“You can’t let anybody know you are not as confident”
Aditya Puri is the managing director of what is India's most consistently-profitable bank. Starting in 1994, HDFC Bank has been the fastest-growing bank in India, delivering consistently high returns quarter after quarter, having taken on much larger and well-entrenched rivals. A Citibanker on the fast-track, Puri changed course to take on the challenge of creating a world-class bank in India. What goes into making a top banker and an inspiring leader? Puri is a commerce graduate from PunjabUniversity and unlike most CEOs is a Chartered Accountant and not an MBA and worked at developing extraordinary marketing and people-management skills. Excerpts from an hour-long, relaxed, free-wheeling interview with Sucheta Dalal and Debashis Basu
ML: How did you end up as a banker after qualifying as a CA?
Puri: I said everything which would sound palatable to the interviewer. Like…I have heard that you have fantastic training, you are a world class organisation, you go up on merit etc. and these are my strengths, in terms of getting the work done etc. After a very wide ranging interview he said he would get back to me; which he did by calling me up at Mahindra's the next day and asking me to collect my appointment letter. I was surprised. I hadn't expected it to happen so soon. I asked for time to discuss salary and whether I could leave my current job so soon and if we could meet later in the evening and discuss the details. Since they had given me the job so quickly, I told them I was already getting the salary offered and would expect more. They immediately agreed and that's how I came into banking. In retrospect (I also tell my son this), you would like to claim that you made very considered decisions. But life is not as linear as it is made out to be by some chief executives…in terms of decision-making or in terms of direction. The important thing is, as long as you work hard and are result oriented I think you will get there. In those days you would also get good jobs only if you knew somebody. My dad was an air force officer, I did not have any pull. But then I realised that pull could only get you an interview not a job. Moreover it is not required. You go up on your own steam.
Anyway, I joined Citibank and we stayed for six months in Beirut after which we were evacuated and came back here. We really had a good time. We were three of us on the training and when we came back they asked us to train another batch. We agreed but wanted to know what was in it for us. I then went to Calcutta, which was the funniest experience. I did not realise the time difference... It was winter and so I used to pack up as soon as it got dark which was around 4.30 pm. One day the American boss called me and asked, 'Aditya is the job too small for you'? I said, "No Sir, I am working very hard, I am here until its dark". So he asked me to start looking at the time too (he guffaws).
This must have been somewhere in 1975-76 and from there I came to Mumbai and once you are in this city you start to plan a bit. Calcutta is like an outpost, but you come to Mumbai to be noticed; in Mumbai I was originally in operations. Then I figured that an operational head in a bank was more like a financial controller; it wouldn't make me a CEO. So, even though my initial career path in operations was faster in the city I took a two-grade drop to move into marketing where I did not have the experience. This was a good decision because… just as a manufacturing head is not going to be the head of Colgate, I couldn't have done it through operations.
ML: At that stage had you made up your mind that you would aim for the top job?
Puri:I would aim for it but I wasn't sure whether I would make it or not. But I did want, at some stage, to run a bank or an organisation and I did think that one could manage it over a period of time or at least plan for it; because if you don't plan for it you will suddenly be at a critical point in your career. If you are head of operations for 8-9 years and you need to take a 4-year drop you probably won't do it because you have a family and all kinds of obligations. My first decision was that I did not want to be in operations all my life, I had a wider canvas - be it trade, marketing or sales. What I wanted to do at that time was corporate banking. Before the growth of capital market, corporate banking was the in thing. I wanted wider coverage and for this you have to have marketing skills. Thereafter, even though I was doing well I did want to go overseas.
ML:Why did you want to work overseas?
Puri: (Laughs) Two things. I wanted to make some money and also because I wanted to gain international experience. In a multinational company you must move around, otherwise they say that you were only in your home country and they won't make you a CEO anywhere else. Well, the place that came up for me at that time was Saudi Arabia and I took it. In fact, they gave me a choice, New York or Saudi Arabia. There was a 60% hardship allowance for Saudi Arabia so the entire salary would be saved and we were given three holidays a year. Besides, the people that I met said that the compound looks like California so I was very excited and decided to go. But when I landed there I thought I had made the biggest mistake of my life and that I would have to get out of there reasonably fast. I had very good experience in Saudi but my wife did not like it after sometime. But Citibank was very happy with my work so they did not want me to leave. I finally came back to India and was posted at Delhi and later at Mumbai.
