How Aditya Puri built HDFC Bank, brick by brick

When a rival bank tweets good wishes to the retiring CEO of another bank, you know that person is no ordinary banker. Aditya Puri, 70, who helmed the country’s most valued banking institution, HDFC Bank, for 26 years, retired in end-October and, within days, joined The Carlyle Group. Presenting the Aditya Puri masterclass on leadership, institution-building, and change management. Edited excerpts:

An Institution-Builder

It’s been a long and eventful innings for you. What are your initial thoughts as you prepare for life after HDFC Bank?

I am extremely satisfied, and at peace. I built a good institution, got a lot of respect and regard from the length and breadth of the institution, both from people who are still working and those who have left. I have positioned the bank for the future, and got Sashi Jagdishan [Sashidhar Jagdishan, the new MD & CEO] who is ingrained in the bank, as an excellent successor, tying up with him and easing him into the role. So I leave as a very satisfied man, and with a lot of respect—something which is very important—from all the 120,000 people at the bank.

You spoke about building a good institution. There are CEOs, and there are institution-builders. What does it take for a leader to be an institution-builder?

The builder of an institution has to understand what he wants to build. Once he knows that, he has to get the team together that will build that institution. And automatically then, you don’t become a CEO—you become a first among equals, the objective being to build the institution. Then you have to clearly define the parameters within which that institution will be built, i.e., its culture, what business it is going to do, what will it do for society, what kind of place it’s going to be to work in.

So Deepak Parekh came to Malaysia to talk to me and said, “Hey listen, you’ve been all over the world, why don’t you come back to India and see if you can change banking and see whether you can put all your experience into play?” He said, “Obviously I can’t pay you what Citibank pays you”, but when I finally saw the salary it was a shock because it was peanuts! I told him it’s all right but at least the team that I put together which is going to be taking this risk, and I, should have an upside in the form of stock options every year. God was kind, we worked very hard, and I think we got more than any of us expected.

The genesis was clear. At that time, you had the financial system and the public sector banks which had 90% of the business. To introduce competition, the government had sanctioned a few private bank licences. And when we looked at the landscape, what I saw was the public sector banks had the brand, the distribution, and the deposits. The foreign banks had the product and the service, and excellent talent. I said, if we can bring these two together in an institution and also take advantage of changing telecommunications, then we should be able to come up with an institution that can be world class in terms of standards, whether it is in profitability, governance, or satisfaction for employees. So, when I came back [to India], we were sitting on rickety chairs and tables, not the swank office we have now. And we were telling people, “Come and join us, and we will build a world-class Indian bank.”

Fortunately, a lot of like-minded people were willing to work with the parameters of high risk, and high satisfaction if you achieved results. Not only that, as collateral, if you achieve it, you’d also make good money.

Once the team came together and we all believed in the idea, we said if the institution is to be long term, we must clearly define what the brand stands for. After all, the brand is the personality of the corporation. So, it must have trust, integrity, and transparency as overriding values. Then, to be successful in business we must be customer-focussed. We must provide the best product and service that we can through cutting-edge technology. We must be a happy place for people to work in, because you can’t do this alone. We must be clear on our corporate governance standards, and clear that we have to be good members of society in terms of giving back to it, looking after the environment, and ensuring sustainability. Then we decided on the target market. Since we are in a fiduciary capacity, deposits must be returned. We needed to be very clear what our pricing was going to be. The pricing must cover us for expenses and the probability of default, because in banking some amount of non-performing assets is a part of the business. And, then, we must give a return to shareholders.

So we had the organisation structure, we defined the technology, and then we said we must execute to perfection. People must be empowered, and only then will they get the motivation. So, this is how we built it, step by step.

You had to get the entire institution aligned to this vision...

You know, most of these things—whether it is change management or setting up the institution—tend to fail quite often because these are only discussed among the senior management. But we said every person in the organisation must believe in what we are doing, and must understand corporate governance.

What happens is, I may say we must not do this or that, but the fellow in, say, remote Jhumri Telaiya will do something for fear of losing his job if his boss tells him to do something [wrong]. So the process is very clear: The employee can say, “I can’t do this, and here are the regulations—one, in terms of transacting and two, in terms of our culture—on things I cannot do.” Both people become careful, and the senior management walks the talk. Then you have a team, and 120,000 of you walking together, and you get the results.

You are famous for not carrying a cellphone. In this gadget-obsessed world, how do you manage that?

