Best Yet To Come

THE 70–YEAR-OLD ADITYA PURI, WHO SPENT OVER TWO-AND-A-HALF DECADES AS CEO & MD, BANKED ON RISK MITIGATION, TECHNOLOGY AND RETAIL/RURAL OUTREACH TO CREATE INDIA’S SECOND-LARGEST BANK FROM SCRATCH

Aditya Puri, Ex-MD , HDFC Bank

The share price has gone up after my leaving. So, why are people worried about my leaving?"

is one of India's most

admired and longest serving professional CEOs. During his 26-year stint at the top, Aditya Puri created India’s second-largest bank from scratch. He may be an inspiration for many entrepreneurs and CEOs, but Puri himself looks up to three others. “Jamie Dimon, Satya Nadella and Mukesh Ambani,” says Aditya Puri, who retired as CEO of HDFC Bank in October this year. He is being modest considering that he is in their league when it comes to shareholder returns, performance consistency and building a future-ready organisation. But he admires 64-year- old Dimon, the CEO of JP Morgan Chase, for building the most reputed US bank; 53-year- old Nadella for transforming the culture of technology giant Microsoft; and 63-year- old Mukesh Ambani for the phenomenal deals and bets on datadriven telecom and modern retail businesses.

But building a banking behemoth in a tightly regulated sector is no mean feat either. In two-and-a-half decades, HDFC Bank has emerged as the world's 10th most valued bank, displacing Citibank and HSBC. Puri had incidentally honed his skills at Citibank in Malaysia and India. Today, his bank has a balance sheet of Rs 15.30 lakh crore, next to that of the country's largest lender, State Bank of India. Its market cap, Rs 7.60 lakh crore, is higher than that of all public sector banks put together and next only to that of RIL and TCS.

The secret behind the bank’s amazing run has been top-notch asset quality, focus on retail lending, where NPAs are usually low, staying away from risky project loans, digitisation and focus on rural and semi-urban areas. What about the future?

LOOKING AHEAD

Puri has promised shareholders that the best is yet to come. His words must have allayed shareholder worries over his exit due to which the bank faced a period of uncertainty till Sashi Jagdishan emerged as his successor. “The share price has gone up after my leaving. So, why are people worried about my leaving?” says Puri.

Clearly, he has given the bank a strong foundation for future growth. HDFC Bank’s revenues, profits and assets have been rising by 20-25 per cent CAGR over last three years. That was a period when India’s GDP growth contracted from 7 per cent in FY18 to 4.2 per cent in FY20. “We are related for part of our growth to GDP growth. The rest is market share growth,” says Puri. “We have a product range which suits demand. We have also maintained a balance between risk and reward. There is enough demand in this country to grow profitably,” says Puri. The bank has been known for consistency in revenue growth and profitability.

Puri was the first employee of the bank, promoted by HDFC, under the leadership of Deepak Parekh. His strategy involved bringing service capabilities of foreign banks and distribution reach of state- owned banks. Aseem Dhru, who spent two decades under Puri, recently penned a note for him .“The man could make a donkey win a derby.” Dhru now heads non-banking finance company SBFC Finance.

At the bank, Puri never worked late hours but made sure that the team knew the strategic vision, execution roadmap and expected result or the ' ladoo' as he called it. He used to wind up his day by 5.30 pm, a fact corroborated by his former boss at Citibank, the late Nanoo Pamnani. “Puri was an outstanding professional, quick on his feet and extremely sharp. He always delivered on targets. In fact, he delivered more than what he promised. So I had no reason to ask him to sit late at Citi,” Pamnani said in an earlier interview to BT. Sameer Bhatia, another professional who worked with him and later founded SME Corner, said Puri believed in effective delegation. ”

Delivering Across Cycles

The fast growth hides how conservative the bank has been in taking risks. It did not chase growth blindly even during the booming 2000 decade. It was clear from day one that it would grow at a measured pace, focus on retail lending and not venture into risky project loans. Even today, exposure to large corporates is only one-fourth of the lending book. The retail portfolio is around 55 per cent of advances. That is why it showed resilience after the 2008 financial crisis and grew revenues, profits and assets at 15-20 per cent. A former banker, Moses Harding, who worked with SBI and IndusInd Bank, had met Puri in his house after the merger of Centurion Bank in 2004. Puri, when prodded, gave an analysis of differences between HDFC Bank and its close rival. Puri said the rival bank is a heavily made-up beauty that will lose value when it rains (tough times). The rival struggled to keep pace after the 2008 financial crisis.