They made me country head and after that I figured that I needed more experience on the product side so I went as the Divisional Risk Officer for Hongkong, Korea, Taiwan and China. I was based in Hongkong at the time of its handover to China, which I thought would be a very interesting assignment. Citibank had a large exposure in Hongkong and they wanted to decide what their exposure ought to be and what the policy towards China should be. I figured in about two months that the handover had already happened and only the flag changing had to be done. Everything that was manufactured was manufactured at Shenzhen or Guangdong and was sent through Hongkong. That was a very interesting phase and I learnt a lot about different countries, regulators, country risks, different kinds of industries, foreign exchange, treasury etc. Then my boss Dennis Martin asked me if I wanted to be the country head. I said no I am happy here. A week later he asked me to go as Country Head of Malaysia. I had a great time in Malaysia. It was a lovely country but at that time my father fell ill. I took him with me to Malaysia but he could not stay there.. lack of friends, climate and food…it was an age thing. He was determined to go back for fear of falling ill. I tried to convince him but it did not work.
In the meantime, John Reed had given me these stock options; I was among the top 50 chosen for it. At that time the stock was at eight dollars and if I had held those options I would have made more money than I made here. But I thought God forbid if something happens to dad how I am going to live with it.
At that time Deepak (Parekh) came and offered me the job to head HDFC Bank. He said if I was not taking it, he would appoint someone else. And indeed he did. I told Deepak that I cannot ask you to hold on but I have some options here and I have a great career ahead. Then dad fell ill and had to be hospitalised here so I had to rush back. After he recovered I went back and called up Deepak. Fortunately, his existing arrangement was changing, so I told him that if the offer is open I will give it a thought, but if I come, you will give me a free hand.
I knew there was a tremendous opportunity to create a world class Indian Bank. There were two possibilities. I could lose money and people would have said I made the wrong decision. On the positive side I was very confident that the nationalised banks have the funding and branch network, while foreign banks have products and services for which they get a premium. If we bring the best of both together there will definitely be success.
All we needed was to get the right people and the right market definition. Technology had also just changed at that time. You no longer needed mainframes, you didn't have to have your own software system, outsourcing had come in, computing and telecommunications had become cheaper. If you wanted to do telephone banking, set up a data warehouse, you could get a better system than Citibank at a cheaper price, straight off the shelf.
We could develop technology at a reasonable price, come up with a different delivery mechanism, more operating efficiency, redefine the target market and merge the best of a foreign and private bank. We needed a bunch of people who were experts in their area. I called a few people and they said if I joined they would join too. Finally, I asked my wife. She said she was happy to go home. I then asked my daughter and she too wanted to go home.
If you ask me if I had made this decision on my own, I would say no. But if my dad had been well, I do not know whether I would have had the guts to chuck up what I had and start from scratch.
ML: Instead of HDFC Bank, didn't you think of a foreign bank careerback in India?
Puri: If they had turned India into a division or something then I would have looked at it but to simply come back was like moving backwards. So I thought if I had to be in India (at HDFC Bank), I would have a reasonably good salary, I can be near my dad, so it’s fine. In terms of my job it would be very exciting.
ML: The HDFC brand name was an advantage and a disadvantage. You could not get into housing finance, the merger with the housing finance institution did not happen. Didn't that hamper you from becoming the biggest private bank? Were you aware of all the possibilities and complications when you took over?
Puri: Very clearly, we said that if we don't get into the top three or four banks then it is a waste. Because you wouldn't have the scale and couldn't have really taken full advantage of growth possibilities. When I came in I was very clear that I would set up a bank which included mortgage at the right point of time whether through HDFC or not. I was setting up a full-service bank, which would be among the top five banks in the country within a reasonable period; this was very clear. The bank had to be of world-class standards in terms of people, technology, corporate governance and service. And in each of the areas that we operated, we had to be among the top three whether it be car finance, personal loans, credit cards or corporate banking… not straight away, but the objective was very clear.
And we have achieved that. Today, I sell the HDFC housing loan product and I have the right to buy back whatever I sell; so effectively I am in mortgage. They charge me 1.2% processing fee and I can buy back 70% of what I originate as security on my books.
