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The Turnaround of Indian Bank

            
 
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Case Details:

Case Code : BSTR104
Case Length : 10 Pages
Period : 1992 - 2004
Organization : Indian Bank
Pub Date : 2004
Teaching Note : Available
Countries : India
Industry : Banking & Finance

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"The case of Indian Bank is a case of political blunder. The solution is not closing down the bank but stern action against the defaulters so that repayments are made. This is the way to serve the interests of the depositors."

- Gurudas Dasgupta, CPI Rajya Sabha member in 2000.1

"During the three years of the restructuring plan, the bank could achieve consistent growth in business and also sustain its turnaround due to initiation of various structural, operational and cost control measures. The bank has also worked on marketing and motivational strategies and strengthened its planning and monitoring systems."

- Mrs. Ranjana Kumar, chairperson and managing director, Indian Bank in 2003.2

Indian Bank Achieves a Turnaround

In mid-2002, Indian Bank, a prominent public sector bank (PSB) in India, posted a net profit of Rs 33.22 crore3 for the fiscal year 2001-2002. This marked Indian Bank's return to the black after being in the red for six consecutive years, following an industry record loss of Rs. 1336.4 crore in the fiscal 1995-1996.

In 1999, Indian Bank was formally recognized as a weak bank by the Verma Committee, set up by the Government of India (GoI) earlier that year. Following this, the bank embarked on a comprehensive restructuring program, under the leadership of Ranjana Kumar (Kumar), who was known in the Indian banking circles as the "Turnaround Queen" for her unique ability to create something worthwhile out of the most hopeless banking failures.4 The restructuring process, eventually led to the turnaround of Indian Bank in 2002. By 2003, the bank was looking forward to a promising future. Analysts said that the turnaround of the Indian Bank was one of the most successful turnaround cases in the history of Indian Banking.

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Background Note

Indian Bank was set up as part of the Swadeshi Movement5 in 1907. Incorporated on March 5, 1907, with an authorized capital of Rs 20 lakh, the Bank commenced operations on August 15, the same year. During the first year of operations, the Bank received deposits of Rs 2,01,157 and made a profit of Rs. 5,505.

Headquartered in Chennai (formerly known as Madras) in the south Indian State of Tamil Nadu, Indian Bank enjoyed a good customer base in the south. As a bank backed by the government, Indian Bank continued to flourish and boasted of the trust it had been enjoying since the early 1900s.

The 'nine decades of trust', suddenly came under threat in the 1990s, when the GoI and the Reserve Bank of India (RBI)6 introduced a new set of norms for the banking sector. The once respected bank found itself with the ignominious distinction of being classified as one of the three weak banks in India, alongside UCO Bank7 and United Bank of India.8

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1] Rishi Raj, CII report on bank closure is an apology of a robbery, Indian Express, January 4, 2000.

2] Indian Bank, Tamil Nadu: The Wonder State, Business Standard, August/September, 2003.

3] US $ 1 is equal to approximately Rs 45 as in December 2003. One crore is equal to 10 million.

4] Ranjana Kumar had helped turnaround the international operations of Bank of India, which she joined in 1966. She also helped lead the profitability campaign of Canara Bank before joining Indian Bank.

5] The Swadeshi Movement was launched at the Calcutta Session of the Indian National Congress in 1906. Launched as a part of India's struggle for freedom, the Movement called on all Indians to boycott foreign goods and services in favor of Indian ones.

6] The Reserve Bank of India is the central bank of the country and is at the apex of the Indian Banking System. It was set up by the Reserve Bank Act in 1935.

7] Founded in 1943, UCO Bank is a commercial bank headquartered in Kolkata wholly owned by the Government of India.

8] Headquartered in Kolkata, United Bank of India was set up in 1950 and nationalized in 1969. The bank played an important role in the economic development of northern and eastern parts of India.

 

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