Resurrecting a bank: Key lessons from the turnaround of Indian bank

Abstract

Ranjana Kumar, as Chairman and Managing Director of Indian Bank, a 95 year old bank owned by the Government of India, managed one of the most significant turnarounds in performance in the history of banking in India. With a negative capital adequacy of nearly 13%, Indian Bank was considered one of the weakest banks in the year 2000, when Ranjana Kumar took over. Under her stewardship, the bank has turned around successfully, achieving all the targets set under the restructuring plan, including bringing the gross NPA down from 43% to 15% in less than two years. What are the lessons for the industry from such a turnaround in the face of tremendous competition? What were the challenges faced by the bank, and what were the strategies that made this feat possible? Professor Ashok Thampy discussed with Ranjana Kumar the issues involved in order to understand the way forward for other public sector units, and for the banking industry in general.

The Indian approach to restructuring has traditionally been recapitalisation by the government. In this case, however, the government decided to try a new approach, imposing conditions for the disbursement of funds for the first time in banking history. An MOU was signed in which, among other things, the unions and associations agreed to give the management a free hand, and funds were to be disbursed only after a profit was shown. This ensured accountability and put pressure on the bank to perform and, along with strategic decisions like merger of branches, delayering, streamlining of internal processes and aggressive marketing, contributed to the success of the restructuring plan. Innovative HR practices, training, and involvement and empowerment of the staff and officers ensured their buy-in and participation in the process.

The important lessons that emerge from the interview are that recapitalisation of public sector units has a much better chance of success if accountability is ensured; that there is a need to involve and empower public sector employees; and that the survival of such an organisation is contingent on having in place systems and processes that enable informed and quick decision making.