Deepak and I have never had a dispute. It is a fact (he reiterates), I must say that he has never once deviated from his promise of giving me a free hand. As long as I run it with ethics and keep him informed, he does not interfere. On the contrary I have rarely called him up to inform him of what I am doing. There were rumours of all kinds but they are wrong because otherwise it wouldn't have worked.
We were not into credit cards initially because it is a very expensive business. It takes four years to break even, whereas the market expects us to create 30% profit growth. If I couldI would expand a lot more but the market just does not accept it so we built it up step by step. First we went into corporate banking then we went into secured products like loans against shares. We were learning credit, collection, distribution, scoring -- now we are in everything and from here onwards we will maintain our position if not improve it.
Going forward, we have the technology, products, distribution and people. The brand (HDFC) helped initially but it was a brand associated with housing and we had to take that brand to a different level both in terms of positioning for a youthful market, positioning for an innovative market and across multiple products. So we had to work on brand extension.
ML: You are the biggest player in the capital market segment. What is it that gives you more confidence in that segment?
Puri: We are largely non-risk players, in the sense that the settlement on the exchange happens with us. So that is purely a non-risk business. The second part is loan against shares to brokers where we have excellent systems and we ask for margins.
ML: You are the only one to have reached the 5 % investment limit for capital market financing and have apparently asked RBI's permission to go beyond it.
Puri: Actually our loss on broker lending has been zero in the last ten years. On our loans against shares to brokers, our loss has been zero and on the guarantees side we were hit to the tune of Rs. 2-3 crore in Kolkata during 2000. We know the brokers and how much turnover they have with the exchange because we are the settlement bank. We will not give disproportionate limits and we give working capital finance, which is based on previous turnover, the number of customers and his needs as projected. If he says he will go five times his level then we say no. We know that he will go into proprietary trading and that we won't fund.
We are basically a working capital bank for brokers and that is not high-risk business.
We are doing the same in commodities. We think commodities are a great business and we are now a major player in the settlement of commodities. We also think that the commodity business must, by definition, be a multiple of the stock market business. We are working with a warehousing corporation for an accredited warehouse, we have invested in a collateral management company, we are also working with the agriculture ministry to get the warehousing receipts turned into a negotiable instrument and we are working separately with farmers where we have introduced a Kisan Gold Card. It is actually a Visa card at 9% interest, which the farmer can use for purchasing seeds and fertilisers. After the crop grows we hope that he would deposit the produce into an accredited warehouse, give us a warehouse receipt and our collateral manager funds him against that receipt. We are very excited about this and we are opening branches in Mandis. Our initial foray into this Kisan Gold Card is very good so we think there is a major opportunity here.
ML: So you will make an entry into rural credit via commodities?
Puri: We have also started a jewellery loan business. If you see the McKinsey report, it says that the stock of private gold in this country is $200 billion and the annual personal import of gold is $10 billion, which makes it 50% of the banking system not monetised. If the figures are correct, what people are doing is putting gold/jewellery under the mattress. So we have started a scheme where a person can have his jewellery appraised by us and take a loan against the jewellery. Once the loan is repaid, he can take the jewellery back. This is effectively what he is doing with the moneylender. We think this jewellery loan is another good area we are working on. We will give them a much better rate, it is safer and he gets liquidity also. We are also asking the RBI to allow us to offer two-way quotes on gold coins to create liquidity. We want to tell people that if you want to keep gold for your daughter's marriage and if RBI approves, they can buy gold coins. At any time, they can give it back to me at the quoted price or go to a goldsmith and change it. This gives them liquidity, otherwise the money is stuck.
ML: Why are you so low key about your rural growth plans?
Puri: To be honest, I would like to see a lot more volumes before we publicise it; today we are pretty close to ICICI, including micro finance and everything. But by and large we are lower key than ICICI in most things. I think it is a tremendous opportunity. It costs only three thousand rupees to change the life of a family of four on a self-sustaining basis. It is a simple thing like he has a tokri (basket) on his head and now that he has got money he buys a pushcart where he can buy double the vegetables sold. Or, going further, he can double his income by appointing a boy standing on the side to help. Personally I think the issue of changing rural poverty is not as difficult as the ability to get aid to the right person on a sustainable basis.