The post- Covid disruption also failed to impact the bank's run. In the worst affected first half (April- Sept) of FY21, it reported revenues of ₹ 60,353 crore and profits of ₹ 14,171 crore. These numbers compared well with pre- Covid second half (Oct-March) of FY20 when the bank had reported revenues and profits of ₹ 59,254 crore and

₹ 14,343 crore, respectively. The stamp of approval comes from none other than global ratings agency S& P, which recently said India’s sovereign ratings prevent it from upgrading the bank’s ratings.

Best Yet To Come

The strategy for the next three-five years involves reimagining the branch channel as a financial services marketplace, payment services, virtual relationship management and scaling up of subsidiaries. “If you go back to 7- 8 per cent GDP growth with the distribution network that we have, you will be amazed with the results,” says Puri. “In normal terms, along with India's potential, when you reach GDP growth of even 6.5-7.5 per cent, you will see the true potential of the bank,” says Puri. Semi-urban and rural expansion and digital opportunity are the new growth engines.

“Semi-urban and rural India are largely virgin markets for organised finance on both assets and liabilities side,” says Puri. For decades, public sector banks with good distribution focussed only on liabilities or mobilising low- cost deposits. Some NBFCs explored the assets side but with niche products like tractor, two-wheeler and gold loans. In the last six-seven years, HDFC Bank has created a large distribution network, so much so that almost 55 per cent of its

branches are now in non-urban centres. “If you are both on lending and borrowing sides in semi-urban and rural India, then I see, over the next five years, a middle class equivalent to the current middle class in this country,” says Puri.

The expansion in rural India, where the bank has over half its branches, will help it tap new opportunities. But it is also facing challenges from new small finance banks and new-age NBFCs which are serving the unbanked and offering higher interest rates on deposits.

In the last five years, HDFC Bank has also transformed itself into a digital bank. In payments, it has built a strong base of cardholders and merchants. It is also lending digitally with 10-second personal loans. Under Digital 2.0, it is working on technologies like robotic process automation, machine learning, AI and blockchain. This is the phase for more partnerships. “We have clearly defined goals,” says Puri. A month after Puri’s exit, RBI had asked the bank to temporarily stop issuing new credit cards and launch new digital initiatives because of outages in online facilities. It is fixing the problems on a war footing.

Passing the Baton

Two years before the succession date, the bank appointed Sashi Jagdishan as the change agent. That was Puri’s idea. “We had radically changed the bank in the last two years. That was based on plans made two- and- a- half years back,” says Puri.

Eventually, the six-member succession committee under Shyamala Gopinath also put its stamp on Sashi. Was appointment of change agent the first signal from Puri to the committee for his likely successor? “The first step was to understand the talent available. To test whether the person would be able to deliver,” says Puri. “Let's understand there is now a change in geopolitics, geo- economics and geo-health. Change will be very rapid. What I needed was a person who understood microeconomics, technology, riskreward and profit dynamics and, most importantly, would work as a team,” says Puri.

Nitin Chugh, MD & CEO at Ujjivan Small Finance Bank, says Puri is an inspirational leader par excellence. “He has inspired many generations of bankers and professionals with his humane approach to business and people. I’ve always found in him a man with a golden heart, someone who values the well-being of his people and customers over everything else,” says Chugh.

The 70-year- old banker has no plans to sit at home. He is now an advisor to private equity Carlyle Group. Next on the agenda are education and healthcare. So, when are we going to hear about his next move? "If it happens, you will hear it, if it doesn't, I will play golf," he says.

the middle of

the coronavirus crisis, the ₹ 12,000- crore, Kolkata-based Shree Cement went ahead and cemented a partnership with one of India’s iconic football clubs — East Bengal Sporting Club — soon after it completed 100 years. Shree Cement picked up a 76 per cent stake in the club, which has since been renamed Shree Cement East Bengal Foundation. “We want to be associated with major activities of West Bengal,” says Shree Cement Managing Director Hari Mohan Bangur. “This is the right time to invest in a global sport like football.”

