‘You Need To Be Paranoid In Today’s World’
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It has been a stellar journey for Aditya Puri who gave up his stock options at Citigroup in 1993 to helm a “startup” — to use a term in vogue now. HDFC Bank is today a marquee brand, investors can’t get enough of its stock; it would also not be off the mark if you were to view it as a veld of ‘Startup India’ and ‘Make in India’ way before these catch phrases were minted. Not many can match managing director Puri’s longevity at the crease. Joseph Neubauer led Aramark for 31 years; Ray Irani did so at Occidental Petroleum for 21. That is, if you were to look outside the list of promoter-bosses who helmed firms across the world; Puri is our own in the Neubauer-Irani mould. “I don’t see myself either as an entrepreneur or a job fellow. You can’t be a CEO for so long without passion,” he says. Puri spoke to Raghu Mohan on a range of issues — from the sweet spot the bank finds itself in, rewiring it to up service standards, the challenges from disruptors (real and imagined!), and his stay so far at the house he built.
Edited excerpts:
How is one to situate HDFC Bank given the state of the economy; and within the banking sector as on date?
The medium- to long-term prospects continue to be bright. I am not the only one who believes in this. Moody’s has upgraded India and we should not take this lightly. The government is also committed to the ease of doing business. Now, you can say this happened, that happened, but you have jumped 50 places, which you have never jumped in your life. To the extent that I am aware of what is happening in Delhi, I think their next goal has a reasonable chance of being achieved which is to jump another 50 places.
Inflation is under control; stringency is being maintained on the fiscal deficit. And there are reforms, which are in place, which despite the little pain in the short-term is good for the economy like GST, DBT. On demonetisation, I for one, am of the belief that net-net it was beneficial. What they are trying to put in as infrastructure and the many ways to provide employment has not been fully understood. In the sense, employment need not be only from the manufacturing sector. You encourage entrepreneurship through microfinance, sustainable livelihood, the Mudra scheme or ‘Make in India’. These will take time. Or improving agriculture, or the food and supply chain, or roads. And coupled with a digital economy, you move towards a more transparent economy and lower rent-seeking.
As for HDFC Bank’s position in the economy, we think we are very well placed. We have one of the best brands. We are the only Indian brand in the Top 70 in the Millward Brown survey. Our balance sheet is not under stress in any way. We went into semi-urban and rural India well before anybody else and we are very proud of the fact that by March or June, we will be among the leaders in digital banking globally.
Now, if you were to ask five people what they mean by digital banking or IoT, you will get six different opinions! For us, it means we use the change that it has brought in the environment, that is the convergence of telecom, media and computing coupled with mobility, AI, and a reduction in computing costs through cloud. So, you use this to change your operating model and become a better provider of products and services. It’s a godsend opportunity and we have been working on this for the last 12-24 months.
Like, if you are an existing customer, you can get a loan credited to your account in 10 seconds even on a weekend. If you are not an existing customer, the same will happen in 10 minutes, but will not happen on a Saturday because you must sign the documents. We have extended this to all our retail loans and credit cards. We also have worked on our business and wholesale banking to substantially cut down on the turnaround time to a maximum of 48 hours, but normally in 24 hours.
This has helped us reduce our cost to revenue which you would have noticed has been coming down exponentially over the last two years. We are looking to learn from the likes of Google and Amazon to move from a service experience to one of delight by reducing the friction — that is one click, two clicks, choice of your access, device and improving your buying journey.
It’s a decade since the financial meltdown of 2008. Your competitors went through a fair share of problems, but HDFC Bank has always weathered all these storms…
Banking is a very simple business. You define your target markets, the risks in it, you define the technology to deliver to that market, you process in a manner that covers your cost, return on equity and delinquency. You follow this discipline rigorously. Not everything you launch will work according to the way you want it to. If you find a construct is not working, and there are gaps, then you reassess, you stop. You don’t push forward, you don’t brazen it out. If that results in some pain in the short run, well, you must take it. If you remain true to what you said you want to do, and you are monitoring it and act on it, then the natural result should be that you have a balance sheet that reflects the probability of default forecasted in your products.
