INDIAN BANK - A Banking Phoenix

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Authors: Sanjib Dutta,
Senior Faculty Member,
ICMR (IBS Center for Management Research).

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Abstract: The article talks about the turnaround of Indian Bank. Indian Bank was identified as one of the three weak banks in India by the Verma Committee Report on weak PSBs, in 1999. However after a comprehensive restructuring effort, led by Ranjana Kumar, the bank managed to turnaround in 2002.

Closure, merger or rehabilitation, summed up the options available to the ailing Indian Bank in 1999, when the Working Group, set up by the Reserve Bank of India (RBI)¹ in consultation with the Government of India (GoI), submitted its report on weak banks. On considering the options, the Group did not favor closure because it believed that the cost of closure, to depositors, clients and employees of the bank, would be too high.

Merger was ruled out because of the un-viability of merging a sick entity with a healthy one. Besides, the lone merger experience in the history of Indian public sector banks (PSBs) (between the Punjab National Bank and New Bank of India in 1993) was not a very positive one.

Rehabilitation through privatization did not seem possible because of the condition the bank was in, and the consequent remoteness of the chance that a private investor would be willing to invest considerable amounts to help it recuperate. Consequently, the only alternative was to restructure Indian Bank, to help it achieve a turnaround.

With a heritage that went back to the early 1900s, Indian Bank proudly boasted of the 'nine decades of trust' vested in it by its loyal customer base. The Bank was first set up in 1907 as a part of the Swadeshi Movement.² Headquartered in Chennai (formerly known as Madras) in the south Indian State of Tamil Nadu, the bank played an important role in the development of the southern region of India, especially in the years that followed India's achievement of independence in 1947.

As a part of the bank nationalization program undertaken by the GoI in 1969, Indian Bank was nationalized along with 13 others. With the backing that the GoI provided to PSBs, Indian Bank continued to flourish through the 1970s and 1980s. The 'nine decades of trust', suddenly came under threat when the RBI and GOI introduced a new set of norms for the banking sector in the early 1990s. With the implementation of the new norms, the once respected bank found itself with the ignominious distinction of being classified as one of the three weak banks in India, alongside UCO Bank³ and United Bank of India.⁴

What followed was a long and difficult process of restructuring, aimed at putting the bank back on its feet. Under the inspiring guidance of Ranjana Kumar (Kumar), Indian Bank managed to regain a semblance of its past glory to reestablish itself as a worthwhile bank.

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1] The Central Bank of India and the apex of the Indian Banking System.
2] 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.
3] Founded in 1943, UCO Bank is a commercial bank headquartered in Kolkata wholly owned by the Government of India.
4] Headquartered in Kolkata, United Bank of India was set up in 1950 and nationalized in 1969. the bank played an important role in the northern and eastern parts of India.