INDIAN BANK - A Banking Phoenix
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Authors
Authors: Sanjib Dutta,
Senior Faculty Member,
ICMR (IBS Center for Management Research).
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Efforts at Restructuring
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Efforts at reviving Indian Bank began in July 2000 when the management, led by Kumar, submitted a plan to the GOI detailing the steps it proposed to take during the three-year restructuring period. Kumar requested the finance ministry for recapitalization funds, but the GoI decided to defer it until such a time as the bank showed a distinct improvement. Kumar began the restructuring by entering into a written agreement with the trade unions, seeking their cooperation on the three year long initiative.
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The branches were segmented into 4 categories - corporate, commercial, personal and rural. To create a more streamlined structure, several branches across the country were also merged. By 2003, 119 of the total 1400 branches in India had been merged.
In an effort to pare down excess staff and making the organization leaner, the bank implemented a Voluntary Retirement Scheme (VRS). Through the VRS, the bank shed over 3400 employees, bringing the staff number down to 22,400 by March 2003 from nearly 26,000 in 1999. The VRS cost Rs 96 crores, part of which was paid as cash and part as bonds. Indian Bank also adopted the practice of employing fresh MBAs for three months in summer, to provide a fresh view on things. After eight years of no recruitments, Indian Bank conducted a recruitment drive for probationary officers in 2003 and selected 250 people. The new officers were expected to join the bank by early 2004. The bank also recruited 58 specialist officers like MBAs and BEs to make operations more professional.
To bring down the huge NPA levels that were bogging it down, the bank took advantage of the 'securitization' Act passed by the Indian Parliament, to foreclose and seize assets. It issued over 700 notices to defaulters and confiscated 12 properties. Restructuring also involved the sale of the Mutual Fund subsidiary to Tata AMC, a private mutual fund company, for around Rs 62 lakh. The housing subsidiary was taken over by the bank for restructuring and its merchant banking subsidiary was to be sold.
The bank also entered into a five-way tie-up with other public sector banks for sharing of ATMs. (The other partners were Punjab National Bank, Bank of India, Syndicate Bank and United Bank of India). "With this, the number of ATMs that an Indian Bank customer would be able to access would go up to about 1, 000," said Kumar.6 On its own, Indian Bank had set up 75 ATMs by the end of March 2003 and was planning about 30 more by the end of 2003. Plans were also on the anvil for the opening of 10 new branches across the country by the end of 2003. To keep up with private and foreign banks, Indian bank went on a technology drive and took up the computerization of its branches across India.
During the restructuring period, the bank began focusing on retail products, which it called 'structured loan schemes'. In 2001-2002, it introduced 12 new retail schemes for customers. During 2001-02, it disbursed close to Rs. 1,020 crores under these. Home loans were the major form of loans, followed by personal loans, trade finance and the like. To diversify its portfolio of services, Indian Bank also entered into an agreement with HDFC Standard Life, to sell the latter's insurance products. (Refer Exhibit-II for a list of the loans provided by Indian Bank in 2003).
6] "Indian Bank plans IPO after July 2004", The Hindu Business Line, May 7, 2003