That’s a smart branding move as Shree Cement looks to build on its brand equity in newer markets, even as a vast swathe of the country’s business landscape struggles to find its bearings post-lockdown. The association with East Bengal — primarily a soccer club — will not be limited to football. The plan is to promote other sports too.

Soccer Punch

There is astute reasoning behind Bangur’s move to associate with East Bengal. It allows him to piggyback the club into newer markets — apart from north and south India — with Indian Super League (ISL). It also coincides with plans to move beyond valueconscious market segments. “Football is a cheap way for any company to build its brand equity nationally,” says sports management consultant Sabyasachi Dasgupta, whose company Leisure Sports Management had launched India’s first franchise league, the Premier Hockey League, in 2005.

Unexpected Moves

Bangur’s tryst with football came during a protracted slump — GDP growth falling over eight quarters since March 2018. The situation worsened with the lockdown. As Bangur concedes, “We started this year with a very negative feeling, not knowing what will be there.”

My cost-cutting is not dependent on the present economy, it is a continuous phenomenon

Yet, in the middle of this, he acquired a football club. But bizarre moves are Bangur’s card. During a similar slump in 2002, he had left a cash-rich suitor stranded at the altar and walked away, simply because the union just didn’t feel right to him. It was a bizarre call, given that the suitor — the French group Vicat — had offered Bangur ` 800 crore for equal ownership in Shree Cement at a time when he, saddled with excess capacity and high debt during a four-year downturn, was desperate for a bailout.

On hindsight, calling off a 50- 50 deal does not seem that bizarre. As Bangur asks rhetorically today: “Who would have taken the decisions… me or them?”

Beating Covid

The 2002 experience has left a lasting impression on Bangur, a fear of debt. “Debt is very good for growth but during bad times, the loan and the interest will kill you,” he explains. “We have seen many examples, and now we want basically to remain debt free.”

Bangur’s obsession with keeping debt levels low has helped the company improve its operational performance in the second quarter of 2020/21 as the lockdown eased and sales picked up.

Data from financial services company Emkay Global shows while the cement sector as a whole clawed back to a year- on-year recovery of 3 per cent in Q2, Shree Cement posted the second highest growth in volume (16 per cent) among the main players. Its Q2 net profit surged 77.1 per cent year- on-year to ` 547.25 crore. This was considerably higher than the ` 371.4 crore estimated by analysts tracked by Bloomberg. It trailed only JK Cements (25.6 per cent), way ahead of the third- placed Ambuja Cement and UltraTech Cement (6 per cent).

Costs & Innovations

According to Bloomberg, Shree Cements achieved volume growth by keeping prices in check. It’s a business principle Shree Cement has been following for the past 15-20 years. Says Bangur, “My cost- cutting is not dependent on the present economy, it is a continuous phenomenon.”

Hence, at a time when companies stopped future projects because of the uncertainty posed by the pandemic, Shree Cement’s expansions plans were back on track as soon as the situation improved.

Bangur has also refused to get into a rut by sticking to any standard operating procedure (SOP), which he feels is “not possible” as “everyday something new will come up”, which will require flexibility to be resolved.

Employees are encouraged to try out new things. “If somebody has something to try, there is the freedom to knock,” Bangur says.

“This is how we continuously grow... This is something that makes us different from all other commodity companies, not only cement companies,” he adds.

Future Beckons

For all the fears over coronavirus, the biggest leg-up the company got during its outbreak was from the pandemic itself; in Bangur’s view, demand picked up in the second quarter on account of labour migrating to their hometowns, mainly in in the rural areas and Tier-II cities.

Bangur points out that as people returned home to smaller towns and villages in large numbers during the pandemic, it created a space shortage. With more people working from home in Tier-II cities than ever before, it led to people adding rooms. That has resulted in a rise in demand for cement. Not surprisingly, the demand has come from eastern and central India, which, Bangur says is because of the lower levels of urbanisation in these regions. Also much of the migrant labour comes from these regions. He, however, does not expect demand to cross the 4- 5 per cent range, quite similar to what it was a year ago.

Despite the small demand pick-up, Bangur wants to be prepared, and plans to double production capacity over the next seven to eight years. And taking his brand forward will be football.