Under Ajay Kanwal's leadership, Jana Small Finance Bank thrives and sets sights on universal banking licence

2014: When Kanwal took charge of Korea First Bank, one of the most expensive acquisitions of StanChart (for $3.3 billion in 2006), he faced significant challenges. While the acquisition was made to strengthen the bank’s presence in South Korea, then Global CEO Peter Sands was often asked by investors when the bank would turn around. Upon arriving at the bank’s headquarters, the guard escorting Kanwal suggested entering through the back entrance due to a protest by the employees’ union. But he decided to take the front gate. Known as a “solution and growth manager”, Kanwal quickly assessed the situation and devised a plan. Within six months as the Regional CEO for North East Asia, he suggested appointing a local CEO to improve communication and gain the trust of the employees. The strategy worked, and the bank soon turned around.

Kanwal, 58, could have secured another assignment with a foreign bank after he left StanChart in 2017, but he wanted to pursue something more entrepreneurial. “It was probably more me,” he says, sitting in the headquarters of Jana Small Finance Bank—where he is MD & CEO—at Bengaluru’s The Fairway Business Park. Shortly after leaving StanChart, he conducted due diligence on three NBFCs in India but decided not to go that way. Soon, Ajay Banga, who was President & CEO of Mastercard then, invited him to come on board as an advisor to handle the card network’s relationships across Asia. Global private equity firm TPG also inducted him as an advisor to oversee three investee companies: Sri Lanka’s Union Bank of Colombo, India’s Jana Financial Services, and Indonesia’s Bank BTPN.

Jana, originally known as Janalakshmi Financial Services, was a microfinance institution (MFI) that faced huge losses in 2016 due to demonetisation. The MFI, which was unable to win a universal banking licence in 2013, was founded by Ramesh Ramanathan, who had worked with Citibank in New York and London. Kanwal was tasked with finding solutions for Jana’s post-demonetisation woes and preparing it for a small finance bank (SFB) licence.

In his advisory role, Kanwal shared his assessment with Ramanathan, who asked him during their second meeting, “Why don’t you come in as CEO?” As he spent more time with Jana, Kanwal’s conviction about the company’s future grew stronger. When he submitted data on the top 2 million micro borrowers to the credit bureaux to check their other banking relationships, he found that only 1% had housing loans or loans against property (LAP). The rest had no other assets beyond their micro-loans, and there was single-digit penetration in two-wheeler loans. This was a huge runway to build the business. “If you are feeling passionate about it and want to do it, take up the banking challenge,” advised Banga. Kanwal joined Jana in August 2017. Four months earlier, Jana had secured an SFB licence. Kanwal’s brief was to set things right at Jana and start SFB operations as soon as possible.

The first major task was to mobilise capital. Jana was in the red as asset quality had deteriorated. Kanwal soon received equity investments from TPG and GIC. “There were two or three key factors that attracted investors,” he says. First, the SFB licence was a significant milestone. Second, the change in management signalled new hope and potential. Lastly, a crucial question was whether Jana could successfully start the bank. “We assured investors that the Reserve Bank of India would be supportive, and we had enough resources to commence banking operations,” says Kanwal. The SFB finally started operations in March 2018. 

However, before operations began, the first task was to cut costs. Kanwal visited the treasury office in Mumbai’s upmarket Worli and found that it had 20 Bloomberg terminals. “Why set up such a large-scale treasury when there was no money to trade?” he wondered. Now, Jana has only two such terminals. “In any turnaround, there is 80% hard work and 20% results initially,” he says. Today, the results show. In FY23, the bank made a profit of a little over `256 crore; in FY24, the number grew to nearly `670 crore. Going forward, the bank has given a long-term guidance of 20% growth in advances, growth in return on assets (RoA) of 1.8-2%, and profit after tax (PAT) growth of 30-40%, says Abhilash Sandur, Jana’s Chief Financial Officer.

But it won’t be easy. Jana may face challenges from existing players and new entrants in the microfinance and small business lending space, says Amit Goel, Co-founder & Chief Global Strategist at Pace 360, an asset management company. “Moreover, successfully transitioning from unsecured microfinance (their current strength) to a more diversified loan portfolio (including secured loans) will be crucial,” Goel says.

But let’s get back to how the CEO cut costs. Kanwal leads by example. He doesn’t have a cabin but sits in an open cubicle with other employees. His business card features the phrase “Paise ki Kadar (value for money)”. Earlier, Jana had an 11-floor office on Bengaluru’s Union Street. Today, the bank’s headquarters occupy two floors at Fairway Business Park, saving `20 crore per annum on rent.

