Specialist in Indian Banking and Economic Research

Hemindra Hazari

<ul>
<li>Toxity in Axis Bank's work culture confirmed by Ravi Narayanan - Group Executive, retail liabilities and branches</li>
<li>Senior executive at town hall meeting allegedly stated “employees should fight, abuse and complain amongst them [sic] for business, this is the attitude what [sic] I like”</li>
<li>Strategy of abuse so far has failed but with board's endorsement, more of the same is being implemented which may have adverse impact on performance </li>
</ul>


Toxity in Axis Bank's work culture confirmed by Ravi Narayanan - Group Executive, retail liabilities and branches
Senior executive at town hall meeting allegedly stated “employees should fight, abuse and complain amongst them [sic] for business, this is the attitude what [sic] I like”
Strategy of abuse so far has failed but with board's endorsement, more of the same is being implemented which may have adverse impact on performance 


Axis Bank’s Toxic Call to Staff to Fight, Abuse, and Undermine One Another in Pursuit of Business

Forensic Analyst, Trudence Capital Advisors

Nitin Mangal

Forensic Analyst

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Spandana Sphoorty Financial (SPANDANA IN)

<a href="https://www.smartkarma.com/entities/spandana-sphoorty-financial" target="_blank" data-smartkarma-citation="entities:28229:1" rel="noopener">Spandana Sphoorty Financial (SPANDANA IN) </a> was one of the leading microfinance lender before Andhra Pradesh crisis. Post that the company has gone for CDR and after getting backing from private equity player led consortium led by Kedaara Capital (Kedaara) and later it got listed on the Indian bourses. In past one year Spandana has witnessed few high profile exits, the most recent one of exit of Ms. Padmaja G Reddy, the managing director and founder. This exit of Ms. Reddy is one of the tale of investor-promoter spat happening in various companies in India.

Spandana Sphoorty Financial (SPANDANA IN)  was one of the leading microfinance lender before Andhra Pradesh crisis. Post that the company has gone for CDR and after getting backing from private equity player led consortium led by Kedaara Capital (Kedaara) and later it got listed on the Indian bourses. In past one year Spandana has witnessed few high profile exits, the most recent one of exit of Ms. Padmaja G Reddy, the managing director and founder. This exit of Ms. Reddy is one of the tale of investor-promoter spat happening in various companies in India.

Spandana Spoorthy: Another Tale Of Investor and Promoter Tussle

Even though <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a> reported an impressive growth in net profit, higher than that of its peers, the stock market penalised the bank, as the growth of its business, top line and profit before provisions was lower than that of its peers. The stock market traditionally favours both top and bottom line growth, and in Axis Bank’s case the market believed that the poor business growth is a symptom of a deeper problem in the bank’s business model.Some analysts have highlighted Axis Bank’s poor business indicators in the 2QFY2022 as compared with those of its peers, and their reading-between-the-lines is that it may be an undisclosed or even undiagnosed problem. It is also possible that Axis Bank 2QFY2022 was an off quarter, where the management took its eye off the ball, and that performance may rebound and match that of its peers in 2HFY2022. However, another, more ominous, explanation could be that staff morale may be the cause of the poor performance.This analyst was the first to <a href="https://hemindrahazari.com/2021/05/26/why-are-axis-banks-directors-mum-about-the-extraordinary-staff-churn/" target="_blank" rel="noopener">highlight</a> Axis Bank’s high and worsening attrition from FY2018 to FY2020, when it peaked at 36.8% for the overall bank and an alarming 69.2% for the sales category (this category has the maximum number of staff which sources new business). In FY2021, Axis Bank reported a trend reversal, a significant improvement in attrition to 23.8% (sales attrition at 49.7%); the improvement was also seen in other private sector banks. It is possible that the work-from-home regime in FY2021 resulted in less stressful daily physical meetings, and relaxation in achieving sales targets, on account of the lock-down. With 2QFY2022 gradually returning to normal, the pressures on the staff may have resumed to a point where attrition may have increased and morale plummeted, impacting the top line performance of Axis Bank.Attrition can be a lead indicator for future performance, and analysts have been concerned with the steady senior level <a href="https://economictimes.indiatimes.com/markets/stocks/news/two-senior-executives-quit-axis-bank-for-piramal-nbfc/articleshow/75546095.cms" target="_blank" rel="noopener">exits</a> since Amitabh Chaudhry took charge as Chief Executive Officer on January 1, 2019. The latest <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/299d20f1-8fa4-45d5-90f5-e4aed0484c6e.pdf" target="_blank" rel="noopener">resignation</a>  was of Rajesh Dahiya, executive director and in-charge of human resources since June 2010. But what was largely unreported was the plight of the bulk of the Axis Bank staff, which was ignored by analysts. This despite the fact that the bank had comprehensive disclosures on the issue which painted a sorry picture of human resource management since FY2018. Staff discontent may take some time to filter down to impacting overall performance, and we need more quarters to monitor performance to validate this hypothesis.The Axis Bank board of directors need to urgently enquire into the reasons for the poor business and revenue performance in 2QFY2022 and the stock market penalising the share price may provide the appropriate push to the board to investigate the matter and come out with remedial measures.

