I vividly recall an opportunity that came my way 12 years ago. I was in New York with Warburg Pincus when I got a call from Deepak Parekh, then Chairman of IDFC. Back in 2005, the Indian economy was in the ascendant. For me, while the pace of corporate life overseas held its appeal, my yearning to return and work for my country was compelling and I accepted the offer to head IDFC. This was the beginning of an amazing journey that opened new vistas, presented new challenges, and taught me many lessons.
When I was entrusted the task of leading IDFC, it was going through a difficult and uncertain phase. Although it had impeccable lineage with a mandate to develop private infrastructure, it was struggling to build business momentum in competition with much larger banks. The need of the hour was to galvanise the organisation to take on the challenge of unprecedented growth opportunity in a new and emerging segment of the financial services market. There was much to do and little time within which to get it done. It became a turning point in my life.
I started my professional career in academia and then moved to the world of public policy. Armed with a doctorate in economics, I spent over a decade-and-a-half teaching, researching, analysing and advising on economic policy issues around the world. During my years with the Asian Development Bank and the World Bank, I had occasion to work with a wide range of governments from war-ravaged Chad in Sub-Saharan Africa to a rapidly transforming China. While I gained a broad perspective on the world at large, I was mostly a consultant with no practical experience of public administration and no real sense of ownership or accountability for outcomes. I began to discover how the real world and business operate when I took the plunge from being an economist to an investor with a well-established Wall Street private equity firm. Even then, my experience of the world was still only vicarious. It was at IDFC that I learned what it takes to build not just a business unit but an institution.
Being a leader can be a lonely job, especially if your task is to bring about transformational change. Articulating business strategy was easy. Building a culture was much harder. Culture is vital to institution building. It requires relentless communication to ensure that purpose, vision and values of the firm are internalised and cascaded from top to the frontline. Building a cohesive leadership team with ownership of a shared vision was an exciting journey. Between 2004/05 and 2013/14, IDFC's balance sheet grew from `8,434 crore to `75,163 crore on a strong capital base and profits grew from `304 crore to `1,803 crore even as we navigated past the turbulence following the global financial crisis in 2008. By late 2013, however, we were seeing clear signs of the impending problems in the Indian infrastructure sector. It was in anticipation of the crisis that the decision to pursue a universal banking licence was taken.
People are generally not comfortable with change. It was not easy to convince the team and stakeholders to pursue this radical change even before the true extent of the challenges in our balance sheet had become fully evident. But the team rallied behind the idea and IDFC ended up getting one of the only two banking licences that were awarded in 2014. It was a matter of great pride for me to see how my colleagues committed themselves to the difficult task of launching IDFC Bank in a short span of 18 months. This involved adding new members to the core team and hiring a large number of new people; addressing enormously complex legal, regulatory and compliance hurdles; putting together a state-of-the-art technology platform; raising additional capital; and listing the newly formed bank within the first month of starting operations. Every single member of the team took personal ownership to achieve the impossible. It was truly a test of collective grit under pressure.
Relief was, however, short-lived. Cleaning up the legacy balance sheet has had its challenges given the wide range of stakeholders involved in bad debt resolution. IDFC Bank has led the market in transparently disclosing, resolving, hiving off and aggressively provisioning against the stressed asset portfolio way beyond what was required by the regulator. Thanks to a very comfortable capital cushion we had built up earlier, our balance sheet remains strong. What has been harder is guiding the transformation of what was a specialised wholesale-focussed financial services company with a large and lumpy balance sheet into a universal bank aiming to serve the mass retail market. It required forging a new culture, building trust and collaboration between diverse groups of people brought together for the first time and rallying them around a recrafted mission and vision.
Since our inception a mere 24 months ago, we have hired nearly 4,700 people and launched a diversified suite of wholesale and retail banking products. The bank now serves over two million people, growing at the rate of 120,000 new customers a month. It has rapidly developed a diversified retail asset portfolio of `18,000 crore, growing at a run rate of over `2,000 crore a quarter. We have a new corporate book of over `20,000 crore. The Banks CASA and retail deposit base has crossed `7,000 crore and is growing at an annualised rate of 140 per cent. These are significant achievements for a start-up bank, but in order to grow out of legacy challenges, we aim to sustain this pace of execution.
So what does it take to build an institution? My most important lesson is that getting people to connect to a shared sense of purpose is vital for keeping them energised and focussed through the long and inevitably uncertain journey of institution building. Clarity of vision, self-belief, resilience, and relentless communication, with both internal and external stakeholders, are also useful. In the end, though it's all about people: it is about creating an environment that motivates people to consistently give their best. If you are able to do that, you will find yourself leading a fine institution - if you are unable to do that, you may still find yourself at the helm of a decent business but not an institution that will outlast you.
By Rajiv Lall, Founder MD and CEO, IDFC Bank