IndusInd shortlists executives to take over from CEO Romesh Sobti
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These four candidates had joined IndusInd along with Sobti in February 2008 from ABN Amro NV when he took over the reins at the bank, Sobti said in a interview on Tuesday. Chief operating officer Paul Abraham, head of consumer banking Sumant Kathpalia, head of corporate and commercial banking Suhail Chander and chief risk officer K.S. Sridhar are the four who joined IndusInd from ABN Amro along with Sobti in 2008.
“When the time comes, one of them will take over. We expect a smooth transition happening, and we expect continuity of thought and action,” Sobti said.
The lender is looking for a successor after the Reserve Bank of India (RBI) in January approved Sobti’s reappointment as managing director for a year even though the lender’s board had requested the banking regulator to extend his tenure for three years. RBI did not give any reason for the one-year extension but it is likely that the regulator will not allow Sobti to continue as IndusInd’s managing director after he turns 65 next year. Sobti’s present term ends on 31 January 2015. He, however, said that whether or not he gets a further extension will have to be decided by RBI.
“Whichever way it evolves, we have full preparations to make sure the bank continues on its path. People worry about whether the bank will act in the same way that it has acted in the past...I can give a very high degree of assurance that there is a complete concurrence of thought on what we should do and what we should not,” Sobti said.
The process of choosing a successor has already started within the bank, Sobti said, adding that the management will make sure that IndusInd “continues the thoughts and action of the last six years”.
Sobti, who has held the top position at IndusInd since February 2008, has been credited with turning around the bank from a sleepy private sector lender to become a top pick for investors in the last six years.
In that period, IndusInd’s loan book has increased at an average annual rate of 23% from Rs.12,795 crore in March 2008 to Rs.55,102 crore in March 2014, sending the bank’s stock price soaring to Rs.570.90 now from Rs.100 then.
However, Sobti’s success over the last six years has also increased investor anxiety on what happens after he retires.
Edelweiss Securities Ltd calls that risk a “human capital risk”. In a note on the bank in May, Edelweiss analysts Nilesh Parikh, Kunal Shah, Suruchi Chaudhary and Prakhar Agarwal said an exodus from the bank post Sobti is a major risk facing the lender immediately.
“With most of the core team members coming from ABN, a unique concentration of employees has been created. Thus, when Romesh Sobti leaves or retires and if this team also moves away for some reason, there is risk of a huge human capital crunch situation,” Edelweiss said.
Sobti acknowledges the anxiety of investors on the bank’s future but assures that the bank’s “thinking” will not change even when there is a change in leadership.
“The business plans are made collectively and is not the diktat of one man. These guys have been groomed for years. They are people who know as much about the bank as I do, they can take over just like that,” Sobti said.
The bank has already prepared a blue print for the next three years, a plan that will ensure continuity for the bank’s future course, Sobti said.
In the next three years, IndusInd plans to double branches to 1,200 from 600 now and widen its customer base to eight million from four million now. It also plans to increase the proportion of low-cost current and savings account deposits to 40% from 32% currently.
It will also open 350 of its new branches in rural areas to fulfil RBI norms which dictate that banks must open at least 25% of its branches in areas where the reach of formal banking services are limited.
“Starting in April this year, we have made rural banking a new vertical. We now have a business plan for rural areas because opening rural branches is a (regulatory) compulsion,” Sobti said.
Currently, just 3% of the bank’s profit comes from its rural branches, which Sobti expects to increase to 10% by March 2017. He expects IndusInd to continue growing faster than its peers.
“We will continue to be 10 percentage points faster than the industry like we are doing currently because we will get into new areas, widen our customer base, better our coverage model, and maintain our dominance in the vehicle finance industry,” Sobti said.
IndusInd’s loan book currently is tilted towards corporate lending, which makes up 55% of the bank’s advances. Its consumer lending book, in turn, is dominated by commercial vehicle financing, a business which has been hurt by the slowing economy in the last two years.
“Commercial vehicle finance has shrunk 25% in the last two years. But there are clear market indications that vehicle finance will bounce back this year as all surplus capacities have been used up and demand from the mining sector which had vanished is slowly recovering after mining bans have been lifted in Goa, Bellary and Odisha,” Sobti said.