THAT BANKERS, BUSINESSMEN and politicians often make for not salutary partners has numerous illustrations in history. It was evident between Hitler and Hjalmer Schacht, the brilliant Reichsbank chief in the Weimar years, or, in more recent times, between a habitually defaulting American builder, Donald Trump, and the over-lenient management of Deutsche Bank. Back home, what prevailed in most part of the post-Independence era was a system called ‘phone banking’, by which calls from powerful politicians to bank managers decided the fate of a loan application. Its cumulative bitter harvest is a crippled economy which flounders each time it attempts a sprint. Like the 2008 collapse after the eight-year-long bounce till then.
In 1994, when Aditya Puri quit his job as CEO of Citibank in Malaysia at the invitation of Deepak Parekh of HDFC, to build a “world-class” private bank in India, he brought along a few personal habits that proved valuable in the Indian context. First, to leave office at 5.30 PM, come rain or shine. The other, apparently dictated by wife Anita, is not to carry a single office file back home. Finally, a resolve steeled inside to say no to loan requests from powerful men. On October 26th, when Puri retired on completion of age 70, as mandated by the Reserve Bank of India, the effect of his long nurtured habits were in full evidence. While the non-performing assets (NPA) of the Indian banking industry is estimated to hit 12.5 per cent of gross lending in March 2021, according to RBI’s Financial Stability Report, the NPA of HDFC Bank gently quivers around 1.5 per cent year upon year. The ongoing coronavirus pandemic has brought the banks all over the world at the doorstep of another NPA cycle. But, as Sashidhar Jagdishan, Puri’s successor, says, “[HDFC Bank’s NPA] will not exceed the 2008 level [of around 2 per cent]”.
HDFC Bank under Puri stood tall not merely by reining in NPAs but by winning rock solid confidence of its stakeholders, from depositors to borrowers and stock market investors. In terms of market capitalisation, HDFC Bank is at Rs 6.5 lakh crore, more than triple the State Bank of India, the country’s largest bank. It is double the next biggest private bank. Its strength also shows in the thick foreign portfolio investment—37 per cent—which is higher than the promoter’s 26.1 per cent.
How did the HDFC Bank team under Puri reach such heights? The obvious answer is the relative thinness of the promoter’s stake, making it difficult to be influenced by ‘phone banking’. Besides, Puri gave his bank an enviable sheaf of balance sheets, leaving large margins to play with. In a recent interview, Puri himself has downplayed the NPA element, saying, “NPA is not a big factor that ails Indian banking.” But HDFC Bank has generated, year on year, enough profit to recapitalise the gross NPA, leaving a manageably thin net NPA. This boils down to superior asset quality management.
HDFC Bank’s relatively high profitability resulted from Team Puri’s tough cost-cutting mindset and its customer-first spirit. In any Indian city, the ATMs with the blue-and-red HDFC Bank signboard are usually the first to appear but are early to vanish if there are not enough customers to show up. If you leave an idle savings bank account for too long, the bank will blitz your inbox with reminders, gentle at first, to stop being forgetful about it. The other ‘too big to fail’ private bank, ICICI Bank, too is prompt in keeping customers alert, and accounts active, but it was clearly Team Puri’s innovation that spread across the neighbourhood.
Puri’s long evenings with the family—wife Anita, actress daughter Amrita and son Amrit—saved him from being a ‘public figure’. Less public exposure means less public pressure. His earning from the bank was stratospheric, nearly Rs 18.92 crore in 2019-2020. His stake in the bank was large enough for him to pocket Rs 843 crore in July by selling off 95 per cent of his holdings. He retired with no regrets. “I left Citibank because I didn’t want to remain an employee,” he was once quoted saying. In HDFC Bank, he was more owner than employee. In fact, most employees saw him as that. With so much post-retirement money in his pocket, will he give a shot to owning another business? And that, too, without breaking the vow of returning home at 5.30 PM?