Specialist in Indian Banking and Economic Research

Hemindra Hazari

While <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>  has recovered from its corporate non-performing asset (NPA) crisis, it seems to be in the midst of a management attrition problem, partly explained by significant <a href="https://thewire.in/banking/will-axis-bank-right-the-ship-with-its-mid-level-management-shake-up" target="_blank" rel="noopener">sackings</a> in FY2020. Staff turnover levels have been steadily rising in FY2018 – FY2020 (data for FY2021 not yet released). What is worrying is the attrition is across management strata, and covering all age groups. In our sample of banks ( <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> , Axis Bank, <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/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> ) which disclose this data, only Yes Bank has worse attrition than Axis Bank, which is understandable given Yes Bank’s precarious situation till FY2020.It is commendable of both Axis Bank and Yes Bank to have voluntarily provided detailed disclosure of attrition (unlike <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> 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> , which provided no disclosures in this regard), enabling a meaningful analysis. The consistent rise in attrition in Axis Bank is a serious human resource (HR) problem reflecting on the bank’s <a href="https://www.axisbank.com/media-centre/board-of-directors" target="_blank" rel="noopener">board of directors</a>. Responding to a query posed by this analyst on this subject, the bank has stated that it “does not comment on internal administrative matters”. This analyst believes the high attrition can be attributed to (i) sackings, (ii) poor selection practices by the Human Resources division (responsibility of <a href="https://www.linkedin.com/in/rajesh-dahiya-4911961/?originalSubdomain=in" target="_blank" rel="noopener">Rajesh Dahiya</a>  since June 2010) in identifying appropriate candidates (especially at the entry level of sales where attrition was a shocking 69% in FY2020), (iii) excessive pressure to meet over ambitious targets, (iv) difficult working conditions, (v) poor training and (vi) inadequate resources for its staff.Axis Bank’s FY2020 annual report maintains that “its employees remain the most critical drivers for growth and success” and are the “catalyst which builds talent”. However, inexplicably, the board of directors have presided over large-scale staff attrition and allowed the attrition to keep rising. Amitabh Chaudhry took over as Chief Executive Officer (CEO), Axis Bank on January 1, 2019, and in the first week of April, 2019  <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/axis-bank-asks-more-than-50-mid-level-managers-to-leave/articleshow/68731729.cms?utm_source=whatsapp_app&amp;utm_medium=social&amp;utm_campaign=socialsharebuttons" target="_blank" rel="noopener">media reports</a> indicated significant forced removals. It is surprising that lower levels of management bore the brunt while senior executives closely associated with the previous CEO’s strategy got away. Banking is all about trust, and customers become uncomfortable when there is a constant churn of staff who service them. Nor is it healthy for any institution to have a high and consistently increasing attrition, which is a symptom of an underlying problem and signifies waste of expenditures incurred in hiring and training staff. It is also surprising that credit rating analysts have not red flagged this development. These issues can no longer be tucked away in some obscure corner in a company’s website, but will have to be mandatorily included in company’s annual reports from FY2023 as per SEBI’s <a href="https://www.sebi.gov.in/media/press-releases/may-2021/sebi-issues-circular-on-business-responsibility-and-sustainability-reporting-by-listed-entities-_50097.html" target="_blank" rel="noopener">recent</a>  business responsibility social reporting (BRSR).  By then one hopes the board of directors at Axis Bank would have woken up and addressed this critical issue.

