IndusInd Bank Ltd., one of India’s largest non-state owned lenders, is preparing a sweeping overhaul aimed at boosting profitability and cleaning up underperformance, as its new chief executive officer seeks to boost return on assets following a governance shakeup.
The restructuring — expected within days — will “clean up” the organization and lead to exits for low performers while not affecting headcount, Chief Executive Officer Rajiv Anand told Bloomberg News in an interview.
The bank will also channel more resources into artificial intelligence and expand its retail business to strengthen its balance sheet, Anand said.
Backed by Hinduja billionaire family, the bank has endured a turbulent stretch marked by a probe into a Rs 1,960 crore ($221 million) accounting discrepancy that triggered the departure of its former CEO and key senior executives. The bank reported losses for the second quarter and accelerated its bad debt write-offs from the previous quarter.
India’s fifth-largest private lender by assets has already replaced several executives in core control functions, including its chief financial officer, and added a new internal auditor and a strengthened assurance team, Anand said. A new chief risk officer will join by January as the current one retires.
Anand described the organization as having accumulated “organizational cholesterol,” referring to inefficiencies and legacy processes that have slowed execution.
“In every organization, there is regular restructuring where employees who are not performing as expected are let go. That happens everywhere, and it will continue to happen at IndusInd,” Anand said, while clarifying that there will not be any large-scale layoffs at the bank.
IndusInd’s shares have dropped about 12% this year, compared with a 9% rise in the S&P BSE Sensex Index.
IndusInd employs more than 44,000 people, with its network spanning across more than 3,000 branches across India.
The impact of the crisis has dragged on its profitability, leaving the lender’s return metrics well below peers. The lender’s return on assets - a financial metric that shows how profitable a company is relative to its assets - was at -0.33% in the three months through September, compared with 1.88% for larger peer Kotak Mahindra Bank. A negative ratio indicates that the bank lost money on its asset base during the period.
Anand has set a target of reaching 1% return on assets within 18 months, calling it the first milestone in the bank’s turnaround. Hitting that target would show that the bank “is on the mend. Then we can reset ambitions.”
He added the lender is “very well capitalized” and does not expect to raise new funds over the next two years, denying any talks to lure investment from global private equity firms.
While IndusInd traditionally focused on commercial vehicle loans and microfinance, the bank plans to expand its retail asset portfolio in home loans and lending to micro, small and medium enterprises to make earnings more predictable.
Wealth management will also be a key long-term growth area, Anand said, driven by rising affluence across smaller cities.
“IndusInd could be on the road to recovery” as it strengthens its balance sheet, said Bloomberg Intelligence analysts Sarah Jane Mahmud and Alison Hor in an October note. “Stronger systems and controls, amid a related ongoing fraud probe, could help quell governance concerns.”
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