New Delhi: Dhanlaxmi Bank Ltd’s new managing director and chief executive officer (CEO) P.G. Jayakumar admitted strategic and operational lapses in the high-growth strategy the bank adopted in 2008, but said the bank will emerge from the crisis in three-six months.
File Photo
He was responding to
Mint’s
Banker’s Trust column that was published on Monday, and which raised serious questions about the bank’s current problems.
Even when Amitabh Chaturvedi took charge as CEO in 2008, the bank had a national presence, said Jayakumar in an email that he said would “set the record straight”.
Back then, “the bank had deposits of Rs 3,936 crore, advances of Rs 2,549 crore, capital funds of Rs 421 crore and a staff strength of 1,400. It had 181 branches, 26 extension counters and 72 ATMs and was a pan-India entity”, he wrote.
“We would like to acknowledge that Shri Chaturvedi had articulated the vision of making the bank into one of the top five private sector banks in the country in five years. This entailed rapid growth of business which did happen. However, it is only while implementing the strategy for achieving this vision that the bank derailed, causing in the process considerable damage to its image and reputation. While the strategy was in itself flawed, the execution turned out to be expensive, thereby leaving the bank with a host of issues to manage,” he added.
Worse, it was this strategy that led to the bank start returning losses, Jayakumar said.
“It needs to be noted at this juncture that the bank made a net profit of Rs 28 crore for the year 2007-08 and Rs 57 crore at the end of 2008-09. It stands to reason that this was largely the result of the success of strategies that were in vogue even before Shri Chaturvedi took over. Net profit started declining in 2009-10 and progressively thereafter with the April-September 2011 net profit at Rs 7.75 crore.”
Banker’s Trust had pointed out that one reason the bank’s strategy failed to work was because its wage bill soared. Jayakumar confirmed this.
“Starting from the beginning of 2008-09, there were recruitments of around 3,000 people with the avowed objective of inducting talent into the organization for driving change through a different business model. The compensation to many newly recruited senior executives was way beyond industry standards. This increased the bank’s expenditure significantly, which was two-three times as compared to banks of similar size and put the cost-income ratio under severe strain. Further, the opening of over 66 branches and about 375 ATMs in a span of 12-18 months without adequate assessment of the need hugely added to the cost without commensurate dividends in terms of either fresh business or new clients,” he wrote.
Jayakumar added that the bank’s new management is aware of the issues before it. “The new management of the bank is keen to take forward the positives of the last three years while taking strong measures to rein in unnecessary expenditure and striving to make un-remunerative ventures productive. The bank’s growth story is intact and will be in line with industry trends. In fact, the bank has a sound capital base of Rs 852 crore and a net NPA (non-performing asset) ratio of 0.17% (as of 30 September 2011), which may be the lowest in the industry.”
He also downplayed the role of the bank’s unions—they were initially on Chaturvedi’s side, but turned against him—in the crisis. “It is needless to emphasize that trade unions do have their place in the banking industry with their own set of priorities. They need to be managed imaginatively as partners in the organization’s progress. We may add here that the bank was free from industrial relations problems for almost four years prior to Shri Chaturvedi’s joining even though there are four unions in the bank with varying priorities.”
Jayakumar stressed that the bank would not “go back to its old self (a sleepy regional bank)”, as the column surmised. “The bank is confident of emerging out of the present situation in about three-six months time. You will appreciate that, in a multi-faceted industry like banking, where growth is driven collectively by a large number of employees, the exit of one individual can hardly impede the growth momentum,” he wrote.
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