While Axis Bank Ltd (AXSB IN)  has recovered from its corporate non-performing asset (NPA) crisis, it seems to be in the midst of a management attrition problem, partly explained by significant sackings in FY2020. Staff turnover levels have been steadily rising in FY2018 – FY2020 (data for FY2021 not yet released). What is worrying is the attrition is across management strata, and covering all age groups. In our sample of banks ( HDFC Bank (HDFCB IN) , Axis Bank, Indusind Bank (IIB IN) and Yes Bank (YES IN) ) which disclose this data, only Yes Bank has worse attrition than Axis Bank, which is understandable given Yes Bank’s precarious situation till FY2020.It is commendable of both Axis Bank and Yes Bank to have voluntarily provided detailed disclosure of attrition (unlike ICICI Bank Ltd (ICICIBC IN) and Kotak Mahindra Bank (KMB IN) , which provided no disclosures in this regard), enabling a meaningful analysis. The consistent rise in attrition in Axis Bank is a serious human resource (HR) problem reflecting on the bank’s board of directors. Responding to a query posed by this analyst on this subject, the bank has stated that it “does not comment on internal administrative matters”. This analyst believes the high attrition can be attributed to (i) sackings, (ii) poor selection practices by the Human Resources division (responsibility of Rajesh Dahiya  since June 2010) in identifying appropriate candidates (especially at the entry level of sales where attrition was a shocking 69% in FY2020), (iii) excessive pressure to meet over ambitious targets, (iv) difficult working conditions, (v) poor training and (vi) inadequate resources for its staff.Axis Bank’s FY2020 annual report maintains that “its employees remain the most critical drivers for growth and success” and are the “catalyst which builds talent”. However, inexplicably, the board of directors have presided over large-scale staff attrition and allowed the attrition to keep rising. Amitabh Chaudhry took over as Chief Executive Officer (CEO), Axis Bank on January 1, 2019, and in the first week of April, 2019  media reports indicated significant forced removals. It is surprising that lower levels of management bore the brunt while senior executives closely associated with the previous CEO’s strategy got away. Banking is all about trust, and customers become uncomfortable when there is a constant churn of staff who service them. Nor is it healthy for any institution to have a high and consistently increasing attrition, which is a symptom of an underlying problem and signifies waste of expenditures incurred in hiring and training staff. It is also surprising that credit rating analysts have not red flagged this development. These issues can no longer be tucked away in some obscure corner in a company’s website, but will have to be mandatorily included in company’s annual reports from FY2023 as per SEBI’s recent  business responsibility social reporting (BRSR).  By then one hopes the board of directors at Axis Bank would have woken up and addressed this critical issue.

Why Are Axis Bank’s Directors Mum About the Extraordinary Staff Churn?

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

*Can Kicked Less Far: On March 23, 2021, the Supreme Court in a final ruling  rejected pleas for a complete waiver of interest on loans under moratorium; ; and*Good News For Banks Is Still Bad News: Despite the favorable RBI Supreme Court ruling, Indian financial sector credit quality remains amongst the worst in Asia and globally. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those to the woodpile of Indian NPLs. Massive capital raises need to occur within the sector.

*Can Kicked Less Far: On March 23, 2021, the Supreme Court in a final ruling  rejected pleas for a complete waiver of interest on loans under moratorium; ; and*Good News For Banks Is Still Bad News: Despite the favorable RBI Supreme Court ruling, Indian financial sector credit quality remains amongst the worst in Asia and globally. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those to the woodpile of Indian NPLs. Massive capital raises need to occur within the sector.  

Reserve Bank of India – Heads You Win, Tails I Lose

India Financials

Saumya Agarwal

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure due to multiple factors playing out such as Moratorium, the Supreme Court interim order and the Restructuring framework. How well placed are Indian Banks to ride the current stress cycle?

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure due to multiple factors playing out such as Moratorium, the Supreme Court interim order and the Restructuring framework. How well placed are Indian Banks to ride the current stress cycle?

Indian Banks: How Well-Placed Are Indian Banks to Ride the Current Stress Cycle?

In the last 7 1/2 years private sector  banks have increased their market share in overall deposits and credit in the industry. More importantly, in the critical metropolitan (population 1 mn+) areas, which account for the majority of banking business, their gains have been even higher. Government banks have borne the brunt of the loss in market share. This has been on account of their asset quality losses arising from a major feature of economic reforms, namely, the privatisation of infrastructure, funded primarily by government banks; the economic slowdown; and the failure of the government to adequately recapitalise its own banks, ostensibly for fiscal reasons.  While many in the capital market may applaud the increase in market share of private sector banks as a positive development, and as a benign backdoor entry for the further privatisation of the banking sector, policy makers and the public should be aware of some critical aspects. Firstly, the majority of India’s population resides in rural areas, and the overwhelming bulk of the business of private sector banks comes from metropolitan centres. The concentration of private sector banks in metropolitan centres is much higher than that of the overall banking industry, and correspondingly the private sector banks’ rural business is much lower than the industry average. Allowing private sector banks to continue to increase their market share in concentrated areas may further widen the lopsided socio-economic development of India. Secondly, foreign ownership is prevalent in Indian private sector banks; in the 5 largest private sector banks by market capitalisation, foreigner ownership is nearly 60%.Banking in any economy is a strategic industry, in which ownership is not only expected to be diversified, but also encouraged to be domestic. As domestic depositors are the largest stakeholders in Indian banks, it is imperative to check the influence of foreign owners over Indian banks. Foreign portfolio owners are naturally governed by their own interests, which may override domestic interests. While the Reserve Bank of India (RBI) has regulated banks to ensure diversification of ownership, and prevented foreign investors from owning more than a certain threshold of shares, and exercising control over a local bank, over time this could change.In such a scenario it is unfortunate that the government ignores its own banks and provides an impetus to further privatise government banks. In a developing country like India, where the vast majority survive on low incomes, profitability cannot be the sole indicator to measure bank performance, but should be one of others focusing on a more balanced socio-economic development model. While the capital market and government may rejoice with the privatisation of Indian banking, there may be long term repercussions for Indian stakeholders.

