| Deputy Managing Director S Nagarajan submits resignation.
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| IndusInd Bank Joint Managing Director S Nagarajan, who was the chief executive of the bank, has submitted his resignation, as a new management team to be headed by ABN Amro Bank’s India head Romesh Sobti will be in place from early 2008. Nagarajan’s tenure was to end in June 2008.
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| The Hinduja Group-promoted bank’s managing director, Bhaskar Ghose, resigned last week. He would continue till Sobti takes charge.
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| Nagarajan had taken complete charge of retail banking, wholesale banking, human resources and information technology in 2004 when Hinduja Group’s Ashok Leyland Finance (ALF), a commercial vehicle financier, was merged with the bank. Ghose had only risk management and strategic initiatives under his charge, banking sources said. Both Nagarajan and Ghose could not be reached for comments.
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| Sobti of ABN Amro, which was quick in naming one of its officials Meera Sanyal as the India head, is expected to join IndusInd in early January.
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| Sources said the biggest challenge Sobti and his new top management team would face will be to functionally integrate the erstwhile ALF operations with that of the bank.
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| IndusInd Bank sources said though IndusInd and ALF have merged on paper, for all practical purposes they function as two seperate operations.
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| A senior IndusInd Bank official, who did not want to be quoted, said the bank has been bearing the cost of two organisations with the proposed integration of the bank and AFL never happening, which had an impact on the bank’s financials.
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| The retail portfolio of IndusInd Bank is highly skewed towards vehicle finance, which exposed the bank to interest rate and concentration risks.
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| The failure of the merger, the officials said, was clearly evident from the fact that the cost-to-income ratio of the bank shot up to 75 per cent now from 25 per cent before the merger in 2004. The bank’s net profit in 2006-07 had dropped to Rs 68.22 crore against Rs 210.15 crore in 2004-05.
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| “The bank converted close to 94 ALF branches into the bank’s branches. But these branches, apart from selling vehicle finance loans, did not sell any other products of the bank. The senior management failed in the integration,’’ the sources said, adding the senior management was divided over the manner in which the retail business was being done in the bank.
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| “Nagarajan, who did not have any banking experience, only ramped up the vehicle finance business at the cost of other products, including corporate banking,” the sources said.
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| They said the promoters at one point thought of realigning the organisational structure and handing over all executive powers to Ghose, but the promoters did not go ahead as they felt investors had formed an opinion that the incumbent management was not equipped to drive the bank to a higher growth path. The bank completely missed out on the retail lending boom of the past three years.
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| The bank’s shares today closed at Rs 129.25 per share, down 1.41 per cent from previous close and 5.51 per cent lower than the 52-week high of Rs 136.80. The promoter’s then decided to bring in a new management team, the sources said.
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| IndusInd Bank could also not diversify into other business segments as the Reserve Bank of India (RBI) was insisting that the bank address the “ownership issue”, which involved provision of a roadmap for reducing promoter holding to 10 per cent.
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| “The bank’s attempt to forge an alliance with Macquire Bank to set up a merchant banking subsidiary hit a roadblock as the RBI insisted that the bank first give an action plan on how will it address the ownership issue,” a banking source said.
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| The bank’s attempts to raise capital through the preferential route also failed as investors, several bank officials said, were not comfortable with the majority owner of the bank being a corporate.
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| Now, there are rumours in the market that the bank might decide on a follow-on public offer after the new management team takes charge. |
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