The unenviable job of Aditya Puri's successor at HDFC Bank

Even when many in the competition lost direction on account of periodic financial sector crises and internal corporate governance issues, Puri managed to ring-fence the bank from all troubles.

March 04, 2020 / 07:36 PM IST
 
 
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Building a commercial bank from scratch and making it one of the country's top financial institutions is an arduous task. But for Aditya Puri, 69, the outgoing Managing Director of HDFC Bank, this was his life's mission.

His absence will be a big void and it is needless to say that his successor will have his task cut out.

Puri is the longest serving chief of a bank in India and arguably, the most successful bank boss. Over the years, Puri has gained an iconic image in global banking circles.

During the Puri-era, HDFC Bank's growth has been tremendous on all parameters.

"The kind of wealth creation for investors Puri has done doesn’t have many parallels. Over years, HDFC Bank has built a strong mid-senior level managers and it will certainly find a worthy successor. But, the decision will be critical in the history of HDFC Bank," said Vaibhav Agrawal, Senior Vice-President, Research, Angel Broking.

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A remarkable journey

Puri's journey at the bank is a perfect case study for any budding management student. Just to give a glimpse to the kind of growth the bank witnessed during his time, here are a few milestones.

Puri took charge as Managing Director in September, 1994. HDFC Bank was listed on the Bombay Stock Exchange on 19 May 1995. Between then and now, the market capitalisation of the bank has grown from Rs 440 crore to Rs 6,47,573 crore. Total assets of the bank has grown from Rs 3,394 crore to Rs 12.44 lakh crore between during this period.

Total deposits grew from Rs 642 crore in March, 1995 to Rs 9.2 lakh crore in March, 2019 and total advances swelled from Rs 98 crore to Rs 8.19 lakh crore. The bank consistently grew at healthy rate, surprising most analysts. In the third quarter, HDFC Bank's net profit grew at 33 percent to Rs7416 crore.

Even when many in the competition lost direction on account of periodic financial sector crises and internal corporate governance issues, Puri managed to ring-fence the bank from all troubles. That's precisely what makes the successor’s job even tougher.

Who will be Puri’s successor?

The bank has appointed Egon Zehnder for this purpose.

In a recent interview to CNBC TV18, Puri seemed to suggest that an insider will be better suited as his successor at the bank.

"I am rooting for the best candidate. So, I am saying an internal candidate is good because he would know the people, he would know the system etc. and his acceptability is higher. So, when you go outside you obviously look for that exception," he said.

Remember, Puri is also an adviser to the selection committee to identify his successor and he is perceived to have a significant say in the process.

Among the names that are speculated in the media include outgoing Mastercard CEO, Ajay Banga and HDFC bank insiders Sashidhar Jagdishan, Kaizad Bharucha. Paresh Sukthankar, deputy managing director of HDFC Bank and a trusted lieutenant of Puri  was seen as a worthy successor to his boss. But Sukthankar surprised the markets by quitting in August, 2018, thereby confirming the ensuing hunt for another candidate.

In the interview, Puri had also mentioned that by May, the process of selection of his successor should be over. That is important since the bank, once finalizes the name of the new MD, will require to formally approach the RBI to get the approval. This process normally take about 90 days. Puri is scheduled to step down by October this year.

"The delay in finalising a name isn’t good for markets. The earlier the clarity emerges, the better," an analyst said on condition of anonymity.

Challenges await the new chief

The first challenge will be to ensure that HDFC Bank isn’t losing the edge over competition in a tough market scenario. HDFC bank has been performing ahead of its peers on most parameters but the bank has faced its own challenges. In the third quarter, it saw gross NPAs inching up. Gross NPAs stood at 1.42 percent. The bank did not disclose which sectors have contributed to fresh slippages of about Rs 1,500 crore in the quarter. In a slowing economy, there is a possibility of NPAs spiking and posing fresh challenges to the sector.

The second challenge, for the new MD, will be too keep the folks together at HDFC Bank post management change. Every leadership change (typically of founders or long-term CEOs) at large organizations typically leads to senior level exits. This happened in ICICI Bank post the ascension of Chanda Kochhar. In Yes Bank too, after the exit of Rana Kapoor and appointment of Deutsche bank veteran, Ravneet Gill’s as the new CEO, there were several senior level exits. HDFC Bank’s new boss has an unenviable task.
Dinesh Unnikrishnan
first published: Mar 4, 2020 07:36 pm

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