Mumbai: IndusInd Bank Ltd and Dhanalakshmi Bank Ltd, two private banks that were till recently under the glare of the banking regulator, are restructuring their organizations to become more efficient.
The Reserve Bank of India in May allowed both the banks to go ahead with their branch expansion plans after saying no to this for two years as these banks did not comply with the ownership guidelines of the central bank.
The guidelines stipulate that ownership of banks should be broad-based with no single entity holding more than 10% stake.
The existing promoters holding higher stakes in banks have been given time to pare their holdings. Both IndusInd and Dhanalakshmi were slow in adhering to the ownership norms.
Restructuring in progress: IndusInd CEO and MD Romesh Sobti (left) and Dhanalakshmi Bank CEO and MD Amitabh Chaturvedi.
Romesh Sobti, managing director and chief executive officer of IndusInd Bank, said, “For the past four-five years on account of weaker governance and years of stagnation, a degree of atrophy in basic issues had set in.”
Sobti claimed to be working on improving the governance and compliance systems in the bank.
“We had to impress on the employees that there are no short cuts. On compliance issues, if you are in doubt, go to the regulator and don’t interpret on your own. We have zero tolerance for those who lack integrity,” he said.
Amitabh Chaturvedi, managing director and chief executive officer of Dhanalakshmi, who took over the assignment recently, assured the employees that there would be no retrenchments through rolling out a voluntary retirement scheme.
He is also not relocating employees, but on the top of his agenda is changing the regional character of the old private bank that posted a net profit of Rs57.45 crore in fiscal 2009 on an asset base of Rs5,642.96 crore.
IndusInd is the smallest among the new private banks, born in mid-1990s. It has assets worth Rs27,614.68 crore and recorded a net profit of Rs148.34 in fiscal 2009.
RBI has recently issued 30 branch licences to IndusInd Bank and 66 branches to Dhanalakshmi Bank. With this, IndusInd Bank will have 210 branches and Dhanalakshmi Bank, 273 branches.
IndusInd Bank has replaced about 700 employees in the past one year.
While some of them have retired, others had to leave because of low level of performce. “We have replaced 700 staff. The bank has increased its employee strength to 4,200, as of March 2009, from 2,700 people,” Sobti said.
Dhanalakhmi, too, has gone on a hiring spree. “We are adding to our staff strength every month,” said Chaturvedi. It has about 1,400 employees and another 130 will join the bank soon.
The bank has introduced cost to company (CTC) structure for employees’ wages, and for new employees, it plans to offer a component of variable pay, dependent on performance.
In the CTC structure, the cost of benefits, such as housing, car, etc., is calculated as part of the salary package. Traditionally, old private banks do not follow this norm.
The bank has also introduced employees stock ownership plans, or Esops.
“We have been very conscious of the cost structure when we recruited talent from the open market at market rates,” Sobti of IndusInd said.
As a cost cutting measure, IndusInd has discontinued business class travel for all executives, including the managing director and chief executive officer. “If an executive wants to travel business class, the individual would have to pay the difference (in fare between executive class and economy class),” said Sobti.
IndusInd, too, has rolled out employee stock options and variable pay across the organization.
“Esops is a club to which you have to qualify to get it. You qualify on the basis of your commitment, performance and behaviour. Hence, we have been able to roll it out only up to a particular grade. Now, we will extend Esops to the lowest level,” said Sobti.
Currently, 20% of the total salary in IndusInd is based on performance and the bank plans to increase this component to 25-30% next year.