BS Banking Annual 2018: In full flow at IndusInd

With Romesh Sobti at the helm, a bank that was an also-ran has become a marquee name

When the Hindujas, the promoters of IndusInd Bank, buzzed Romesh Sobti to take over as its helmsman in late 2008, it hardly had any investor coverage worth the name. A tad over a decade on, it’s among the marquee private banks in the country. And for his steady hand on the IndusInd steering wheel, Sobti is Business Standard Banker of the Year for 2017-18, an honour he is receiving for the second time from the publication after being named Best Banker in 2013-14.

A closer look at the bank’s book is revealing: It’s still largely corporate at 61 per cent — as of end-December 2018, the share of large corporates was Rs 50,833 crore or 29 per cent; mid-size came in next at Rs 32,312 crore (19 per cent); and the share of small enterprises was Rs 21,991 crore (13 per cent). The rest was accounted for by the auto finance and consumer finance businesses. But despite the stress in India Inc, and small businesses in particular, the bank’s net non-performing assets to net advances was 0.51 per cent, up by 12 basis points from the preceding fiscal.

Key financials, too, held rock-steady. Net profit for FY18 rose 26 per cent to Rs 3,606 crore. Net interest income was up 24 per cent at Rs 7,498 crore, while non-interest income rose 14 per cent to Rs 4,750 crores; return-on-assets stood at 1.90 per cent. Book growth was healthy, with total advances and deposits growing by 28 per cent and 20 per cent respectively.

Ever since Sobti came on board, the bank has worked on three-year planning cycles (PC); it is now into its fifth, and has bet big.

Its “4D” strategy for the period (fiscal 2018-20) is — digitise to differentiate, diversify, and maintain domain leadership. The bank has so far followed a strategy of not “manufacturing” products such as insurance or mutual funds, but seeks to get market share by vending offerings of others. A few years ago, we saw the first glimpse of this strategy when it decided to hawk Housing Development Finance Corporation’s home loans to pocket a fee rather than get into a price-war to build a book by blowing up precious capital.

As part of its strategy, it will soon set up insurance, asset management and securities broking businesses. “We have four growth engines. One is para-banking, which will start after we enter mutual funds, insurance, and broking. The second is microfinance, and with the imminent merger of Bharat Financial Inclusion (BFI). The third leg is our focus on rural India where we are putting a lot of strategy and money. The fourth is our organic growth.”

It’s been a remarkable turn of narrative at the bank which had muddled its way through during the first ten years of its existence; it’s lost years. In October 2009, a Mint Road draft paper on new private bank licences referred to IndusInd as “one bank (that) has just about survived”. For five years earlier, it had nearly got beached when Ashok Leyland Finance (a subsidiary of Ashok Leyland) merged with it, and the bank found it difficult to digest a non-banking finance company with a different business model.

Sobti concedes his early days at IndusInd were tough; it was not just about the financials, but the way the bank had been imagined until then. “The branch network was a loose confederation of branches,” he says. And it couldn’t have been business as usual. “It’s never easy when a new team comes in as Marines from Mars, but the need for change was felt by old timers at IndusInd too,” he adds.

As Sobti enters his last year in the corner room at IndusInd before retirement, he has one more challenge left — to find a successor “sometime by the middle of this year” as he says. It’s down to three internal folks (all former colleagues of Sobti at ABN Amro) — chief operating officer Paul Abraham, consumer banking head Sumant Kathpalia, and corporate and commercial banking head Suhail Chander; the bank’s board will also look at outsiders. But it will never be the same at IndusInd Bank. An avid club cricketer in his youth, Sobti’s stay at the crease at IndusInd can be safely said to have been that of a top-class test match player.  

And we say: Well played!