising by 20-25 per cent CAGR over last three years. That was a period when India's GDP growth contracted from 7 per cent in FY18 to 4.2 per cent in FY20. "We are related for part of our growth to GDP growth. The rest is market share growth," says Puri. "We have a product range which suits demand. We have also maintained a balance between risk and reward. There is enough demand in this country to grow profitably," says Puri. The bank has been known for consistency in revenue growth and profitability.

Puri was the first employee of the bank, promoted by HDFC, under the leadership of Deepak Parekh. His strategy involved bringing service capabilities of foreign banks and distribution reach of state-owned banks. Aseem Dhru, who spent two decades under Puri, recently penned a note for him ."The man could make a donkey win a derby." Dhru now heads non-banking finance company SBFC Finance.

At the bank, Puri never worked late hours but made sure that the team knew the strategic vision, execution roadmap and expected result or the ladoo as he called it. He used to wind up his day by 5.30 pm, a fact corroborated by his former boss at Citibank, the late Nanoo Pamnani. "Puri was an outstanding professional, quick on his feet and extremely sharp. He always delivered on targets. In fact, he delivered more than what he promised. So I had no reason to ask him to sit late at Citi," Pamnani said in an earlier interview to BT. Sameer Bhatia, another professional who worked with him and later founded SME Corner, said Puri believed in effective delegation. "

Delivering Across Cycles

The fast growth hides how conservative the bank has been in taking risks. It did not chase growth blindly even during the booming 2000 decade. It was clear from day one that it would grow at a measured pace, focus on retail lending and not venture into risky project loans. Even today, exposure to large corporates is only one-fourth of the lending book. The retail portfolio is around 55 per cent of advances. That is why it showed resilience after the 2008 financial crisis and grew revenues, profits and assets at 15-20 per cent. A former banker, Moses Harding, who worked with SBI and IndusInd Bank, had met Puri in his house after the merger of Centurion Bank in 2004. Puri, when prodded, gave an analysis of differences between HDFC Bank and its close rival. Puri said the rival bank is a heavily made-up beauty that will lose value when it rains (tough times). The rival struggled to keep pace after the 2008 financial crisis.

The post-Covid disruption also failed to impact the banks run. In the worst affected first half (April-Sept) of FY21, it reported revenues of Rs 60,353 crore and profits of Rs 14,171 crore. These numbers compared well with pre-Covid second half (Oct-March) of FY20 when the bank had reported revenues and profits of Rs 59,254 crore and Rs 14,343 crore, respectively. The stamp of approval comes from none other than global ratings agency S&P, which recently said India's sovereign ratings prevent it from upgrading the bank's ratings.

Best Yet To Come

The strategy for the next three-five years involves reimagining the branch channel as a financial services marketplace, payment services, virtual relationship management and scaling up of subsidiaries. "If you go back to 7-8 per cent GDP growth with the distribution network that we have, you will be amazed with the results," says Puri. "In normal terms, along with Indias potential, when you reach GDP growth of even 6.5-7.5 per cent, you will see the true potential of the bank," says Puri. Semi-urban and rural expansion and digital opportunity are the new growth engines.

"Semi-urban and rural India are largely virgin markets for organised finance on both assets and liabilities side," says Puri. For decades, public sector banks with good distribution focussed only on liabilities or mobilising low-cost deposits. Some NBFCs explored the assets side but with niche products like tractor, two-wheeler and gold loans. In the last six-seven years, HDFC Bank has created a large distribution network, so much so that almost 55 per cent of its branches are now in non-urban centres. "If you are both on lending and borrowing sides in semi-urban and rural India, then I see, over the next five years, a middle class equivalent to the current middle class in this country," says Puri.

The expansion in rural India, where the bank has over half its branches, will help it tap new opportunities. But it is also facing challenges from new small finance banks and new-age NBFCs which are serving the unbanked and offering higher interest rates on deposits.

In the last five years, HDFC Bank has also transformed itself into a digital bank. In payments, it has built a strong base of cardholders and merchants. It is also lending digitally with 10-second personal loans. Under Digital 2.0, it is working on technologies like robotic process automation, machine learning, AI and blockchain. This is the phase for more partnerships. "We have clearly defined goals," says Puri. A month after Puri's exit, RBI had asked the bank to temporarily stop issuing new credit cards and launch new digital initiatives because of outages in online facilities. It is fixing the problems on a war footing.

Passing the Baton

Two years before the succession date, the bank appointed Sashi Jagdishan as the change agent. That was Puri's idea. "We had radically changed the bank in the last two years. That was based on plans made two-and-a-half years back," says Puri.

Eventually, the six-member succession committee under Shyamala Gopinath also put its stamp on Sashi. Was appointment of change agent the first signal from Puri to the committee for his likely successor? "The first step was to understand the talent available. To test whether the person would be able to deliver," says Puri. "Lets understand there is now a change in geopolitics, geo-economics and geo-health. Change will be very rapid. What I needed was a person who understood microeconomics, technology, risk-reward and profit dynamics and, most importantly, would work as a team," says Puri.

Nitin Chugh, MD & CEO at Ujjivan Small Finance Bank, says Puri is an inspirational leader par excellence. "He has inspired many generations of bankers and professionals with his humane approach to business and people. I've always found in him a man with a golden heart, someone who values the well-being of his people and customers over everything else," says Chugh.

The 70-year-old banker has no plans to sit at home. He is now an advisor to private equity Carlyle Group. Next on the agenda are education and healthcare. So, when are we going to hear about his next move? "If it happens, you will hear it, if it doesnt, I will play golf," he says.

@anandadhikari

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