The investment banker-turned-insurance veteran (9 years with HDFC Life) was eager to hit the ground running and soothe the nerves of investors and employees alike. 2018 had been a turbulent year that saw the banking regulator intervene to force a leadership change from Shikha Sharma, chief executive since 2009.
To stay up to speed, Chaudhry also conducted a series of one-on-ones at the Four Seasons Hotel with business and department heads of the bank, weeks before taking charge on January 1.
A month after Chaudhry’s big career move, his peer at ICICI Bank, Sandeep Bakhshi, was named Chanda Kochhar’s successor. Bakhshi didn’t have the benefit of time but being an insider since 1986 helped. He had been chief executive of ICICI Prudential Life Insurance Company since 2010 and is believed to have reinvigorated it with new products, a re-engineered distribution architecture and better productivity, before successfully managing its listing in 2016.
Now, Yes Bank too is on the lookout for a successor to chief Rana Kapoor, whose term is to end this month after the regulator curtailed his tenure. That hot seat may be occupied by another insurance veteran, Rajesh Sud, former chief executive of Max Life Insurance.
Insurance Inc sure seems to be taking over India’s top private banks. Is there a dearth of well-rounded banking talent at a time when one is seeing so many changes at the helm? Or is a new breed taking over from the pinstripes of Mint Street?
“Our future bankers can also be from non-banking backgrounds,” feels Rajeev Ahuja, executive director, RBL Bank.
WHAT’S THE FUSS ABOUT?
The world over, there is no template on what makes a good banker. Even lawyers have transitioned to lead mega global banking corporations! From ANZ to HSBC, Citi to Goldman Sachs, bond and debt market traders, M&A bankers or tough nut insurance brokers have moved into the corner office effortlessly, as have wholesale or retail bankers. “We shouldn’t fuss about backgrounds. None of them should be taboo, and none guarantee success,” points out a senior investment banker-turned-corporate honcho who did not wish to be identified.
“Selection of a bank’s CEO is an art, not science,” feels Gunit Chadha, former chief executive of Deutsche Bank Asia Pacific, another potential who is always talked about, even after he floated his own non-banking financial company (NBFC), Apac Financial Services. “Focus must be greater on culture, values and governance, rather than exclusively on domain specialisation, global experience or track record.”
But for many, there are reasons to be circumspect. Since last year, tenures and performance of CEOs at most of the top six private banks are coming under the regulatory scanner. Some are up for renewal in a bunch after 10-25 years. Unlike public sector banks (PSBs), where chief executives typically enjoy a 2-5 year term — with retirement age now at 70 years — most banks have enjoyed continuity of management as tenures were extended. Aditya Puri (67) and Romesh Sobti (67) had long stints at HDFC Bank and IndusInd, respectively, but are reaching this threshold.
Kochhar had to step down months before her term at ICICI Bank was ending in March 2019. While the Reserve Bank of India (RBI) wants Rana Kapoor (60) out at the earliest, it has granted Puri 2 years’ extension. A former Citibanker, Puri, who has been at the helm of HDFC Bank since September 1994, is the longest-serving chief of any bank of this size, globally. Both Sobti and Puri can continue if RBI extends retirement age of private bank chiefs to 75 years.
Often though,individuals get dwarfed by the institutions. “The next generation of chief executives will face newer challenges and need different skill sets,” says K Balasubramanian, head, corporate banking group, Citi South Asia. “In the US, Amazon and JP Morgan are partnering. This was unimaginable till a few years ago. To understand the changing consumer and his habits, maybe people from FMCG or insurance are better suited than a dyedin-the-wool career banker. The whole game now is to socialise the idea.”
That is already happening on ground, as many future leaders have started migrating from consumer-facing sectors such as retail, fast moving consumer goods (FMCG) and insurance.
Yet, every time a succession race begins, it’s the same set of finance heavyweights — Citibank NA India chief executive Pramit Jhaveri, his predecessor Sanjay Nayar, currently heading KKR in India, Goldman Sachs’ Sanjoy Chatterjee, Standard Chartered’s Zarine Daruwala, Bajaj Finance’s Rajeev Jain or DBS’ Piyush Gupta, the highest paid bank CEO in Asia — whose names circulate.
Some believe the current situation is temporary, precipitated by bad timing. “ Many good bankers are just not willing to get into a situation where the water is seriously muddied from governance and performance points of view,” feels a former corporate banker. “But 12 months from now, if RBI cools down a bit and the nonperforming assets (NPA) situation has healed itself, you may find many capable people willing to do the job.”
In fact, these days, corporates often prefer bankers and consultants for key posts such as finance, treasury or M&A heads or even strategy and business development. Saurabh Agrawal, chief financial officer, Tata Sons, had worked in Standard Chartered and Bank of America Merrill Lynch. Alok Agarwal, chief financial officer, Reliance Industries, since 2005, was also with Bank of America.
A new generation rainmakers moved — Madhur Deora to Paytm from Citi; Pramo Selvaratnam to his client, Aditya Birla Group, after serving them as a metals, oil and gas banker at Goldman Sachs, to name just a few.
UBERISATION OF FINSERV
But when change comes after 20-25 years of management continuity, it can break routine. “I am not saying changes would be drastic, and therefore risky. But there could be a lot of changes in strategies when new leaders take charge,” says Ashish Gupta, head of research, Credit Suisse.
