My team must have done a terrific job in providing whatever was needed for the filing because I haven’t heard from them for over a month!
Are there any deal breakers?
Indiabulls as an entity is roughly four-times our size. Effectively, the merged entity will be five times what the bank now is. As professionals and as a bank, we would have liked to grow organically. In the course of our 92-year history, till 15 years ago, we were probably a third of the size we are now. Therefore, growing at that pace organically won’t be easy; the proposed merger gives us a huge leg-up. So, it is in our interest to make it work.
There is talk that LVB is working on ‘plan-B’ and probably beefing up the bank independent of this merger...
That’s a tricky question and I must answer very carefully. There’s no ‘plan-B’ and we are only talking ‘plan-A’ and since I am a great fan of paraphrasing, there is paraphrasing within ‘plan-A’. Its ‘plan-A1’ and ‘plan-A2’!
We need to do this as the merger will take about six months to a year in the normal course, if well executed. Meanwhile, my vibrant business must go on, and hence, I am looking forward to raising capital. It’s not with the aim of protecting myself if the merger were not to happen. We’ve proposed to allot 4.99 per cent to Indiabulls Housing; and are in talks with other investors and will also look at fund raising through bonds. We don’t want to sponge on Indiabulls all the time.
How are your employees reacting to this merger proposal?
This transaction is positive for all stakeholders of LVB, including its employees. What we are now talking of is a larger bank. We have over 500 branches and they (Indiabulls which is not a bank) have another 260-plus outlets, which will now be expanded to handle full-fledged banking functions. Quite clearly, my colleagues will be much in demand for serving the larger network.
You will set a trend with the merger — of old private banks scaling up with mergers…
Forget our transaction. We’ve had a gentleman from our region, a former finance
minister, who enunciated that India needs fewer, but stronger banks. We didn’t have banks of scale except the State Bank of India. This government has started the process with the merger of three banks to create scale. Working at LVB, I have realised that scale is important. Niche banks can remain, but up to a point. Scale can be attained organically, which is ideally the best way, or inorganically. So, if this transaction goes through, it would set a trend for others to follow.
LVB evokes huge and passionate customer loyalty. It’s something that has to be seen, going forward, but my sense is while it will probably attain size, it won’t give up on that small bank attachment to its customers. The bank has been reorienting itself, even before this proposed merger. We moved from a product-centric approach to a customer-centric one. The idea is to meet the customer’s need for solutions and not sell products.
From reforming the bank to taking it towards a merger, how has your journey been so far?
This has been a tumultuous experience. I was part of the founding team at UTI Bank (Axis Bank now) which was different. LVB is interesting. We are trying to completely reinvent ourselves. It’s a huge learning experience and I won’t trade it for anything else. If we can steer ourselves back to full success, I’ll be the happiest person.
Over the last few years, we’ve laid out our systems well. Our earlier systems and processes were such that they could have served a small bank well. Some of the things we have done today has made us fit for a larger scale. We’ve centralised our retail and corporate post-credit operations. The bank stands on five legs – corporate, retail, small and medium enterprises, treasury and the operational backbone. With the creation of a stronger bank, my shareholders and I can rest peacefully. The effort is to ensure we don’t have frauds and don’t want mishaps to occur. Our core banking system is the same as that of HDFC Bank and we’ve taken a comprehensive package.
Do you feel provisioning for bad loans aggressively at the time you took charge may have been better for the bank?
To an extent, yes. But the position for us was that these accounts were standard then, and we couldn’t have done much, except that I could have aggressively provided further. And, because I didn’t do that, I’m taking a hit today. The banking regulator’s requirement is that I maintain a minimum threshold of capital and if that isn’t there, I have to adjust my risk-weighted assets to that level of capital. And since I haven’t raised capital, I have had to shrink my book. So, despite enough opportunities to grow, we haven’t because we need to conserve capital.
Meanwhile, we’ve tweaked the book to focus on more capital-efficient products such as gold and small-business loans that guzzle less capital. We’ve also taken advantage of this to rejig the funding portfolio. Bulk deposits, which formed about a third of my book in FY18, has shrunk to 12 per cent of the liabilities in FY19 — a fall of Rs 7,200 crore. This has helped clean up and give a stable book. Low-cost current account saving account (CASA) reached 25 per cent in FY19. In FY20, our expectation is that the average daily CASA balance should improve by 200-basis points from 21 per cent last year.
What about LVB’s centenary year celebrations in 2026, a milestone quite close to your heart?
Our earlier targets and plans for celebration stand and it would be a larger entity celebrating it.
Does it mean that the merger with Indiabulls is well in place and that LVB won’t lose its identity?
LVB can’t give away a 92-year-old identity, can we? As for the merger, we agreed on it and are focused on completing it. I can’t be looking at other things.