Even though Axis Bank Ltd (AXSB IN) reported an impressive growth in net profit, higher than that of its peers, the stock market penalised the bank, as the growth of its business, top line and profit before provisions was lower than that of its peers. The stock market traditionally favours both top and bottom line growth, and in Axis Bank’s case the market believed that the poor business growth is a symptom of a deeper problem in the bank’s business model.Some analysts have highlighted Axis Bank’s poor business indicators in the 2QFY2022 as compared with those of its peers, and their reading-between-the-lines is that it may be an undisclosed or even undiagnosed problem. It is also possible that Axis Bank 2QFY2022 was an off quarter, where the management took its eye off the ball, and that performance may rebound and match that of its peers in 2HFY2022. However, another, more ominous, explanation could be that staff morale may be the cause of the poor performance.This analyst was the first to highlight Axis Bank’s high and worsening attrition from FY2018 to FY2020, when it peaked at 36.8% for the overall bank and an alarming 69.2% for the sales category (this category has the maximum number of staff which sources new business). In FY2021, Axis Bank reported a trend reversal, a significant improvement in attrition to 23.8% (sales attrition at 49.7%); the improvement was also seen in other private sector banks. It is possible that the work-from-home regime in FY2021 resulted in less stressful daily physical meetings, and relaxation in achieving sales targets, on account of the lock-down. With 2QFY2022 gradually returning to normal, the pressures on the staff may have resumed to a point where attrition may have increased and morale plummeted, impacting the top line performance of Axis Bank.Attrition can be a lead indicator for future performance, and analysts have been concerned with the steady senior level exits since Amitabh Chaudhry took charge as Chief Executive Officer on January 1, 2019. The latest resignation  was of Rajesh Dahiya, executive director and in-charge of human resources since June 2010. But what was largely unreported was the plight of the bulk of the Axis Bank staff, which was ignored by analysts. This despite the fact that the bank had comprehensive disclosures on the issue which painted a sorry picture of human resource management since FY2018. Staff discontent may take some time to filter down to impacting overall performance, and we need more quarters to monitor performance to validate this hypothesis.The Axis Bank board of directors need to urgently enquire into the reasons for the poor business and revenue performance in 2QFY2022 and the stock market penalising the share price may provide the appropriate push to the board to investigate the matter and come out with remedial measures.

Axis Bank: Toxic Workplaces Don’t Bring In More Business

Government banks have been derided for indulging in ‘phone banking’ (being instructed on the telephone by ruling party politicians and civil bureaucrats to lend to specific unworthy companies). But what the Enforcement Directorate’s (ED) affidavit in the Delhi Court (as disclosed by the media -- <a href="https://www.hindustantimes.com/india-news/71-loans-given-in-kapoor-s-tenure-turned-bad-ed-101633976406867.html" target="_blank" rel="noopener">here</a> and <a href="https://economictimes.indiatimes.com/industry/banking/finance/enforcement-directorate-says-bank-loan-fraud-was-mutually-beneficial-to-avantha-yes-bank/articleshow/86699558.cms?from=mdr" target="_blank" rel="noopener">here</a>)  reveals is that senior executives from the private sector <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> were no different from their government counterparts. The only difference is that the concerned senior executives at Yes Bank were excessively paid, and were highly qualified persons from premier institutions, as compared with government bankers. The ED’s charge sheet alleges that senior executives at Yes Bank knowingly engaged in sham transactions, and the accused Yes Bank officials put the onus on the transactions on the now jailed Rana Kapoor, the erstwhile founder-Chief Executive Officer (CEO), Yes Bank. Despite their educational qualifications, previous work experience and the senior positions they held, they allowed themselves to  be reduced to being low-paid clerks – or worse, since the latter at least know enough not to engage in fraudulent transactions. The entire edifice of Yes Bank’s credit appraisal, independent risk management and board oversight was a myth, as nobody recorded strong objections to giving loans to a shell company and structuring a product whose sole objective was a spurious show of compliance with regulatory guidelines.   Stakeholders, media and analysts rarely get to see the inner working of a bank and how loans are appraised, independently evaluated by risk management and subsequently monitored. The ED’s affidavit, as reported by the media, provides such a rare inside knowledge view of how a poor quality loan for a dubious purpose was conceived, structured and approved by an over-qualified and overpaid team, solely on the basis of instructions from the CEO. What is equally disturbing, but also telling, is that three of the accused have left the bank, and have taken up fresh engagements with their new organisations – who, presumably, were impressed with these persons’ work credentials at Yes Bank, and wanted them to continue the same practices for their new employers.What is worrying is that Yes Bank’s practice of having senior executives with impressive qualifications, stellar resumes, and imposing titles, knowingly engaging in such transactions may not be the exception in the private financial sector. Regulatory agencies have investigated or are currently investigating similar transactions at <a href="https://hemindrahazari.com/2021/06/16/cg-power-loan-scandal-indusind-bank-pioneers-lending-without-documents-to-a-firm-with-no-assets/" target="_blank" rel="noopener">Indusind Bank</a>, <a href="https://hemindrahazari.com/2021/06/23/aditya-birla-finances-loans-to-a-shell-company-another-reason-why-corporates-shouldnt-be-allowed-to-control-banks/" target="_blank" rel="noopener">Aditya Birla Finance</a>, <a href="https://economictimes.indiatimes.com/prime/corporate-governance/how-an-eur44-million-loan-from-stanchart-put-murugappas-cg-power-between-sebi-and-a-hard-place/primearticleshow/83285540.cms" target="_blank" rel="noopener">Standard Chartered Bank</a> and <a href="https://hemindrahazari.com/2021/08/31/sebi-exposes-kotak-mahindra-mutual-funds-policy-of-investing-blindly/" target="_blank" rel="noopener">Kotak Mahindra Mutual Fund</a>. This indicates that the situation may be systemic. It appears that, for all their experience and seniority, key senior executives in the private financial sector are paid inflated packages precisely for engaging in the intellectually undemanding task of ‘phone banking’. The valuations of private financial firms may need to be reassessed in the light of these disclosures.