You must realise that the mental reserve is limited. If you waste that in frivolous mobile conversations, you have very little time to think constructively. Besides, are laptops and phones technology? Technology to me is an enabler for delivering better service to the customer. That’s what we said: that we will change the experience for the customer.

Aiming For The Gold Standard

What goes into building a world class bank?

One, you must have a superior product range. Ultimately what are we doing all this for? We are doing it for the customer. So there must be tremendous focus on the customer and we must come in with products using the latest technology which will change the experience for the customer. You must be customer-focussed, and have the right technology. And [then] your balance sheet must reflect your brilliant intellectual talk at 20,000 feet. The test is that people must believe that this brand stands for the attributes I mentioned. That’s the proof of the pudding.

Two, if we have clearly said we will balance risk and reward, then we must have enough profitability to do what is to be done, including provisioning. That’s why today we have 145% provision cover, and a pristine balance sheet, great corporate governance, and the trust of the people and the rating agencies. So the proof of the pudding is, do the people who use your product believe in what you say your brand stands for? When we talk about who is a CEO, let’s be very clear that a brand can’t be built by a CEO. The brand has to be built by everybody in the institution understanding and creating an excellent product which has top-of-mind recall, followed by transparent dealings by everybody, every day, at every touch point.

For that you need a different kind of leadership…

Absolutely. That has been accentuated with digital. In the digital world, everyone wants everything quickly. You can’t say you will let the customer know after asking the boss [what to do]. The customer needs things done now. So there must be empowerment, people must believe in it, and the whole organisation should be moving as a team. At my farewell, people told me, “Sir, we believe in your vision and your legacy… we promise we will deliver.” Now we’re talking of an institution!

Where do you see the opportunities for growth?

Covid-19 has come, but it won’t be there forever. It has given a tremendous push to digitisation. In semi-urban and rural India, where 60% of India lives, demand for financial services will exceed supply for the next 10 years. If we can feed that demand from the bank’s point of view in terms of loans, it also satisfies the objectives of the government and the Prime Minister. We plan to own [the] semi-urban and rural India [market]. Digital will make things more competitive, but it also allows us to address a larger customer base. We have gone digital in a major way in every area. So we’ve got new geographies, new products, new delivery channels, and initiatives to reduce our costs. We’ve moved from being just a banking experience to being a financial experience.

You are now regarded as an iconic figure in Indian banking. What is the secret sauce of this longevity?

I did not seek to become an iconic figure. The performance of 120,000 colleagues as a team and their commitment to the vision is what made me that. HDFC Bank is not what it is because of me. I am who I am because of HDFC Bank and 120,000 colleagues. And we are a living organisation. We change every four years, but that’s how changes come in the overall macro environment. We are customer-focussed. When we make our strategy, that strategy has inputs from everybody.

You will agree that while change is always there, the speed of change has been completely different over the last three years. So we looked at what changes had come—the convergence of telecom, media, and computing. You also had a secular shift in technology, telecom, artificial intelligence. You also had a shift in aspirations. A lot of the people who saw this change in the services sector didn’t need to recreate the atomic bomb. You just needed to stitch together what was available. The people who used this change to alter their business models were able to come up with a more personalised product, better service, and reduction of cost for the company. These are the Apples, the Facebooks, the Googles, the Amazons, and the Netflixes. People who did not, and thought they had the brand and the distribution—the Kodaks of this world—did not change. That’s not to say that the brand and trust that you built up isn’t important. The success is if you can change and provide the same level of service as the new entrant, and it’s overlaid by the trust and brand that he is comfortable with. Then the customer sees no reason to change.

So we put this strategy in place. There wasn’t a corner of the country we didn’t visit to validate our strategy. There was never a case where somebody on the ground who knows the customer best suggested something and we didn’t change.

Even during Covid-19 we did that. We said we will change, we will have work from home and all that, but there will be no job loss, no hit on your increment, no issue on your bonuses or promotions. Because we believe our vision, our positioning, and our employee belief is there. We said we cannot impose hardships on our people.

Last year, when there was no Covid-19, we achieved our targets. This year also you’ve seen our results for the first two quarters. And as the economy recovers, we will perform well. I made Sashi Jagdishan the Change Agent. Sashi has not only been involved in the strategy and action, but also in delivering the change to me, which makes his job now much easier. And the people also believe in him. The succession then was just like walking in… just come in. Like a family succession. And together they said, “Don’t worry Sashi, we will jointly deliver Mr Puri’s vision.” What a way to go!

(This interview appears in the December 2020 issue of Fortune India)