Can you name one product where you had to recalibrate…?
Why one product? On all products. We recalibrated our two-wheelers business, gold loans, consumer durable loans, tractor loans, those to small shopkeepers. So, we launch, we learn, we launch again, we learn again and when we are fully satisfied that on scale, our products will reflect the characteristics of our initial pilots, then, we move forward.
What I meant was there are banks that have launched a huge portfolio and then gone in reverse gear. That kind of thing has not happened with HDFC Bank…
It cannot happen if you follow the process. And the thing about retail banking is that it is a zero or one game. Either the portfolio that you built up, and you wanted to build a portfolio that resembled a race horse, well, it will look like a race horse! If you don’t act in between to rectify and insure that portfolio reflects your aspirations, then you will have to start from zero again. So, if you don’t pay attention to what’s happening, or get carried away or deviate from the target market without testing, you will face problems.
How do you react to the construct that fintechs will have banks for lunch? And I am not trying to provoke you…
Which fintech had which bank for lunch? You first tell me, how long have fintechs been around?
About 6-7 years.
When you cook a meal, it’s either good or it’s not good. If it’s good and it meets a customer’s need they should have been big by now. This fintech bogey is wrong and I will tell you why.
If you look at the Top 10 companies in the US today, or in the world like an Amazon, Google, Facebook or Apple, these are all products of technology that delivered products that are suitable to the market. And they zoomed. My only worry is, when will a Google come into financial services. That’s why I am trying to put my service standards at the Google or Amazon levels.
Fintechs will realise after making a lot of noise that the way forward — as they are not going to replace a bank — is to get into partnerships. So, whether it is a Chillr, Payzapp, or somebody saying he will originate and you give the loan; whether it is a Google or an Amazon working with us, these partnerships are developing.
The arguement put forward is fintechs can disintermediate in a way a bank can’t…
Then, why have they not done so in seven years? I am less concerned about these fintechs with fancy ideas but more about the Amazons and the Googles of this world. The important thing is you need to be paranoid in today’s world.
If you split India into three categories — that is above Rs 5 lakh, which we call ‘India one’, Rs 2 lakh-Rs five lakh, which is ‘India two’, and below Rs 2 lakh, which is ‘India three’, we are probably the only bank that has a major business in ‘India two’. What we are looking at is how to be in ‘India three’.
You see, we have this big debate over the MDR (merchant discount rate). According to me, that debate should not be there. Traders are getting it wrong. You are trying to use newer technology and mixing it up with old world technology. The point-of-sale (PoS) unit is itself not relevant in the new world. We have a damn good thing called UPI. So, why do you need a PoS terminal? Better that traders move over to UPI, which is a phenomenal system than saying, ‘Oh, cut the MDR’. Then, you make the investment; after all, somebody needs to make it. In the new world, where you say there should be no charge on transfer or store of value like bitcoins, well, I also agree, but for heaven’s sake use UPI.
And what is the reason behind this resistance?
I have no idea. You ask them. And they want lower MDR but are not passing it on. I have a problem when larger traders ask for a cut in the MDR. They are using it (PoS), they benefit, their sales go up as we are also giving a loan behind it. For the small traders, the Reserve Bank has already reduced it; they will look at it further. The correct way is to go is UPI.
Even Satya Nadella when he had come here had appreciated it; and it is one of the projects they are looking at it. So, don’t try and get Google or Amazon pricing from a Walmart physical store. You see as an analogy, there is a Walmart physical store and a Walmart on the Net. So, please use the new technology. Use the QR code and the UPI. Don’t expect people to put up PoS terminals which, in five years, will be obsolete; could be, that is. So, to answer your question, the bank will look like what the wider ecosystem will look like.