Sobti of IndusInd Bank has held the chief executive’s chair for over 10 years. Sharma and Kochhar led Axis Bank and ICICI Bank, respectively, for close to a decade. Kapoor and Uday Kotak have spearheaded Yes Bank and Kotak Mahindra Bank since inception in early-2000. “Individuals do matter. The incoming CEO may have his own plans for the bank,” Gupta explains.
The CEO has to. Much like the bosses before him. Even Puri chose to grow HDFC Bank’s retail book when most thought diversification to grow wholesale banking is the key, in the heady 2000-08 period. “Every new leader would like to leave his own footprint,” says Shyam Srinivasan, chief executive, Federal Bank. “If the new leader is hired internally, there could be some continuity in strategy. If the hiring is external, some level of course correction is imminent.”
“No chief executive would undo the good work of a predecessor… But they may make some well-meaning changes,” says Arundhati Bhattacharya, former chairman, State Bank of India. “When a CEO is appointed, the past regime will not continue.”
But with technology “Uberising” financial services, the new-age CEO has to adapt to changes faster than before. Banks today face a classic “table stake” situation — invest in digital transformation or die a slow death.
Disruption has ensured a new bunch of consumer-oriented, tech-savvy, nonbanker chief executives will match strides with tech-savvy NBFCs, ewallets and fintech companies. “Earlier, a bank branch was a one-stop shop for all financial services. Savings, deposits, payments, remittances, insurance, mutual funds. Today, people go to Paytm or Mobikwik for payment, to Policy Bazaar for insurance and to a tech-based NBFC for loans,” says Anil Chawla, co-founder, Clix, a Big Data and artificial intelligence-backed NBFC.
Today, adding physical infrastructure like a branch or even an ATM is only adding cost. Millennials prefer to carry their bank around in the phones and transact on the go and the traditional competitive headroom shrinking.
“However bespoke a product you design for a client, within weeks, others will catch on. That’s where relationships will matter. Value will come from relationships, not from products,” quips Balasubramanian.
That’s where old school training, rotation of roles across functions and geographies come handy, believes the older generation of bankers. Newer private banks often do not believe in moving around their employees a lot, instead creating specialists and not generalists like they did in PSBs of yore.
“Senior bankers of present times have learnt from old-timers who believed in prudent ways of banking… This breed is dwindling fast,” believes K Cherian Varghese, who started his banking career in 1970 and went on to head Union Bank of India, Corporation Bank and South Indian Bank. “Today’s bankers are not trained properly. That age-old practice of elders hand-holding their juniors is not there anymore.”
The trend of shaping “area specialists” was started by private banks in the mid-1990s, says PH Ravikumar, chairman of Bharat Financial Inclusion (formerly SKS Microfinance) and one of the founding members of ICICI Bank. “A bank officer who only knew one aspect (of banking) was not considered a banker at all.”
Yet, there are the likes of Rajiv Anand, executive director, Axis Bank. He has seamlessly switched treasury operations, fund management and capital markets before taking charge as retail head of the bank. “I was lucky to get opportunities across in my 25 years as a banker,” he says. “As you become a senior banker, you don’t need to know all aspects of banking in detail but (simply) have a fair idea of how things work… But it’s imperative to build an efficient team around you.”
That’s where the board comes in, to invest in and build the bench. “This is a key requirement in any commercial organisation. Every leader has to identify one or more successors as ready now or later,” says Kalpana Morparia, chief executive, South and Southeast Asia, JP Morgan, whose term is also nearing its end.
Most boards seem to address the elephant in the room. “Some CEOs want to cling on till 80 years of age; it is indeed a problem. The board has to step in and articulate a succession plan as part of risk assessment. Large international banks rarely look at external candidates,” says a senior member of a bank board, on condition of anonymity.
Axis did, but ICICI didn’t. “What is urgently needed is identification and fast-tracking of potential leaders, giving them job rotation and mentoring them,” argues M Damodaran, former chairman, Sebi. The abrupt exit of Paresh Sukhthankar from HDFC Bank in August 2018 sent shares into a tizzy. The senior management, led by Puri, had to convene an analysts’ call to arrest the rapid decline in stock price. “I am not going to choose my successor,” he had said. “I will have an important role but so will the other four directors in the committee. The bank has got processes — it’s large enough, it has a large depth of management talent.”
“Lateral hiring may also have a demoralising effect on existing senior managers,” believes Parthasarathi Mukherjee, chief executive, Lakshmi Vilas Bank. “But the board may hire externally to bridge capability gaps. One cannot insist on internal hiring as banking has become very competitive.”
Banks such as ICICI, Axis, Kotak and HDFC have two to four senior managers on board. “It’s good… it will improve the understanding of the board and also enable them to take well-studied critical decisions,” says Dipak Gupta, joint MD, Kotak Mahindra Bank.
Despite its sloth and internal bureaucracy, SBI has always been a hunting ground for top tier talent. Recently, five senior SBI executives were picked up to lead PSBs. When most global banks are regrouping and the era of swashbuckling Indian bankers like Anshu Jain or the mild-mannered Vikram Pandit no longer dominates the brutal world of high finance, chances are these storied bankers could be in demand.
But before we leave, let us park an idea here. How about Ajaypal Singh Banga leaving MasterCard to take over from Puri? After all, plastic, and not paper, is the new currency.