ML: ICICI Bank is ahead of you in rural areas…
Puri: As of today, we are already doing what ICICI is projecting to do. We are financing motorbikes in 1200 cities, almost 35-40% of our retail loans are outside the metros and semi-metros and we are moving on to semi-urban and rural areas. We have already done some financing in commodities, our micro finance programs are in place, our Kisan Gold cards are working well so everything is in place. We have the same number of branches as ICICI and we are pushing it but we would like to take a little more time before we take the view that rural India is a separate India.
ML:Why have the foreign banks lost out on the India opportunity?
Puri: First it is a myth that there is quick decision making in MNCs. There are so many wheels within wheels. You've got a product matrix, you've got a regional matrix, you've got a country matrix, so by the time the whole decision making gets through - and mind you, each one is a lord of his own domain - then technology comes into the picture, it is hugely complicated. Secondly, the kind of money required… these fellows talk a lot, but how many of them are willing to put in the kind of money that ICICI and HDFC Bank have put into India. They may be very global but we are putting a couple of billion dollars into the business. The third thing is that in an MNC, every three years the senior management changes. The conviction is not there.
ML: But many of these banks had identified consumerism as a major force…
Puri: The global consumer banking guy will go to Asia and Asia will go to global then global will evaluate him along with six other opportunities; then they will see the return on equity, then they will see which return on equity is creating superior shareholder value, then comes the currency risk and the technology…it a long process. It is only now, since the BRIC report, has come that everyone is willing to come to India. Otherwise you are absolutely right, these are the guys who had the advantage, they had no business to let us have the positioning that we have, across businesses.
The other thing is that if they are not in a particular product globally they won't do it here. Say they want to go into jewellery like us, they can't do it because globally they are not in that product. In Hindustan Lever, it is only when Harish (Munwani) came in and said forget the power brand give me my sales, you saw the difference. That is why the foreign banks were the last to introduce net banking, way after ICICI introduced it because a lot of them have legacy technology. That is why globally, foreign banks are not the dominant force in financial services anywhere.
ML: Did you face this in Malaysia?
Puri: While you are there it is a very heady feeling. You are a part of it, it is like being in a disco where everybody is dancing to the best tune and you dance to that tune the best.
ML: How did you make the transition?
Puri: Fundamentally you need to be confident about the business proposition that you have. You have to be confident about being able to put a team together. It is fine now, talking from a successful position but the first two to three years when you are building it up, you can't let anybody know that you are not as confident. I think it is a very lonely situation. Only my wife would know that; so you have to have that belief and confidence, you keep the team together, focus on the vision and get the people to believe in it.
ML: What about getting the right people?
Puri: People are available. Initially we would say, we need to go into this business and need an experienced person. But we realised the skills were not always there so, you do it yourself. When you do it twice, everybody around sees that it works. The basics of commonsense must never be lost. You can go round and round but ultimately the basic issue is what the customer wants and whether I can deliver it at a price and whether the product is better than the rest. You can complicate it in twenty different ways but should never lose sight of the basics. You must be able to take it across multiple channels. You as a consumer may want to deal with us on the Net and my father may like to have tea with a manager for half an hour because that is his routine. There is nothing wrong in it, it is perfect. In rural markets, there will be pockets of concentrated population and there will be widespread population. You have to be in the pockets. That’s how it works in the US too.
Ultimately the people who gain will be the people who have the service, the brand and the integrity. Everybody makes mistakes but people say O.K. this is the brand I can trust, they will deliver the service they promised and it doesn't have to be superlative. It has to be service that you can deliver time and time again. When your customer is in difficulty if you can help him, it will make a big difference. Then you have to have the reach, clearly identifying the growing areas.
ML: What next? Where do you go from here?
Puri: I think the most exciting time is now. If we look at India today and if we were to cast a very impartial look around then tell me where can we get the excitement in terms of building in a market that is growing at 8%, has got the largest young population, 64% is consumption, 50% of the financing is in the unorganised sector and so you can create products, you can create markets. When people working with me get good jobs, come from nowhere go to any level… I think it is fantastic and I actually haven't thought of what next. Maybe be a year or two later.