Thursday, March 22, 2012

"Dhanlaxmi Bank to Utilize Better, Cut Costs": Interview with PG Jayakumar, MD & CEO

PG Jayakumar, MD & CEO of Dhanlaxmi Bank (BSE: 532180, NSE: DHANBANK), said in an exclusive interview to Seasonal Magazine that the new strategies being planned at Dhanlaxmi Bank are mainly about better utilizations and rationalization of costs. His focus will also include leveraging core competencies in retail, MSME lending, microfinance, gold loans etc. The bank is going through a transformational phase, with salary cuts of up to 40% for high-cost employees, as well as a planned reduction in the workforce. As the bank works on strengthening its balance sheet, it is understood to be seeking a one-time waiver on priority sector lending, which RBI is not keen to allow for any banks. Following Fitch, India based rating agency ICRA has downgraded the rating assigned to  Lower Tier II bonds of Dhanlaxmi Bank. Seasonal Magazine queries Jayakumar whose tenure as Executive Director was extended by another two years by the Board, even while the Bank awaits RBI’s clearance for his appointment as MD & CEO:

What would you rate as the main strength of Dhanlaxmi, going forward?

Our main strength has always been superior customer relations. From our very early days, and even now, we go that extra mile to ensure customer satisfaction. Soon after assuming office as MD & CEO, I had visited many Dhanlaxmi branches across the country, and has realized through firsthand interactions that this customer satisfaction is intact. Whatever we do now, we will build up only on that natural flair of Dhanlaxmi for which our customers come to us.

Which are the sectors you are most bullish about for Dhanlaxmi?

As I told you earlier, the need for higher utilization of past years’ expenditure will see us focusing more on retail banking, technology enabled banking like ATMs, cards, Internet, & mobile banking. They are also the main buzz areas for most banks. We will also focus on developing some sectors where we have core competence and leadership like microfinance, MSME lending, gold loans etc. What we will basically aim for is geographic expansion for services in these sectors from Kerala and neighbouring states to other territories in the country.

With a new top management, will there be a new direction for Dhanlaxmi Bank?

It is not correct to think of the present leadership as something new. I have been with this bank for the last 35 years. Think of this as only a leadership change that happens in all banks after some years.

What warranted this leadership change then? Was it a personal decision of the last CEO or was it a decision of the Board to have a new leadership?

As the new CEO, I feel that I am not the right person to answer this question. That was something that transpired between the Board and the last CEO. My duty has been only to assume the responsibilities the Board entrusted on me as the new CEO.

But it is a well-known fact that the old leadership has gone out of favour with the Board. What could be the reason?

Well, if you look at the last few years, Dhanlaxmi Bank had really progressed on many fronts like branch network, technology adoption, geographical reach, pace of growth etc. At the same time, the Bank was concerned that it was coming at a high cost. So, there could be good and not-so-good aspects in last few years’ performance, which is inevitable, but there are some times when an organization should take stock of the situation.

You mentioned a few achievements, the good aspects. What were the main bad aspects?

The main challenge is that we have unwittingly migrated to a high expenditure structure. One of my main objectives is how to go about moderating it. For this, we will consolidate our operations in the first phase, and then think about new strategies and initiatives again. I have already submitted my plan for this to the Board.

What is the main component of this high cost structure?

There are many contributors to it, like higher costs for technology and branch expansion, as well as higher employee costs. When coming to tech and branch expansion costs, all we can and should be doing is increasing the utilization levels sharply. This is the right time and opportunity to go about doing it. But coming to high employee costs, that has to be indeed rationalized.

Does that mean job cuts or salary cuts or slower recruitment and promotions?

Well, you may be aware that we two categories of employees. One, our traditional employees affiliated to their associations, and second category which is purely on cost-to-company basis. Different sets of rules apply to each, they have different kind of privileges including job security, but what we are currently exploring is how we can cause maximum rationalization with minimum anguish to both categories. 

RBI had recently warned Dhanlaxmi to go slow on new loans. What are you doing about it? Will it affect growth?

What we understood is that the regulator wants us to adhere to the overall banking industry growth rates, and not go overboard. We have been growing aggressively, upwards of 45%, when the average industry growth was less than 20%. We accepted RBI’s advice as wise counsel, and have made the necessary changes accordingly. But one point you should remember is that our asset quality continues to be very good.

But a section of the employees had alleged that the numbers are fudged, and what is your take on that?

It is easy to raise wild allegations on small issues. Our auditors as well as RBI had pointed out certain problem spots, and we have already addressed most of them. They were just doing their duty as auditors and regulators, and we respect that. It is not specific to us. Audit qualifications are very common. It is what the management does about it that counts. I think it is very wrong to blow this issue out-of-context and out-of-proportion.

But Fitch and ICRA has downgraded your rating…

We take that seriously. We have already started comprehensive work to win back the rating. It is only a matter of time, a matter of months, before we regain it. You should also remember that rating agencies had downgraded other private banks too.

Why the abrupt bad results after the leadership change? Is it a one off cleaning-up forced on that quarter, so that the past is buried, and from Q4 it will be a good start for you?

Not at all, as I had assumed the new office, barely days before the Q3 results were announced. That is for the quarter ending December 31st, and how can I influence it? The fact is that due to many reasons intrinsic and otherwise, during Q3, we had relatively weak numbers to report.

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