Indian cricket team has had four foreign coaches. John Wright and Gary Kirsten have a better track record compared to others. But since 2017, BCCI has turned to former Indian cricketers to don the coach’s hat. While their record is still to be judged, the logic was that home-bred cricketers can understand the team and its needs better.
Extend this analogy to private sector banks (PvSB) and it fits well.
Who’s best suited to head a PvSB—an insider who has grown up the ranks or an outsider? This popular debate in the banking circles came to fore a week back with the appointment of R Subramaniakumar as MD & CEO at RBL Bank.
Interestingly, excluding promoter-held banks such as Kotak Mahindra Bank and Bandhan, only five private banks are headed by people who’ve put in two to three decades of their career in the bank. Others rely on the outsiders to fill the shoes, and this is particularly visible in mid- and small-sized banks. So, who does a better job?
Sandeep Bakhshi has scripted a remarkable comeback for ICICI Bank, overhauling the processes, strengthening the risk management framework and charting a sustainable growth path. This tilts the scale in favour of an insider. But Sashidhar Jagdishan of HDFC Bank and Sumant Kathpalia of IndusInd Bank despite being insiders have had their share of problems. Soon after Jagdishan took charge, HDFC Bank was embargoed from the credit cards business. Allegations of evergreening gripped Kathpalia last year just when one thought that the worst in terms of asset quality was behind the bank. What’s helping them to an extent is their familiarity with people and processes.
This is the missing factor in banks which hire CEOs from other organisations.
Limited success of outsiders
An outsider is roped in when a bank feels the need to bring in fresh perspective or the RBI believes that the existing practices must be rehauled.
Nitin Chugh’s appointment as Ujjivan Small Finance Bank’s MD & CEO and Ravneet Gill brought in at YES Bank are some examples. While Chugh was roped in from HDFC Bank to strengthen Ujjivan’s technology offerings, Gill had the mandate of bringing in new investors into the bank.
But both didn’t havesuccessful stints. For Chugh, trouble came in the form of unprecedented asset quality issues triggered by the pandemic and Gill was thrown into a mountainous bad loan mess which he hadn’t encountered in the past.
As a senior head-hunter who specialises in top-management roles puts it, “the immediate focus of the incoming CEO is to unwind what the predecessor did, rejig the roles and reporting structure. This leads to cultural differences and an unavoidable attrition of manpower”. It doesn’t stop with that. There’s significant kitchen-sinking and loan write-offs that ensue. “The initial term of a bank’s CEO is consumed like this, after which (s)he starts focusing on growth and tends to get very aggressive. This leads to some unavoidable mistakes”. Such mistakes aren’t pardoned by the regulator and ends up being the tipping point for the next CEO search.
Among the large names, Axis Bank has gone through the pattern of appointing an outsider as MD & CEO twice. Be it Shikha Sharma or Amitabh Chaudhry, the bank is a classic example of turning to an outsider for the CEO’s role. It has undergone several changes to its style and approach to operations. So, charting out a clear succession plan has been challenging. With Sharma’s exit the entire top brass of Axis Bank moved out and Chaudhry had to recreate the set up. It’s going to take some years for the new team to deliver the goods.
In smaller banks such as Dhanlaxmi, it’s a different problem – the tug-of-war between the promoter/ large shareholders and the CEO. Such difference was also the reason for the downfall of Lakshmi Vilas Bank (now merged with DBS Bank India). Parthasarathi Mukherjee was roped in from Axis Bank in 2015 to implement best industry practices in LVB. Interference from promoters led to his untimely exit in August 2019.
It’s the same story with Sunil Gurbaxani and Dhanlaxmi Bank (DLB). Another one is brewing between prominent shareholders of DLB and its board/ management led by JK Shivan. “With the CEO operating at half the liberty, where is the question of grooming a No. 2 or having a succession plan?” asks a former banker.
Prashant Kumar, the former CFO of SBI, now heading YES Bank, Shyam Srinivasan of Federal Bank and Murali Natrajan of DCB Bank stand out as success stories. But they have a common link which played a huge role in cementing a comeback for the banks – unflinching support from investors and the board.
While Kumar’s case is straightforward, given that he was chosen by SBI for the tough job, Srinivasan and Natrajan, both former senior executives of Standard Chartered, had to unlearn and re-learn to adapt to the local teams and their needs. “Most CEOs from other organisations struggle to do this and that’s another problem,” says the HR head cited above.
As a former business head of a private bank puts it, “from Day 1, if the CEO wants to transform the bank into a mirror image of his earlier organisation, it’s not going to work”.
Indian corporates remain promoter-driven and despite the high talk of corporate governance, priority is always given to the blood relative when it comes to passing on the baton. Banks, to some extent, operate differently due their institutional ownership and an overarching regulatory framework. They put the interest of the bank ahead of an individual. The way RBI has been handing out extensions to CEOs, whether to Bakhshi or Srinivasan, suggests that it is unwilling to repeat the Aditya Puri mistake, i.e, no one can have a long run.
Hindsight wisdom suggests that this may have been the genesis for the troubles at HDFC Bank and it holds true to in case of YES Bank and RBL Bank. To that extent RBI’s push for an outsider is well-taken. But an outsider often fails for lack of harmony with employees, board and the majority investors.
Ensuring that Subramaniakumar works along with Rajeev Ahuja under the watch of Yogesh Dayal (RBI-nominated additional director) in RBL Bank, is aimed at ironing out such differences. CSB Bank and South Indian Bank have also embarked on a different experiment, and all these must work because of the healthy mix of CEOs from within and outside. It is one way of placing checks and balances in the system.
June 19, 2022