Government banks have been derided for indulging in ‘phone banking’ (being instructed on the telephone by ruling party politicians and civil bureaucrats to lend to specific unworthy companies). But what the Enforcement Directorate’s (ED) affidavit in the Delhi Court (as disclosed by the media -- here and here)  reveals is that senior executives from the private sector Yes Bank (YES IN) were no different from their government counterparts. The only difference is that the concerned senior executives at Yes Bank were excessively paid, and were highly qualified persons from premier institutions, as compared with government bankers. The ED’s charge sheet alleges that senior executives at Yes Bank knowingly engaged in sham transactions, and the accused Yes Bank officials put the onus on the transactions on the now jailed Rana Kapoor, the erstwhile founder-Chief Executive Officer (CEO), Yes Bank. Despite their educational qualifications, previous work experience and the senior positions they held, they allowed themselves to  be reduced to being low-paid clerks – or worse, since the latter at least know enough not to engage in fraudulent transactions. The entire edifice of Yes Bank’s credit appraisal, independent risk management and board oversight was a myth, as nobody recorded strong objections to giving loans to a shell company and structuring a product whose sole objective was a spurious show of compliance with regulatory guidelines.   Stakeholders, media and analysts rarely get to see the inner working of a bank and how loans are appraised, independently evaluated by risk management and subsequently monitored. The ED’s affidavit, as reported by the media, provides such a rare inside knowledge view of how a poor quality loan for a dubious purpose was conceived, structured and approved by an over-qualified and overpaid team, solely on the basis of instructions from the CEO. What is equally disturbing, but also telling, is that three of the accused have left the bank, and have taken up fresh engagements with their new organisations – who, presumably, were impressed with these persons’ work credentials at Yes Bank, and wanted them to continue the same practices for their new employers.What is worrying is that Yes Bank’s practice of having senior executives with impressive qualifications, stellar resumes, and imposing titles, knowingly engaging in such transactions may not be the exception in the private financial sector. Regulatory agencies have investigated or are currently investigating similar transactions at Indusind Bank, Aditya Birla Finance, Standard Chartered Bank and Kotak Mahindra Mutual Fund. This indicates that the situation may be systemic. It appears that, for all their experience and seniority, key senior executives in the private financial sector are paid inflated packages precisely for engaging in the intellectually undemanding task of ‘phone banking’. The valuations of private financial firms may need to be reassessed in the light of these disclosures.

