We are building this platform of responsive innovation. Every six months we will launch 2-3 innovations that will surprise the market. Then, there’s differentiation, such as offering customers choice money at ATMs. It’s also about productivity — how to offer the same service at lower cost.
Romesh Sobti has turned around the fortunes of IndusInd Bank in the five years that he has been at the helm. While the bank still has some distance to go before catching up with its peer set of HDFC Bank, Kotak Bank, Axis Bank and others, it has managed to shake off its ‘also ran’ image in this period.
In the last five years, Sobti got the bank capitalised again, brought in fresh talent, reorganised the bank’s verticals, improved its financials, acquired new businesses, expanded its network and reset its ambitions. He has now unveiled the goal of making it a ‘universal bank’.
All the financial parameters seem sound and comfortable. The performance has not gone unnoticed. Market capitalisation of the IndusInd stock is now around Rs 23,000 crore, going up about 10 times in five years. There seem to be no storm clouds on the horizon. Sobti is, however, cautious and points out the need to be continuously vigilant for different risks. Sobti brought with him to the bank, the rich experience of over three decades, having worked with SBI, ANZ Grindlays Bank and ABN Amro Bank earlier.
In this interview, Sobti spoke about his plans to increase innovation, introduce new products and improve transparency in the bank. He elaborates on what makes the bank tick in some areas.
You have been performing well; all ratios and financial parameters seem to be doing well and there seem to be no worries. What next for IndusInd Bank?
Well...there is no such thing as a risk-free banking. It is only categorised as low, medium or high risk, and we have moved into the low and medium category now. Worries always exist in the banking sector. There are credit risks, operational risks, market risk, and reputation risk. And, of course, regulation risk, where we have to adjust our business models according to regulatory changes. We have a stable business model now after a complete restructuring five years ago. We are looking a new business model as a universal bank focused on distribution of products and using technology well, building scale, with profitability, into our business. We are preparing for the third planning cycle that starts in April 2014. We have a directional plan three years at a time because the market changes every three or six months.
What are your plans?
We want to associate with good brands. It’s not just about money but the brand. For our clients, we give everything except gold loans. In our plan, the first emphasis is profitability. The scale is in the branch network, customer base and products.
The second emphasis is the platform of customer engagement that we started to build 18 months ago. Engagement goes beyond customer service. So we are building this platform of responsive innovation. We are not yet the high-street brand and perhaps cannot be easily recalled. It will happen in, say, 3-4 years, when we reach 1,000 branches or so. For now, the question is why should the customer bank with me? We have to walk that extra mile to make customers bank with us. Service levels at a certain level are the same.
Next, we come to products. How do I create a differentiation? What more does a customer desire but has never got? That’s how the concept of choice money in ATMs was introduced. Similarly, we were the first bank to give the scanned copies of your cheques, helping you keep your records. We also launched ‘mobile cash’ eight months back, which enables you to withdraw cash from an ATM without a card, even if you are not our customer.
We are building this theme of small building blocks of innovation. Every six months we will launch 2-3 innovations that will surprise the market. The commodity or products can be same (like other banks) but the process is different.
Today, we get about 55,000 customers every month. Four years ago the number was 2,000. Along with this, the 6 per cent interest on the savings bank account is another incentive for you to come to us.
The third element is productivity in the front and back office, how we process our business and deliver with the same service quality, at lower cost. These three themes will be the key under the broader theme of profitability.
What are the plans for branch expansion?
We will have 500 branches by March end this year. As on December 2012 we were at 461 branches.
We are opening 125-150 branches every year. We are not too enthusiastic on the global front, though we have applied for licences in the UK and Hong Kong to cater to our customers there.
On the hiring front, what are you looking at?
This quarter, we hired over 2,200 employees. Next year onwards, we could be hiring well over 2,500 people. This year, we will end at over 12,200 people. We will remain active in hiring.
How do you find the right talent?
Getting the best talent is not easy, for sure. In certain areas you will find talent scarcity at branch managers’ level. However, training in the upper-end skills of scale, such as the relationship managerial level, is needed.
We have e-learning training, with 300-340 man-hours dedicated to regional and relationship managers in-house, but good quality branch managers are definitely a scarce commodity. Further, tie-ups with training institutes will take about 3-4 years now. We have more demand on the sales side, which we can buy from the market.
Do you plan to build more products?
You don’t have to manufacture everything. It’s a make or buy decision. We have chosen the buy option where we are not efficient. There are players who are specialised and can do the work better than us, with the best pricing.
The home loan, retail forex, mutual fund and insurance segments are our distribution products. We have specialised in the commercial vehicles segment, so we give loans for anything on wheels.
Two-wheeler loans have lower margins. What keeps you going in this business?
It is a personal product for us. It is supposed to have higher delinquencies but it also has much better yields. In the product programme, you build in the higher default rate which yields higher margins. Now, how you stay in the market is really a function of how efficiently you deal with the business. The buying behaviour for two-wheelers is such that you don’t go to a financer but the dealer. This is unlike the behaviour in trucks. For trucks, one plans 3 or 6 months in advance. For a two-wheeler you want instant gratification.
So the differentiation comes on the time taken for turnaround of the loan. In two-wheelers it is often less than 24 hours. Then, there is an idea of what sells or has a higher resale value if I have to repossess. The third factor is how close you are to a manufacturer. A large player is close to the dealer and the manufacturer. We specialise in this supply chain. Certainly, there are higher delinquencies but it’s a question of collection efficiencies, which works well for us.
The commercial vehicles business is a touch business. We know three months in advance who is planning to buy trucks. Our industry experience helps. We are fortunate that we inherited the business with Ashok Leyland. In vehicle financing, we think like an NBFC.
How does the stress on asset quality for the industry look like?
The stress wave on the asset quality is still going on. We will have to wait a couple of quarters more to know if it has moderated or been managed. So far it looks like the system has managed, though some sectors have shown more delinquencies. The sensitive sectors are real estate and infrastructure, while textile and aviation also remain stressed.
In telecom, sensitivity has not played out except for the 2G scam. Power is causing pain to the PSU banks. But there is a cascading impact of the slowdown. This needs a kick-start. Overall, certainly there is cause for concern but no cause for panic.