So, you don’t see fintechs as disruptors as they are presented in the wider media…
Absolutely not. But I do believe banks need to revamp the way they work to take advantage of the changes in technology. And need to be paranoid as to where the new fellow will come from. If you are not at the cutting edge, he will disrupt you when he comes. But anybody who comes to disrupt you also needs scale. So, when a fintech says, ‘I will put in a wallet’, well, what is a wallet? It is riding on the bank infrastructure. I can also put in a wallet. Somebody says, ‘I can offer a loan faster’. Nobody can do a loan faster than my 10-second loans. Others say, ‘I will give virtual advisory based on a robot’. Well, I am also giving it. You see, it is not by accident that we are the leader in ‘India one’ too. Because ‘India one’ will get competition. You will get disintermediated as the debt markets develop. But even there, we are positioning ourselves for these changes.
If you see the studies including Harvard or what Millward Brown did, which is, if I have the brand and the product that a fintech also has, then there is no reason why my customer should move over because he has trust here. There are also worries with fintech, which I am trying to overcome with my brand that people are concerned about as to what will happen to their money. You talk to a normal fellow and he is concerned with net-banking. We sit with the them and allay their fears; tell them, ‘You only do as much as you are comfortable with’.
That brings us to Aadhaar. Why do you think there is such a big fuss over it?
What is Aadhaar? It is a method by which I can establish your identity. We have no other method to do it; other than a passport, which is checked. As far as the PAN card is concerned, well how many do you want? So, that can’t be proof. Ration card, again how many do you want?
So, if you don’t have identity, it results in benami accounts in the banking system, it results in benami transactions and the consequent tax evasions. If there is a review necessary as to what all Aadhaar should be asked for, yes. But everybody should have an identity or social security number, which is imperative. If you want to reduce black money, you can’t do it without proper identification. You know, and I know that — and a lot of this noise could be coming from there — a lot of transactions are moving through the banking system through benami accounts.
Now the easiest thing to do is to blame banks. But what are you blaming banks for? If a PAN card is verified on the site and it turns out to be a fake, it is not that I have not done my due diligence, but has the purpose been served? No. Should there be a review on shortcomings? Yes. Should we have a privacy law? Yes. Should we throw Aadhaar out, the baby with the bath water, without taking into account the benefits that come with it? No.
If it is argued let us have the privacy law first…
You can have a limited Aadhaar to begin with. By the way, just for my information, tell me, if your Aadhaar is linked to your bank account, what is the invasion of your privacy?
It is said it can be used by the State to gain visibility over me as a citizen…
It is getting diffused; it is too high level for me; I am getting confused. You see, under KYC, I am supposed to know my customer and I need a foolproof identity. We are spending so much money on this and also take the flak when something goes wrong at the other end in which the first recognisable party is the bank; and you beat the bank up. I need to identify you that this is you; and I need that identity to be foolproof.
You are one of the longest serving head of a bank; you are nearing your silver jubilee year at HDFC Bank. There are not many CEOs in the world who have been around for that long. How do you look back?
It is nice to look back and see that you are being recognised for your consistent performance. That, in a changing world, you are seen as young in your thoughts. I am young physically also. I can out run you!
Do you see yourself as an entrepreneur or somebody who does a 9-to-5 job?
I don’t see myself either as an entrepreneur or a job fellow. You can’t be a CEO for so long without passion. When I came here, I said I wanted to create a world class bank. Which we have achieved. Thereafter my passion was to take the bank to ‘India two’, which is between Rs 2 lakh and Rs 5 lakh; now it is to take it to ‘India three’.
Without passion you can’t stay. I am a passionate entrepreneur; not the money-making kind. I am in this because I think I can make a difference. We are one of the major institutions that substitutes the money lender. We are doing a lot for sanitation, health; all of this is very satisfying. And we are repositioning the bank for the changes ahead. Next three years, I may become a ‘tech-fin’; not a fintech. I don’t know.
So, I am having a ball. And I don’t see myself not having a ball for at least the next 15 years. You have not seen the latest World Bank report — 75 is the new 60!
But the RBI age limit…
Come on, now! RBI is not the beginning and the end of everything. Kya mei doob jayega (Will I drown?). You are a typical Indian guy. I am disappointed with this response from you!