In the last 7 1/2 years private sector  banks have increased their market share in overall deposits and credit in the industry. More importantly, in the critical metropolitan (population 1 mn+) areas, which account for the majority of banking business, their gains have been even higher. Government banks have borne the brunt of the loss in market share. This has been on account of their asset quality losses arising from a major feature of economic reforms, namely, the privatisation of infrastructure, funded primarily by government banks; the economic slowdown; and the failure of the government to adequately recapitalise its own banks, ostensibly for fiscal reasons.  While many in the capital market may applaud the increase in market share of private sector banks as a positive development, and as a benign backdoor entry for the further privatisation of the banking sector, policy makers and the public should be aware of some critical aspects. Firstly, the majority of India’s population resides in rural areas, and the overwhelming bulk of the business of private sector banks comes from metropolitan centres. The concentration of private sector banks in metropolitan centres is much higher than that of the overall banking industry, and correspondingly the private sector banks’ rural business is much lower than the industry average. Allowing private sector banks to continue to increase their market share in concentrated areas may further widen the lopsided socio-economic development of India. Secondly, foreign ownership is prevalent in Indian private sector banks; in the 5 largest private sector banks by market capitalisation, foreigner ownership is nearly 60%.Banking in any economy is a strategic industry, in which ownership is not only expected to be diversified, but also encouraged to be domestic. As domestic depositors are the largest stakeholders in Indian banks, it is imperative to check the influence of foreign owners over Indian banks. Foreign portfolio owners are naturally governed by their own interests, which may override domestic interests. While the Reserve Bank of India (RBI) has regulated banks to ensure diversification of ownership, and prevented foreign investors from owning more than a certain threshold of shares, and exercising control over a local bank, over time this could change.In such a scenario it is unfortunate that the government ignores its own banks and provides an impetus to further privatise government banks. In a developing country like India, where the vast majority survive on low incomes, profitability cannot be the sole indicator to measure bank performance, but should be one of others focusing on a more balanced socio-economic development model. While the capital market and government may rejoice with the privatisation of Indian banking, there may be long term repercussions for Indian stakeholders.

Creeping Denationalisation of India’s Banking Sector

Forensic Analyst, Trudence Capital Advisors

Nitin Mangal

Forensic Analyst

The year 2020 was a wild swing for the capital markets; it was off in a flash but still won't be forgotten by many. It was a year marked by unpredictability, right from Covid-19 to the crashing of indices. It was a challenge to many, but still the year has uncovered several new, differentiated potholes for many companies on corporate governance, accounting engineering. We have provided critical views on few of the companies on these two aspects. 
Going forward we will continue to provide critical views on the companies especially in our core area of corporate governance and forensic research. Beginning 2021, we will be covering the same through our product 'AGE Analysis' (Accounting. Governance. Earnings). We also look to enhance our reach in macro coverage, along with event driven insights.

The year 2020 was a wild swing for the capital markets; it was off in a flash but still won't be forgotten by many. It was a year marked by unpredictability, right from Covid-19 to the crashing of indices. It was a challenge to many, but still the year has uncovered several new, differentiated potholes for many companies on corporate governance, accounting engineering. We have provided critical views on few of the companies on these two aspects. 
Going forward we will continue to provide critical views on the companies especially in our core area of corporate governance and forensic research. Beginning 2021, we will be covering the same through our product 'AGE Analysis' (Accounting. Governance. Earnings). We also look to enhance our reach in macro coverage, along with event driven insights.

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Indusind Bank (IIB IN)

Why Are Axis Bank’s Directors Mum About the Extraordinary Staff Churn?

Stakeholders, including credit rating agencies, need to be concerned with such high attrition rates in Axis Bank, as banking is staff intensive,...

Hemindra Hazari

Reserve Bank of India – Heads You Win, Tails I Lose

RESERVE BANK OF INDIA: The Supreme Court rejected pleas for a complete waiver of interest on loans under moratorium. Nevertheless, the Indian...

Thomas J. Monaco

Indian Banks: How Well-Placed Are Indian Banks to Ride the Current Stress Cycle?

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure . Can...

Saumya Agarwal

Creeping Denationalisation of India’s Banking Sector

With foreign investors holding majority ownership of major private banks; & with such private banks increasing their market share, it is difficult...

Hemindra Hazari

Review for the Year 2020

We review our entire cloud of insights covered in 2020, and give a snapshot of how did they pay out in the market, including future prospects.

Nitin Mangal

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)