Romesh Sobti, Managing Director & CEO of the Hindujas-owned IndusInd Bank, the man who turned the bank around in just three years to make it the best performing mid-sized bank in the country, spoke to Anand Adhikari. Edited excerpts:
, Managing Director & CEO of the Hindujas-owned Romesh SobtiIndusInd Bank, the man who turned the bank around in just three years to make it the best performing mid-sized bank in the country, spoke to Anand Adhikari. Edited excerpts:
Q: IndusInd Bank has emerged the best mid-sized bank in the BT-KPMG best bank study. How did you do it?
A: The last three years are a restructuring story. It all started with a new management coming in three years ago. The new management addressed a whole host of issues inherited from the past. This helped in improving all the financial parameters. The restructuring was to recapitalise, re-talent and reorganise the bank structure and also restructure the balance sheet. We focused on the branches. The branch manager has to take ownership like a CEO right from basic things like branch hygiene to making the branch profitable. We have drilled this culture into our branch managers. The bank's turnaround is the result of its current performance culture.
Q: Did you also change the business model during the restructuring?
A: A universal banking model has emerged. We want to provide all products and services. We have to be liability driven. There is a strategic belief that distribution is also very important. You don't have to manufacture everything like we don't manufacture insurance, but we sell insurance. So we will do all the products.
Q What is the logic of selling HDFC's home loans and not having your own home loan scheme?
A: It doesn't make sense (having our own loan scheme). Today, the pricing on home loans - the interest charged by a bank from the borrower - is the lowest in the consumer assets food chain of car loans, personal loans to credit cards. Home loans are fully secured and have the lowest yield among consumer loans. The capital linkages - you have to provide capital of Rs 9 on every Rs 100 in a home loan - are such that profit for a bank like IndusInd with a cost to income ratio in the 40s is less than for a player with a cost to income ratio in the 20s or 10.When the big player does it more efficiently, why should I replicate it? I would rather market his product and earn a fee.
Q: So it is 'out of the box' thinking for you ….
A: We have an inbuilt culture of encouraging innovation. Take, for example, our unique ATM offering of letting customers withdraw notes in the denominations they want them. The suggestion came from one of the marketing team members. During one of our consumer banking meetings, there was a discussion on what more a customer would want out of an ATM. A marketing representative said he would want a choice in the denomination of notes the ATM provides. "No ATM gives me that choice," he said. Today, if you want Rs 10,000, any ATM will give you Rs 9,500 of Rs 500 notes and five notes of Rs 100 each or all Rs 1000 notes or all Rs 500 notes. We carried out a technology fix seven months ago and now, the bank's 600 odd ATMs give the customers a choice of half a dozen combinations. The result: 76 per cent of the people who use our ATMs today are not IndusInd customers. Similarly, we give the images of the cheques issued by a customer on the back of bank statement he receives every month. There are a couple of more innovations that will hit the market very soon.
Q: You have articulated a new strategy called '3-2-1' in place of the earlier '3-3-3'. Can you elaborate on what these mean?
A: We focus a lot on the communications part. When you create change, the change has to be absorbed by the entire organization. Three years ago, we had coined the '3-3-3' slogan. It meant in three years time, the bank would triple its revenues in three key performance parameters, namely, return on assets, return on equity and net interest margin. You have to create easy to understand slogans for the whole organization to understand. That slogan was in everybody's computer and internal communication. The new slogan is '3-2-1' which means the bank will be number 1 in return on assets , return on equity and net interest margin, double its profits, customers and branches; and achieve all this in three years.
Q: You are now saying scale with profitability. Is scale is a new addition?
A: Clearly, the focus is now on building scale. The key lever of achieving scale would be through the 300-odd branches. The branch strategy is also not a mindless expansion. We want to create a density in some select 20 to 25 cities. The game plan is to increase the low-cost CASA [current account, savings account] deposits from the existing 27 per cent to over 35 per cent within three years. A good base of CASA - unlike raising high interest bearing fixed deposits - helps in building a high margin lending business. The strategy on the loan growth is to grow between 25 and 30 per cent every year, but our plan is to increase the branches, customers and fee income manifold.