A turnaround story

Background 01 IndusInd Bank commenced operation in 1994

02 Labelled as “New Private sector bank”

03 First bank in India set up by NRIs ,Hinduja Group

04 Focus on mid-corporate & SME lending

05 In 1990, Indian economy opened to foreign competition

06 SMEs went under & banks exposed to them faced huge losses

07 High level of NPA

08 In 2004, Hinduja Group merged IndusInd Bank with Ashok Leyland Finance

09 Brought high-yielding vehicle loans

 Indian Banking Industry
Scheduled Bank Non-Scheduled Bank
Included in 2nd schedule of RBI Act, 1934
Currently only 4 in India operational
Condition - The paid-up capital & collected
fund of the bank should not be less than 5
lakhs

Public sector – 73% credit & 74% of deposit

Private Sector – 21% credit & 20% of deposit

Foreign Bank – 7% credit & 6% of deposit

 Retail Banking Wholesale Banking

Mutual Funds & Insurance 4 4 Mutual Funds & Insurance

Wealth management focused on NRIs & HNIs 3 3 Capital & Commodity Market

2
2 Treasury & International Operations
Online Bill Payments
Two
Business
Vehicle Finance & Construction equipment 1 1 Corporate & Institutional banking
Groups
 Post Merger with ALF

01 02 03 04
Performance Regulations Interest Rate
Expenses
In 2004-05 PAT de- RBI amended rules Interest rate on ve-
clined due to in- on securitization More money being hicle portfolio fixed
creased operating to disallow spent in expanding
expenses upfronting of to new branches NIM declined to
Decline in Profits income 1.5% in 2008 & 1.4%
to 36.8 crore from 210 Cost of Deposits in 2007
crore started rising be-
cause of strong
economic growth
Repo Rate Raise 25 bp
 Turnaround
In early 2007 Romesh Sobti, MD of the
Indian operations of ABN Amro was
approached by the Hinduja Group
Senior Executives
The Group wanted Sobti and his key
colleagues – the heads of operations,
wholesale banking, retail banking and
risk management – to move to IndusInd
Bank and assume the reins of top
management

Sobti and his colleagues carefully

pondered the offer. They needed to figure
out what the problems at the bank were.
They also needed to have a clear plan of
action for turning around the troubled
bank
Challenges
Identity crisis after merger

How to bring capital

Bank needed to lent at

competitive prices

Needed low cost deposit by current & savings account

Large branch network & products required

Recovery of bad loans needed to free capital No

investment banking facility to the customers

Operating costs needed to be brought down

Bank considered outlier – Very poor earning quality and loan book

Organisational issues – disengaged employees , no clear

vision strategy & own objectives
 Stakeholder Analysis
Regulators
ROA was below 25 basis points and was on
the verge of enforcing PCA (prompt
Investor
corrective action) on the bank Mainly responsible for bringing in the
capital for bank’s operations. Decision
solely based on bank’s track record and
performance

Prom
oter
Stakeholders in the form of majority
shareholder. Promoters can only influence
the governance of the bank through a
statutory board as opposed to a managing
board. Not privy to bank information just
like any other shareholder

5 Key Stakeholders
Addressing the needs and
key issues of the various Employee
Consumer
stakeholders is the key Uncertain about the direction in which
responsibility of top Most of the products were focussed on bank would proceed under new
management giving support to the SMEs. Less importance management. However, it was important
given to retail customers which led to low that these stakeholders have belief in the
revenues through CASAs. Identity crisis for new strategy implemented after the
customers as they were confused whether management change.
Indus Ind was a bank or a NBFC.
Recommendation
 Short Term Strategy
P a ra m e t e rs Productivity
Aim at : Making the employees believe that the
a. Profitability new management is working for the
b. Productivity betterment of the bank by building trust.
c. Efficiency 2-way communication for the better
implementation of the corporate
strategy.

Trust Fund M a na geme nt

Top management can visit the Bank should aim at building their
regional branches to interact with brand image among the customers
the managers to explain the so that CASA can be improved.
strategy and get their inputs.

Efficiency Cost Cutting

Aim at improving the productivity Employees can take Salary cut and
of the branches at par with their Bonus cut. Alternatively
parent counterpart. Follow the employees can be given ESOPs.
philosophy of Grow and Invest.
 Long Term Strategy
95%
75%
55%
10% 01
02 Customer reach
Increase the presence of the

03
bank branches to make
Customer Focus their services available to a

04
Retail bank customers are large amount of population
primarily inclined towards
Product Diversification PSU banks but there is scope
Staged introduction of for improvement by fulfilling
RBI Compliance multiple products such as unmet customer needs by
Gradual dilution of Credit cards, Investment improving the end use
promoters share from 40% consultancy, microfinance, experience of Retail
to 10% according to new insurance. customers.
requirements of PCA
(Prompt Corrective Action)
 Current Risk

01 02 03 04
Operational Risk Mismanagement on Surveillance Disruption caused
due to fraud regulatory fund needed by payment
banks
Thank You