‘Bank Customers Have Become Demanding’

‘Ultimately, banks are a channel for people to get some long-term return, and this means banks need to adjust their asset-liability mismatch.’
‘Customers also need long-term deposits, say those of three-five years. How would they get them if returns on those deposits do not climb?’
‘Otherwise, on fixed deposits, a senior citizen doesn’t get anything.’

Photograph: Kind courtesy Openbook10/wikipedia.org/Creative Commons

Former HDFC Bank chairman Atanu Chakraborty, who resigned abruptly in March citing concerns over ‘certain practices’ at India’s largest private lender, spoke with Subhomoy Bhattacharjee/Business Standard in New Delhi recently.

Last month, Sashidhar Jagdishan announced he would step down as HDFC’s managing director and chief executive when his tenure ends on October 26. The bank has yet to name his successor.

Chakraborty said succession planning was a problem among private banks, often avoided because “there is a cost to it”. Failure to plan, he said, could hurt valuations.

Many banks are witnessing a lot of changes at the senior level. But the pool of candidates for top positions appears very thin. Why is this happening?

Succession planning is a problem across Indian industry. It is not limited to private banks. But yes, how many banks build up their cadre?

Among the government-run banks, State Bank of India does a fine job.

The reason it does not happen elsewhere is that there is a cost to it. So that is an issue.

Banks need to do it, and perhaps they now realise the need to do so. They all thought this was easy, but now customers have become demanding and their needs are multifarious.

Some banks are doing it and concentrating more on customer service, and their shares are gaining tremendously.

Those that miss out on customer service and succession planning will lose out on their market capitalisation as well.

Specifically, on HDFC Bank, how do you assess developments since you resigned in March?

I will only say they have a strong franchise, a set of high-quality group companies, strong assurance teams and competent middle and junior teams to lead them along. I wish them the very best.

Where do you see the challenges coming in the Indian banking sector?

It is the dip in household savings. When household savings are falling sharply, the avenues for banks to mobilise deposits get clipped.

So, for banks, where is the scope for the buildup of liabilities? Looking ahead, the fact that the liability book is not growing is a basic concern for banks, crimping their desire to ramp up assets, including loan growth.

What are the ways to sort this out? One of those is ramping up the quality of customer service. I’ll put it this way: When a person goes to a bank through any mode, he wants his deposits to be renewed and his money to be moved very quickly.

Essentially, what he wants are simple things, like a transfer done very quickly and things related to his money in the bank to be looked after.

That also means protection against the risk of cybercrime, all of which are a big deal.

Only then should the sale of other products be introduced. So these other products shouldn’t take precedence over the business of reposting the money or capital that he has entrusted to them. That is the main thing.

You mean the sale of third-party products like insurance?

Yeah, there should be a shelf of those. After all, they are also distribution franchises, but they cannot take precedence over the basic banking requirements.

In this context, the depositor also looks at the return his deposits generate. I am thinking about the taxation regime for fixed deposits.

Ultimately, banks are a channel for people to get some long-term return, and this means banks also need to adjust their asset-liability mismatch.

They also need long-term deposits, say those of three-five years. How would they get them if returns on those deposits do not climb? Otherwise, the housing sector will not be supported.

How would you support affordable housing? To ensure this match happens, you have to provide them with a level playing field with equity.

Otherwise, on fixed deposits, a senior citizen doesn’t get anything. Since he will also not put money in the equity markets because he doesn’t know how to skim money and pay a 12.5 per cent capital gains tax.

That’s a deficit in the financial sector which is opening up. His savings are not gaining, and the cost of living is rising. So that is, using (French economist Thomas) Piketty’s term, generating some level of inequality.

Are the boardrooms really looking at these macro pictures, or are they looking too much at short-term issues? There’s been a lot of churn happening in the banking sector now…

Till now, frankly, there was a lot of money sloshing around. But then SIPs (systematic investment plans) grew in volume and took away a lot of funds.

Of course, they remain within the banking system, expanding CASA (current account and savings account). But there’s one aspect of CASA that requires adjusting the cost of money and matching it with the total volume.

You cannot do that without making time deposits attractive. It’s not that boards don’t understand the challenge on the liability side.

Without that, how do you play the asset side? So it’s not that boards are not aware or don’t handle it.

They have risk committees meant only to handle this. Every bank has a risk committee for this.

There’s been a lot of talk about whether Indian banks are really gearing up as the Indian economy expands. Looking ahead, say five to eight years, how do you see the prospects for that sort of expansion?

Let’s face it, banks will always grow as much as the economy grows because they channelise savings. However, India now has two jurisdictions (GIFT City and domestic market), so to some extent they have a play in the multi-currency jurisdiction.

But ultimately, overall savings rates and their channelisation are a function of the overall growth of the economy. So that puts a limit.

After a long time, there is again a discussion about expanding the corporate debt market. But even for government securities (Gsecs), there is hesitation at the policy level about opening the market further to foreign investment…

Without a very strong bond market, Indian industry can never grow. The government has recently done something about it through tax equalisation and those kinds of measures.

Unless the GSec market is very vibrant, the rest of the corporate bond market also cannot grow, and its price discovery will not be as good.

But I can see lots of aggregator platforms coming up. Now it is a function of how the overall market conduct is handled by Sebi (Securities and Exchange Board of India).

I guess that is where I see a possibility of, and perhaps a need — let me put it this way — there is a need for Sebi to set up a separate bond exchange that handles only bonds.

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Feature Presentation: Aslam Hunani/Rediff