Aditya Puri, MD, HDFC Bank: Beating the foreign banks at their game

Aditya Puri hasn't been playing golf for over a year and that's not really because the HDFC Bank's managing director is so swamped with work that he hasn't had the time. Puri would have loved to play-and is going to get back to the greens soon-once his shoulder injury is completely healed. In fact, although Puri heads one of India's most live-wire banks, which has been growing at a scorching pace, he's hardly someone you'd label a workaholic. Puri, 53, likes his other interests-spending time with his wife and two children and going off for treks in Lonavla on the outskirts of Mumbai.

For a clue to Puri's style of managing HDFC Bank, you've got to take a look at his uncluttered wooden desk in the second floor corner room in Sandoz House in mid-city Mumbai. It is always clean. No papers, no files, no mess. Speed is what Puri believes in and that's evident from his swiftness in clearing papers, taking decisions and moving files. For him, it's either a yes or no-and a speedy one at that-for every paper that lands on his desk. Yes, there's an open appointments diary on the desk, but it's not exactly frenetically packed with engagements-only a few, like a meeting at the central bank or a presentation he has to make to the Finance Ministry on online collection of customs and excise that could become an exciting new business opportunity.

But Puri is anything but a laid-back banker. The ex-Citibanker-Puri served with the US bank in India, Malaysia (where he headed it prior to the HDFC Bank offer) and Saudi Arabia-is a dynamo when it comes to his vision and strategies for the bank and the ability to see them get off the ground. He spends time often in meetings with his handpicked senior managers, framing direction and strategy for the nine-year-old bank that has been at the forefront of innovation in the industry. Sipping Chinese tea from a golf bag shaped mug, Puri explains what drives his bank: "Once we spot an opportunity, we will find a way to access it and then it's a collaborative effort." It's what Puri likes to call a "can do" attitude.

It seems to work. In less than a decade of its existence, HDFC Bank has won several prestigious accolades. In 1999, 2000 and 2001, Euromoney and Finance Asia named it the best bank in India and last year, JD Power Asia Pacific ranked it at the top of the list in its consumer financing satisfaction index. And the cold hard numbers? They're sizzling hot, actually. HDFC Bank has 3.1 million retail accounts, growing at 50 per cent annually. Its net profit grew by 30 per cent to Rs 387 crore in 2002-03 and its balance sheet size from Rs 23,787 crore to Rs 30,424 crore. Its average cost of deposits fell to 5.4 per cent in 2002-03 from 6.42 per cent in the previous year (the industry average is 7.6 per cent). Growth rates that outstrip its peers of similar vintage like IDBI Bank, UTI Bank and Indusind Bank.

The HDFC Bank Way

It may sound simple. But isn't quite. This is how Puri built the bank from scratch: first off, he opted to invest heavily in technology to create a centralised procession system that could handle a scorching pace of growth; second, he hired his core management team from foreign banks, which are perceived to be relatively more aggressive than their Indian (read nationalised) counterparts.

At HDFC Bank, Puri's top colleagues include head of technology C.N. Ram (who worked in Bank of America), head of operations H. Srikrishnan and country head, retail, Neeraj Swaroop (both of whom hopped aboard from Bank of America). In addition, there's Country Head (Corporate Banking) Samir Bhatia and Head of Credit and Risk Paresh Sukhthankar (both ex-Citibankers like Puri). The top managers having international work exposure evidently helps. Says Ram: "From the mindset point of view all of us gelled." But Puri adds a caveat. Growth at HDFC Bank is faster than at most foreign banks. "No foreign bank can grow at the rate we have. It's much quicker decision making here."

Puri's preferred approach to business is to view it across three time horizons-businesses that are today's cash cows, like corporate banking and treasury, which are growing at 15-20 per cent, retail businesses that could be growing at the rate of 40-50 per cent and make money for you in two years, and new businesses that the bank is exploring for the future. Plus, of course the thrust on presence. Over the past five years, HDFC Bank's branches have grown from 57 to 231, covering 123 cities, while its ATM network has gone up from 111 to 732. The target: to cover up to 200 cities.

Betting on Technology

Banking is not rocket science. It's a business as ancient as they come. But when HDFC Bank started, it bet big on technology, something that even large and established banks in India have been tardy in adopting. Back in 1994, HDFC Bank invested Rs 50 crore, 25 per cent of its Rs 200-crore capital, in creating a centralised processing system that would link all its branches. This move made it easier and speedier to expand without hiccups or glitches.

Growth thus far at the bank in the retail segment has come from higher volume markets-mainly the metros. While that may be a no-brainer, the bank's strategy has been to aggressively cross-sell its products to its customers in these markets.

For that, it has pumped investments in more technology. In the past 18 months, HDFC Bank has spent Rs 15 crore in building a data warehousing system. Says head of technology Ram: "A customer database is the backbone of any organisation. It is perhaps one of the most valuable assets for an organisation. We want to manage, monitor and leverage this asset for business benefits."

Simultaneously, the bank is now looking at Tier II and Tier III towns, where the older nationalised banks are stronger and where business potential is on the rise. Comments Ritesh Maheshwari, head of financial sector, Crisil: "The challenge for the bank is developing products catering to this market and maintain the quality and profitability, which has been its hallmark till now."

Getting It Right

What is it that HDFC Bank did right? It got the basics right: a focus on low cost of deposit, reining in operating costs and using multi-delivery channels to deliver an entire range of products efficiently. Plus, of course, reducing its risks by focusing on top-rated corporate customers and upper middle and middle class retail customers. No surprise then that its NPAs (non-performing assets) of 0.3 per cent, is one of the lowest in India's banking sector.

But, as Puri says, that's just for starters. "We have maintained that we will start business slowly and test all the hypotheses before ramping up the business." In 2001, when his bank debuted in the auto loans business, it was test marketed for a year before it was rolled out on a large scale. Today, auto loans account for 27 per cent of the retail advances. Or in retail banking, where the bank started with fully secured products like loans against securities to semi-secured auto loans and personal loans before offering unsecured products like credit cards.

Its credit card business is a year old now and the bank has installed 21,400 point of sales terminals to consolidate its position, and is expecting the business to make money for it only in 2004-05.

Technology and risk management seem to be the combo that has worked at HDFC Bank and the plaudits have come from notoriously fastidious quarters-the stockmarkets. Most stock analysts put out a 'Buy' recommendation for its stock. Says Puri: "The most difficult parts of building the bank are over. Systems and processes are in place, businesses have been set up, we have achieved scale, a solid brand and sufficient capital. Today, we are actually sitting pretty." Point of caution for other banks: Don't take that last sentence seriously.