Corporate Front: Strategy, Is ANZ Ready For The Grind Ahead?

CORPORATE FRONT: STRATEGY
Is ANZ Ready For The Grind Ahead?

Only if roster-pruning coincides with mindset changes and a leveraging of the bank's enviable retail network.

By Niharika Bisaria

M. Mistry, Ex-CEO, ANZ Grindlays India Happy New Year! From January 1, 1999, the 1,200 managers of ANZ Grindlays Bank India will think twice before rushing off for business lunches, making long-distance calls--and even for outstation travel, they will need to justify each trip. That's the essence of an internal memo detailing these drastic cost-cutting measures issued to all its 49 branches in the country. Not surprisingly, the bank's managers whisper about bonuses being frozen, and perks being renegotiated.

Fear is, certainly, the key at ANZ Grindlays Bank India. While its 59-year-old CEO, Mehli Mistry, has decided not to renew his contract, which expired in November, 1998, the 9 functional heads have been told that half of them will no longer be required. Most of the middle-level managers are not even sure whether they will have their jobs in the next few months. Says one: "As of now, only the senior-level staff have been affected. But, by end-December, 1998, the next rung will feel the heat too."

Ilmar Taimre, 48, Head (Personal Banking), ANZ Grindlays India, does not try to play down these apprehensions: "We don't want square pegs in round holes." The only consolation: these feelings are not unique to the Indian operations. Back home in Melbourne, the buzz at its headquarters is about a takeover. In fact, ANZ Grindlays' (1997-98 income: A$ 17 billion) stock shot up to A$ 9.84 on November 3, 1998, because of a rumour that Australia's largest bank, National Australian Bank, may acquire it.

ANZ Grindlays remains a ripe target given its inefficient operations. For instance, the bank's profits stagnated last year at A$ 1.18 million due to the losses it incurred in Asia and Russia. And, globally, its cost-to-income ratio is still high at 60 per cent. Agrees Girija Pandey, 48, Head (Funds Management), ANZ Grindlays India: "We are now trying to get that ratio down to the mid-50s range."

Back home, Pandey has more to worry about. In 1997-98, ANZ Grindlays India's profits per branch was Rs 9.27 crore versus Citibank's Rs 60.08 crore. And the business per branch was Rs 243.93 crore for ANZ Grindlays India vis-a-vis Rs 1,539.96 crore for Citibank. Although its non-performing assets, at 0.59 per cent, were lower than Standard Chartered's 2.42 per cent, they were higher than Bank of America's 0.17 per cent and Citibank's 0.57 per cent.

Surprisingly, ANZ Grindlays India's usage of funds is quite efficient (see graphic). For instance, Operating Expenses as a percentage of Average Working Funds stood at 3.48 per cent in 1997-98, which was higher than Citibank (4.97 per cent) and Deutsche Bank (4.74 per cent). In the same year, Interest Spreads as a percentage of Average Working Funds were 5.83 per cent, compared to ABN Amro's 4.46 per cent and Bank of America's 5.32 per cent. But the problem is the bank's inability to extract the best out of its employees. Thus, ANZ Grindlays India's operating profits per employee are Rs 13.62 lakh despite the business generated per employee being Rs 7.77 crore.

That explains the restructuring initiated by ANZ Grindlays India, whose aim is to operate 5 identical lines of businesses in the 40 countries that the bank is present in. In addition, the country business heads will report directly to their global business heads, making the post of the Country CEO--redesignated as Managing Director--redundant. "This was done since we realised that all the regional markets have fairly similar characteristics," explains Pandey.

Although, the restructuring is still not complete in this country, if ANZ Grindlays India is to thrive, it has to prune costs, increase efficiencies, and enter profitable niches. No wonder the bank is concentrating on a technological thrust. By Q-1, 1999, its 49 branches across the country will be networked through a mainframe, which will entail an investment of Rs 90 crore. Although the back-office operations relating to the retail division of the bank have already been shifted to Chennai, the other divisions are likely to follow suit in the next one year. And 20 new ATMs will be installed by October, 1999, in addition to the existing 30.

These efforts, however, may come too late in the day. For instance, Citibank relocated its office operations to Chennai a decade ago. Says P.H. Ravikumar, Vice-President, ICICI Bank: "ANZ Grindlays is seen as a nationalised foreign bank. The perception is that the bank has not been able to leverage its strengths." In fact, the Australian bank's penchant for expanding its branches is an obstacle to efficiency since some of its branches are located in towns that yield low levels of business. Last August, ANZ Grindlays sought the Reserve Bank of India's (RBI) permission to relocate some of its branches--including one in Calcutta's Chowringhee and the other in Mandvi (Gujarat)--for this reason. Agrees Prasanna Someshwar, 29, an analyst with S.G. Asia Securities: "ANZ Grindlays India needs to shift its branches from cities like Kanpur to Ahmedabad and Coimbatore."

While the RBI's nod is still awaited, ANZ Grindlays India has, simultaneously, started exploring new business areas to increase profitability. Projects Taimre: "In the retail banking segment, we hope to increase deposits by 25 per cent and lending by 45 per cent this year." To achieve these targets, ANZ Grindlays India has initiated new schemes which include loans for professionals, loans against rents earned by property-owners, and financing purchases like houses and domestic appliances. But given the depressed state of the property market, and the slowdown in the economy, the bank is unlikely to make headway in these areas.

In addition, the bank has decided to enter 2 new areas: funds management and asset-financing. But both the segments are becoming competitive. While the Indian branches of foreign banks like Commerz Bank (1997-98 income: Rs 55.72 crore) and the Paris-based BNP (1997-98 income: Rs 178.02 crore) are already advising their customers on how to improve portfolios, Hongkong Bank is expected to enter the arena in the near future. Says a Mumbai-based analyst: "In the funds management segment, business is unlikely to pick up given the current state of the stockmarkets. But ANZ Grindlays India's asset-financing business is likely to do well despite the competition."

India is an important market for ANZ Grindlays, especially since it now generates the largest business for the bank after Australia and New Zealand, although its contribution to the parent's profits is a mere 9 per cent. While that explains ANZ Grindlays India's urgency to shake off its inefficiencies, cutting manpower and administrative costs is only a preliminary step. After having won its Rs 506-crore legal dispute with the National Housing Bank--which boosted net profits to Rs 230 crore in 1997-98 compared to Rs 94 crore in the previous year--the bank needs to use its enviable branch network to garner more business. Or else, like its old logo, ANZ Grindlays India may become an elephant in a jungle dominated by antelopes.

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