Vault matters: The changing face of Indian private banks

The face of private banks has changed dramatically in the last few years.

When in trouble, turn to a PSU banker.

This seems to be the approach of the banking regulator every time there has been a crisis or trouble at a private bank.

It started in 2020 with Yes Bank, when Prashant Kumar, the then chief financial officer at State Bank of India, was roped in as chief executive officer to revive the nearly bankrupt bank. Two years later, a similar strategy was employed for RBL Bank, with former Indian Overseas Bank chief R. Subramaniakumar—better known at that point for his role as an insolvency resolver for Dewan Housing Finance Corporation—taking charge as the bank’s CEO. Fast forward two years, Bandhan Bank, one of the newly licensed private banks in India, has once again turned to a PSU banker to address ongoing agency audits and asset quality issues. Partha Pratim Sengupta, a former chief at IOB and a career SBI banker, was recently appointed as MD & CEO of Bandhan Bank.

If these are instances from larger private banks, a closer look reveals similar trends at smaller institutions. SBI veteran Sailee Nair, known for her experience in handling stressed loans, has been appointed CEO of Tamilnad Mercantile Bank after a year-long search for the top position was unsuccessful. Ujjivan Small Finance Bank became the first case among small finance banks to have a former PSU banker take charge as MD & CEO. It surprised many when Sanjiv Nautiyal, former MD & CEO of SBI Life Insurance and previously deputy managing director of SBI, was appointed to lead the SFB.

PSU bankers stability and caution to a bank's operations. Those from state-owned entities who have survived the asset quality crisis of 2015–2019 are often seen as process-oriented professionals.

These are valuable qualities for a CEO, especially when the bank has faced any form of stress.

That said, there is a reason why private banks exist as a separate segment from PSU counterparts. Banking would not have become competitive in India had it not been for the likes of ICICI Bank and HDFC Bank in the initial years and subsequently players such as Axis and Yes Bank infusing a different animal spirit into the system especially on the wholesale banking space. Even in retail space, whether it was to do with ATMs or net banking or even just credit cards, it was influx of the then foreign bankers (mainly Citi) into Indian counterparts such as ICICI Bank and HDFC Bank which has been a catalyst to the adoption of technology in the Indian banking arena.

The then foreign bankers such as Shyam Srinivasan and Murali Natarajan, former CEOs of Federal Bank and DCB Bank respectively and who were in the prime of their career, turned around these barely known franchises back in the 2009-10. So was the case with Romesh Sobti, former chief of IndusInd Bank. To his credit, he propelled IndusInd to secure the fifth spot among private banks in India.

Today, Ashok Vaswani, MD & CEO, Kotak Mahindra Bank is the lone foreign banker in leadership role among the league of private banks.

The face of private banks has changed dramatically in the last 3–4 years. Thanks to the memory of massive bank failures, it is getting painted with those from PSUs.

The intent here is not to say that PSU bankers are any less competent.

But if Indian private banks are to constantly lean on their state-owned counterparts to get them out of stress, how do we bring in a fresh thought process into the system. Technology is changing every day and so are cybersecurity related aspects. The way banking is practiced today is very different from what it was half a decade ago and by 2030 it could be very different from what it is today.

This is true whether it is retail or corporate banking.

By digging into the pool of former PSU bankers to resolve one stressed bank after another, are private banks really taking the right strides towards equipping themselves for the future?