All of a sudden, few old generation private sector banks are hitting the national headlines. Tamilnad Mercantile Bank (TMB), Lakshmi Vilas Bank (LVB) and now Dhanlaxmi Bank – all these small private sector lenders of very long standing have come into focus for all the wrong reasons. But there are banks in the same league which are doing well.
For example CSB (formely Catholic Syrian Bank), City Union Bank, Karur Vysya Bank, Karnataka Bank, Federal Bank, South Indian Bank among others which were also founded by one set of community but over the years they managed to break the tradition, which have helped them.
So question is what have these banks have done right and what lessons can other banks learn from them?
On the issues related to the Banks which are in trouble, a seasoned Banker with nearly four decades of experiences, including with few of the old private sector Banks, said that lack of professionalism, someone trying to garner the shares and control the bank, lack of governance, not having a proper risk management and chasing the growth because of the investor pressure have put many banks into trouble, especially between 2000-2015. Besides that in many cases, the board has appointed CEOs from the PSUs, who would have given and handled some big ticket loans with big clients, which will not work here.
Interference of the directors representing dominant shareholders in the day-to-day decision making, particularly in loan sanctions is another challenge, he added.
N Kamakodi, CEO, CUB said that they also had pressure from the stakeholders to go for big lending and consortium, but they were clear and understood the limitations and told the stakeholders that one loss (of an account) will wipe off the bank's annual profit. In all the investors meetings CUB clearly said what is possible and what is not possible and set the expectations right and they (the investors) have also agreed and appreciated. "We understood our limitations, risk bearing capacity of the organisation, which helped the bank to sail through the problems".
J Natarajan, President and COO of KVB said that many of the Banks started during 1920-50. Initially there were similarities including promoter driver, community etc., but over the years few have changed with a right balance. While one side is keeping the tradition, culture and relation and on the other side is adapting to the new era of banking by updating technology, processes and people. KVB followed this strategy.
B Ramesh Babu, MD& CEO of KVB said that for the person who is coming from outside it is important to understand the culture and tune himself towards that. "You may have a strong strategy and the best one, but it will be killed if you don't integrate with the culture and if you don't understand the culture here," said Babu adding that there is an uniformity and consistency in the bank which never shy away from investing and diversifying in new areas as part of de risking strategy.
V Nagappan, Investor, an economy observer and commentator said that over the years they (the banks which are in trouble) have started moving away from their traditional strength in the name of professionalism. Strengths of these banks were old methods, leadership, traditional, being conservative and relationships. Over the years these strengths started fading away one by one as there was no proper leadership. Those banks, like CUB, KVB were able to create a balance between tradition and new age banking systems, thanks to the leadership. The other major factor is that there is no ownership. It is the biggest disadvantage since there is no single person who will be accountable. It's high time the RBI looks at allowing a single promoter to take majority stake, while giving him or her a couple of years to reduce this stake step by step so that he or she will try to build value.