Yes Men at Yes Bank, and Elsewhere: ‘Phone Banking’ in the Private Sector

A notable feature in <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> and <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> (KMB) is the historical absence of any commercial banking expertise amongst the independent directors on the boards. The founders ( <a href="https://www.smartkarma.com/entities/housing-development-finance" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener">HDFC Limited (HDFC IN) </a>and Uday Kotak) and the Nomination and Remuneration Committee in both banks, as a deliberate strategy, have tried to ensure that only non-independent directors have commercial banking expertise. This is unusual, as other private sector banks such as <a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a>, <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a>,  <a href="https://www.smartkarma.com/entities/indusind-bank-ltd" target="_blank" data-smartkarma-citation="entities:1558:1" rel="noopener">Indusind Bank (IIB IN)</a> and <a href="https://www.smartkarma.com/entities/federal-bank-ltd" target="_blank" data-smartkarma-citation="entities:11784:1" rel="noopener">Federal Bank (FB IN)</a> have former commercial bankers as independent directors on their boards.Banking, being a specialised and highly regulated sector with an economy-wide systemic impact, needs that some directors have commercial banking expertise separate and distinct from the executive.The absence of such independent functional expertise on the board is a sign that the executive/controlling shareholders do not want to be challenged or to have close oversight in the banks’ core area of operations. HDFC Bank and KMB are poster banners for private sector banking in India, with a combined market capitalisation of US$ 159 bn. They have achieved this without the presence of former commercial bankers as independent directors. Both Aditya Puri (erstwhile HDFC Bank CEO) and Uday Kotak maintained an iron-clad grip on asset quality, which is visible in their track record of profitability and stock market valuation. However, banking should not be individual-based, but based on appropriate systems. A diversified board of directors, including those with commercial banking expertise independent of the executive, should be mandatory in all banks. Regardless of their track record and valuation, banks which deliberately exclude such critical functional expertise on their boards must be hauled up by the Reserve Bank of India, credit rating analysts and the capital markets. The fact that HDFC Bank and KMB have rewarded shareholders manifold without such independent expertise on their boards should not be an excuse for such an anomaly to continue, nor should it be replicated in other banks.

A notable feature in HDFC Bank (HDFCB IN) and Kotak Mahindra Bank (KMB IN) (KMB) is the historical absence of any commercial banking expertise amongst the independent directors on the boards. The founders ( HDFC Limited (HDFC IN) and Uday Kotak) and the Nomination and Remuneration Committee in both banks, as a deliberate strategy, have tried to ensure that only non-independent directors have commercial banking expertise. This is unusual, as other private sector banks such as ICICI Bank Ltd (ICICIBC IN), Axis Bank Ltd (AXSB IN),  Indusind Bank (IIB IN) and Federal Bank (FB IN) have former commercial bankers as independent directors on their boards.Banking, being a specialised and highly regulated sector with an economy-wide systemic impact, needs that some directors have commercial banking expertise separate and distinct from the executive.The absence of such independent functional expertise on the board is a sign that the executive/controlling shareholders do not want to be challenged or to have close oversight in the banks’ core area of operations. HDFC Bank and KMB are poster banners for private sector banking in India, with a combined market capitalisation of US$ 159 bn. They have achieved this without the presence of former commercial bankers as independent directors. Both Aditya Puri (erstwhile HDFC Bank CEO) and Uday Kotak maintained an iron-clad grip on asset quality, which is visible in their track record of profitability and stock market valuation. However, banking should not be individual-based, but based on appropriate systems. A diversified board of directors, including those with commercial banking expertise independent of the executive, should be mandatory in all banks. Regardless of their track record and valuation, banks which deliberately exclude such critical functional expertise on their boards must be hauled up by the Reserve Bank of India, credit rating analysts and the capital markets. The fact that HDFC Bank and KMB have rewarded shareholders manifold without such independent expertise on their boards should not be an excuse for such an anomaly to continue, nor should it be replicated in other banks.

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

India

IndusInd Bank Limited is a Mumbai-based Indian new generation bank established in 1994. The Bank provides a range of banking and financial services including  wholesale banking, credit monitoring, risk management, tele-banking, investment banking and commercial lending. IndusInd Bank operates branches throughout India as well as an office in Dubai and London.

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Indusind Bank (IIB IN)

Axis Bank’s Toxic Call to Staff to Fight, Abuse, and Undermine One Another in Pursuit of Business

Strategy of abusing staff so far has failed but with board of directors' endorsement, more of the same is being implemented which may have adverse...

Hemindra Hazari

Spandana Spoorthy: Another Tale Of Investor and Promoter Tussle

Any failure in getting shareholder's approval may put Spandana into trouble and given few governance issues being highlighted by us, these hidden...

Nitin Mangal

Axis Bank: Toxic Workplaces Don’t Bring In More Business

2QFY2022 may have been an aberration, but if staff have become unresponsive to the management’s directives to push business growth, Axis has a ...

Hemindra Hazari

Yes Men at Yes Bank, and Elsewhere: ‘Phone Banking’ in the Private Sector

It appears that, for all their experience & seniority, key senior executives in the pvt financial sector are paid inflated packages precisely for...

Hemindra Hazari

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

The absence of independent commercial banking expertise on the board is a sign that the executive do not want to be challenged or to have close...

Hemindra Hazari

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