Romesh Sobti sheds light on IndusInd Bank's turnaround success

RomeshSobti, Managing Director & CEO of the Hindujas-owned IndusInd Bank, the manwho turned the bank around in just three years to make it the best performingmid-sized bank in the country, spoke to Anand Adhikari. Edited excerpts: 

Q: IndusIndBank has emerged the best mid-sized bank in the BT-KPMG best bank study.  How did you do it?

A: The lastthree years are a restructuring story. It all started with a new managementcoming in three years ago. The new management addressed a whole host of issuesinherited from the past. This helped in improving all the financial parameters.The restructuring was to recapitalise, re-talent and reorganise the bankstructure and also restructure the balance sheet. We focused on the branches.The branch manager has to take ownership like a CEO right from basic thingslike branch hygiene to making the branch profitable. We have drilled thisculture into our branch managers.  Thebank's turnaround is the result of its current performance culture.

Q: Did youalso change the business model during the restructuring?

A: Auniversal banking model has emerged. We want to provide all products andservices. We have to be liability driven. There is a strategic belief thatdistribution is also very important. You don't have to manufacture everythinglike we don't manufacture insurance, but we sell insurance. So we will do allthe products.

Q What isthe logic of selling HDFC's home loans and not having your own home loanscheme?

A: Itdoesn't make sense (having our own loan scheme). Today, the pricing on homeloans - the interest charged by a bank from the borrower - is the lowest in theconsumer assets food chain of car loans, personal loans to credit cards. Homeloans are fully secured and have the lowest yield among consumer loans. Thecapital linkages - you have to provide capital of Rs 9 on every Rs 100 in ahome loan - are such that profit for a bank like IndusInd with a cost to incomeratio in the 40s is less than for a player with a cost to income ratio in the20s or 10.When the big player does it more efficiently, why should I replicateit?  I would rather market his productand earn a fee.

Q: So it is'out of the box' thinking for you ….

A:  We have an inbuilt culture of encouraginginnovation. Take, for example, our unique ATM offering of letting customerswithdraw notes in the denominations they want them. The suggestion came fromone 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. Amarketing representative said he would want a choice in the denomination ofnotes 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 notesand five notes of Rs 100 each or all Rs 1000 notes or all Rs 500 notes. Wecarried out a technology fix seven months ago and now, the bank's 600 odd ATMsgive the customers a choice of half a dozen combinations. The result: 76 percent 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 backof bank statement he receives every month. There are a couple of moreinnovations that will hit the market very soon.

Q: You havearticulated a new strategy called '3-2-1' in place of the earlier '3-3-3'. Canyou elaborate on what these mean?

A: We focusa lot on the communications part. When you create change, the change has to beabsorbed 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 createeasy to understand slogans for the whole organization to understand. Thatslogan was in everybody's computer and internal communication. The new sloganis '3-2-1' which means the bank will be number 1 in return on assets , returnon equity and net interest margin, double its profits, customers  and branches; and achieve all this in threeyears.

Q: You arenow saying scale with profitability.  Isscale is a new addition?

A: Clearly,the focus is now on building scale. The key lever of achieving scale would bethrough the 300-odd branches. The branch strategy is also not a mindlessexpansion. We want to create a density in some select 20 to 25 cities.  The game plan is to increase the low-costCASA [current account, savings account] deposits from the existing 27 per centto over 35 per cent within three years. A good base of CASA - unlike raising high interest bearing fixeddeposits - helps in building a high margin lending business. The strategy onthe loan growth is to grow between 25 and 30 per cent every year, but our planis to increase the branches, customers and fee income manifold.