A New Beginning: The Turnaround Story of Indian Bank

Citation

Yadav, S.S. (2009), "A New Beginning: The Turnaround Story of Indian Bank", Journal of Advances in Management Research, Vol. 6 No. 1, pp. 115-117. https://doi.org/10.1108/jamr.2009.6.1.115.1

The book, A New Beginning: The Turnaround Story of Indian Bank, is the story of the revival of one of the three “weak banks” which came to the verge of collapse in the last decade of the last century. Indian Bank was one of these three; the other two being United Commercial Bank and the United Bank of India. The author of the book, Ms Ranjana Kumar, was its Chairman and Managing Director (CMD) during 2000‐2003. Her mandate was to revive the Bank and revive it she did. The book is simply the story of challenges that the CMD faced during this revival process and, that of courage and conviction that she displayed to meet the challenge.

The task must have, indeed, appeared to be stupendous in 2000. It must have required a rare inspiration for her (or for anyone for that matter) to take up the responsibility. No wonder, Mr Y.B. Reddy, the then Governor of Reserve Bank of India (RBI), while releasing the book in Delhi, on 26th May 2008, remarked: she was given this task because no “man” was willing to take it up.

The Bank had accumulated huge losses during 1992‐1999. As a result, its entire net‐worth was wiped out and, in fact, turned negative. Intermittent infusion of capital by the Government of India did nothing to stop the decline. Its NPAs (non‐performing assets) were more than 30 percent and the net profit was –Rs 427 crore as on 31st March 2000[1,2]. The Bank had stopped credit growth. It capital adequacy ratio was negative (–8 percent).

The options available for the Bank were closure, merger with another bank, or turnaround. Finally, the last option was chosen, with Ms Ranjana Kumar, the author of this book, as the CMD. The Bank had four‐layer structure, with Head office, Zones, Regions and Branches, spread all over India with greater concentration in South India. Besides, it had three subsidiary companies and two foreign branches.

The revival required a very carefully crafted restructuring plan and, more importantly, a rigorous implementation programme. The restructuring involved organizational change and branch rationalization. In operational terms, the turnaround required the following: reduction of NPA; cost control; staff rationalization; employee motivation; technology upgradation; resource mobilization; credit and risk management; and internal control.

The Bank Management deliberated on the issue whether to formulate the restructuring plan internally or to go in for the services of an outside consultant. It was argued that an outside consultant may not appreciate fully the work ethic and the psyche of the staff members who had seen the decline of the Bank at first hand. The CMD took into account the inherent strength of the good staff, a strong union concerned with the well being of their organization and loyal customers who did not desert the Bank despite its weakening reputation. Consequently, the restructuring plan was drawn out internally, of course, taking inputs from RBI and Ministry of Finance.

A systematic effort was made for revival. Four‐layer structure, consisting of Head Office, Zones, Regions and Branches was reduced to a three‐layer one, by eliminating zones. Branches were segmented in terms of Corporate, Commercial, Personal and Rural Banking, in order to have customer‐centered products and delivery channels. Branches were rationalized based on considerations of business and net profit. The overseas branches at Singapore and Colombo were supposed to generate a pre‐defined operating profit which would require a regular monitoring and review.

The Bank prepared a Business Plan for three years, 2000‐2003, with rates of growth for deposits as well as credit specified for each year. It was decided that domestic credit – deposit ratio would not exceed 50 percent. One third of the incremental credit was proposed to be given to PSUs at a rate below prime lending rate (PLR). The investment under private placement category was to be done only in “AA” rated bonds and in bonds of public sector companies, banks, financial institutions, etc. Control on expenditure was to be ensured by rationalization of air travel, branches and training centers, besides freezing major capital expenditure except the one relating to technology upgradation. Special attention was to be paid to NPAs for their speedy recovery by adopting a flexible approach for settlement. The NPAs were to be monitored at different levels as follows: Rs 10 crores or more by CMD; Rs 5‐10 crores by Executive Director; Rs 1‐5 crore by General Managers; Rs 10‐100 lakhs by Regional Managers; below Rs 10 lakhs by Branch Managers. In order to minimize fresh NPAs in future, a detailed Credit Appraisal, Risk Management, Credit Monitoring and Supervision system was to be set up.

To enhance competence and upgrade the skills of the employees, training was to be used as a major tool. Voluntary retirement scheme (VRS) was proposed to be implemented so as to rationalize manpower and reduce operating costs. Out of the existing strength of about 26,000, roughly 10‐12 percent was expected to opt for VRS.

As regards motivation of staff members, it was decided to reward the performers. More significantly, the effort was made to raise the optimism among them as they were demoralized because of fear psychosis that developed due to Central Bureau of Investigation and Chief Vigilance Commission cases, initiated earlier, against some employees/officers. Effort was made to develop open channels of communication at all levels of the organization and remove fear from the minds of staff. Technology upgradation/computerization was given due importance.

The government of India and RBI were requested to extend the requisite support which was forthcoming in a good measure. One very noteworthy feature of the revival process was that the Bank signed a Memorandum of Understanding with the Government stipulating that the latter would provide recapitalization to the Bank only if the performance was good. And, the Bank did perform and got additional capital.

The restructuring plan and sincere efforts to implement it paid off. Aggregate deposits rose from Rs 19,000 crore in the year 2000 to Rs 27,000 crore in the year 2003. Likewise, advances went up from Rs 8,200 crore to Rs 12,300 crores during the same period. Gross NPAs came down from 33 percent to 12 percent and net NPAs from 16 percent to 6 percent, respectively. Operating profits rose to Rs 600 crore from a meager Rs 23 crores. The most significantly, the Bank earned a net profit of Rs 188 crores as on March 2003, moving up from a loss of Rs 427 crores as on March 2000.

The turnaround had been accomplished!

This story relates to an organization belonging to financial sector. But, on reading the book, it comes out clearly that the CMD handled the human resources with great amount of sensitivity and that did the trick. The staff and officers “learnt to act fearlessly and function objectively in the full knowledge that their bonafide actions would be supported by top management (p. 13)”.

In the end, it would be worthwhile to add that the author has taken due care not to name any person(s) who might have been responsible to bring the Bank to the sorry state that it was in the year 1999 before her taking up the charge as its CMD. She took the task of revival as a professional manager with rare dedication. Let me quote verbatim the lines that the author, herself, has quoted at the end of the last chapter of the book:

I asked for strength and

God gave me difficulties to make me strong.

I asked for wisdom and

God gave me problems to solve

I asked for courage and

God gave me dangers to overcome.

I asked for love and

God gave me troubled people to help.

I asked for favor and

God gave me opportunities.

I received nothing wanted.

I received everything I needed.

The Bank which started its operations on 15th August 1907 (exactly 40 years before India's Independence) has since completed 100 years of its existence and is doing very well now.

Needless to say, the book is very valuable addition to the Management literature. A wide variety of readers – students, teachers and practitioners – will all immensely benefit from it.

Notes

1. 1.

   The current exchange rate is about Rs 50 = USD 1. Rs is pronounced as Indian Rupees.

2. 2.

   Crore = 10 million; 1 million = 10 lakhs.