It’s extraordinary for a CEO and executive head of the Governing board to hold reins for 25 years – from start up to taking to the peak, leaving peers far behind across all parameters (financial & non-financial) and stepping down in glory pushing the bar higher to $1 Billion quarterly PAT in Q2/FY21, less than a month before his retirement at 70 years. It’s envy for most as few get to attain this kind of glory, and not seen any in the banking sector! It’s important to analyse (as case study), how it was made to happen for others to follow!
What are the 5 critical challenges of the CEO that was managed to perfection?
1. Balancing regulatory prescriptions and shareholders expectations:
It’s the most difficult job given that dynamics operate in opposite direction – shareholders expect high returns come what may while regulators emphasis on risk, compliance and governance, which comes in at the expense of higher cost of compliance and diluting earning per share. Balancing the expectation of regulators without significant dilution in shareholders returns (dividend & market cap expansion) is the art that Mr. Puri practised & mastered all through! I don’t have to dwell in detail on these, as figures speak for themselves on wealth creation for shareholders (enterprise value up from ₹5 Billion to ₹6.5 Trillion since 1995) while being on the good books of the regulators (no major penalties or strictures for non compliance or deviations) establishing fair & prudent play and practices.
2. Setting high standards of customer experience with best-in-class products & services and cost & time efficient delivery standards
HDFC Bank established nice blend of products & services, customer delight and Go2Market efficiency. While most banks operated on “Customer is the King” value statement, he opted to choose products capability & delivery standards to establish customer delight as customer pull & retention strategy. When there could be very little differentiation on banking products & services, the art of packaging for cost optimisation emerging as holistic service provider was exploited to the full. HDFC Bank is far ahead in taking advantage of technology driven product innovations, that’s reflected in quantum leap in customer base, multiple hooks on each customer and alignment (of not manufactured products) with other manufacturers & service providers, taking the fullest advantage of partnerships & alliances, avoiding any kind of irritants in the relationship. It was possible for him to establish win-win relationship between customers and various business units. He went on to establish that customers don’t come for love or loyalty to the bank, and gets attracted towards product & service efficiency & wiling to pay premium for the upgrade from customer satisfaction to customer delight.
3. Retaining good talent – what’s more relevant is alignment of HR to brand & delivery standards and not to the boss
Human Resource plays the most critical role starting from strategy visualisation (story line) to building tactics (script writing) and ruthless execution (production). The head plays the most important role in ensuring that all in the pipeline deliver to perfection. The practice of the following was evident: (a) hiring best talent and not known talent, which means that there’s zero compromise on integrity, competency and commitment (b) trust & confidence on business and functional leadership which cuts across mentoring, guidance, monitoring and empowering the team leaders to get the best out of their teams (c) establishing best of talent for managing customers and revenues – team leaders & members that are the make or break team and comparable to the lower part of the human body – the hip (team leader) and the legs (feet on street sales force). If the lower body fails to perform, upper body – head (the CEO) and the torso (business & functional leaders) goes redundant, while performance of the lower body is dependent on strength of the head and torso. More importantly, the theory of people remain for the boss and not for the company got disproved in HDFC Bank.
4. Management of peer group pressures and competition
Here is where, the differentiation was built between HDFC Bank and its peers to the extent that none stay close to HDFC Bank – be it public sector giant SBI or systemic important private sector banks ICICI & Axis Bank. How it was achieved? One is from delegation – monthly performance responsibility to Team Leaders and quarterly monitoring to business leaders, while retaining responsibility on the yearly target commitment to the board, while spending more time on matters beyond 1 year. This helped to stay ahead of the rest in terms of staying updated to changing environment & dynamics, and positioning ahead of the peer group – there are number of instances that HDFC Bank was already half-way while others for preparing for the race. He never believed in temporary & unsustainable glory, and opted to wait & buy time for permanence. During a personal chat long time ago in 2005, he mentioned that he wished to build HDFC bank with natural beauty without any artificial makeover boosters, so that in rainy days the beauty glows & gets better and stands out while others look ugly from wash out of the heavy make up. How true, it turned out to be in September 2020, when HDFC posted record quarterly profit in post-Covid phase crossing ₹7500 Crores of PAT against previous ₹6500 Crores, only Indian bank crossing $1 Billion quarterly profit after tax! HDFC Bank is set as the role model for banks on growth, profitability and efficiency parameters, and it’s no surprise that most failed to deliver the Aditya Puri way when the going got tough in 2019-2020, while HDFC Bank got going!
5. Capacity Building for growth sustainability
Most businesses get caught on higher base effect to maintain continuity & sustainability in growth parameters across top & bottom line and cost-revenue. It would need combination of organic & inorganic way while emerging as combination of commercial & investment bank. This is where Aditya Puri took the best from Uday Kotak who built value for the bank doing beyond financial intermediation and establishing businesses complementary to the Bank that are light on capital and risk-weight, thus providing better Return on Asset and EPS. HDFC Bank went on to stand tall both on financial intermediation (use of capital) and financial services (non-credit products & services without use of risk-capital) building best-in-class valuation multiplier over EPS and Book value. While organic growth is made to be business as usual, judicious option of inorganic growth was adopted to beat the higher base effect. Inorganic acquisitions comes with uncertainties and risk, and would need level head & high level of business prudence to make it successful, which was done to the perfection ensuring to avoid duplication and adding to customer base that would improve cost-revenue to beat higher base effect on the bottom-line and profitability. There’s no other bank that has delivered efficiently running simultaneously on both the tracks – organic and inorganic growth!
What’s the take-away for Indian banks to have more such banks in the banking sector
Aditya Puri established HDFC Bank as the role model to emulate not only for Indian Banks but also for banks in the developing economies of Africa. More importantly, it was made to look simple as what it needs is prudence & common sense and passion & commitment, and it’s an art and not rocket science! It’s personal pride for me that I have travelled through 25 years of new generation private banking phase of 1994-2019 along with him and had the opportunity to run as peer during the start-up phase of IndusInd Bank in 1994-1999 and business interactions in 2001-2003 at the time of merger of Centurion Bank with HDFC Bank and thereafter in 2003-2007 building relationship between HDFC-IndusInd Bank!
It was great to have known you Mr. Puri and here is wishing you good health and all the very best in your new ventures!
Best, Moses Harding