“More the [number of] people in the head office, the more you have to keep in the middle office… We had 575 people [in the head office] when I came in; today we have 254 people. The business has grown from `8,900 crore to Rs 52,500 crore,” says Kanwal. The cost to income ratio, a barometer of costs, has gone down from 70%-plus five years ago to 57% now.

If you happen to be near Jana’s headquarters in the morning, you’ll see a flurry of activity. One day, Kanwal was hurrying to reach office before the 8:15 am deadline when he saw another employee, a woman in her mid-to-late 30s, running alongside with a laptop and lunch bag. They both swiped in seconds before the deadline; the rule is that two late entries would result in deduction of a day’s leave. “You must be cursing me, right?” Kanwal asked the woman. Still huffing and puffing, she replied, “Yes, initially, but not now.” She explained that because of the new timings, her children had become more disciplined. Kanwal has introduced a work culture that focusses on employee productivity. Earlier, office hours began at 9:30 am, but he soon realised that 60% of the employees arrived much later. Soon HR put up a stern notice for latecomers. “The new timing works best for everyone to avoid peak traffic both in the morning and evening,” says Kanwal (work hours get over at 5:15 pm). More importantly, Kanwal has instilled a culture of cost-consciousness at all levels.

For instance, during an official trip, Kanwal arrived in Delhi in the morning and had finished his work by the evening. He then found that his office had booked him the next flight to Lucknow. Kanwal called them up, suggesting he spend the night in Delhi rather than arrive in Lucknow at midnight. “Sir, you will spend `12,000 for a room in Delhi and `7,000 in Lucknow for the same hotel brand,” came the response. Kanwal quietly took the flight to Lucknow. Incidentally, no one travels business class. Kanwal has also launched an initiative called “Rakshak,” where anyone who speaks up against corruption and protects the bank receives `5,000 in reward. In a microfinance business, where there is a large amount of cash and gold transactions at branches, “it acts as a deterrent”, he says.

Under Kanwal’s leadership, the bank has gradually transitioned from a fully unsecured portfolio to a more balanced loan mix of 60% secured assets. This strategic shift aims to position the bank as the anchor for housing loan customers, enabling cross-selling of other loan products (see interview). Jana introduced gold loans as a cross-sell product, primarily targeting its microloan customers, and focussed on housing loans. This strategy paid off, with the bank becoming profitable and reducing net NPAs to less than 1% by March 2020. But the onset of Covid-19 posed new challenges. Urban branches saw an increase in gold sales as people sold gold to meet medical expenses, leading to a `300-crore outflow in the book. As the pandemic subsided, the bank refocussed on gold loans. “As the collection numbers for microloans started increasing, the demand for other products like gold [loans] saw an upswing,” Kanwal says.

In the agri sector, the bank focusses on end-use products. For instance, for those involved in dairy farming, the bank provides loans to purchase cows. While the growing share of secured loans would reduce the net interest margins, CFO Sandur says that it will be cushioned by the growth in CASA, better asset quality and assets like LAP.

When the bank was making losses, Kanwal introduced a unique approach to ESOPs. Instead of a standard letter, he asked his team to create the format of a share certificate. “We gave ESOPs to all the employees,” says Kanwal. Today, employees enjoy substantial returns, with the recent listing seeing a 50% jump from the IPO price.

According to Kanwal, the next step for Jana is to obtain a universal banking licence. While that is natural progression for many SFBs, some industry watchers like Ankur Saraswat, Research Analyst at Trustline Securities, a financial services and investment solutions provider, raise a difficult question.

“By allowing it to transition into a universal bank, is it to be understood that SFBs haven’t been as successful as one would have thought and hence upgrading it to a universal bank would allow it to tap the broader market and not restrict itself to unbanked areas for generating business income?” asks Saraswat. There are no easy answers.

Kanwal, who takes out time to play golf on the weekends, takes a minute to reflect on his global stints. He accepts that life was more predictable and easier, but “at the end, what did you leave as a legacy?” Jana, though, has been “a truly satisfying experience”, he says. “If your passion is to create something, there is no greater satisfaction than that,” shares Kanwal, who is currently reading the book, The Leader Who Had No Title by motivation guru Robin Sharma. The title of the book resonates strongly with his own leadership philosophy. And it will be a testament to Kanwal’s leadership if Jana successfully transforms to a universal bank. 

@anandadhikari