What were your major challenges?

In an SFB, promoters are required to hold 40% stake. We changed our structure to a holding company to meet that requirement. So the old NBFC-MFI (Ujjivan Financial Services Ltd or UFSL) became the holding company and the bank was made its wholly-owned subsidiary. And according to the RBI guidelines, all the assets and liabilities of the holding company should be transferred to the bank. So today, the holding company owns 100% of the bank and that’s the promoter. Another RBI guideline stated majority [at least 51%] of the bank’s share must be owned by domestic shareholders. But over 90% of the holding company was owned by foreigners. We had to do an initial public offering (IPO) of the holding company [in May 2016] to dilute the foreign stake and we did it at a difficult time because most of the public sector banks then were announcing poor earnings, as they had to provide for all their bad loans. But we were fortunate that the investor community and shareholders bought our story. Our IPO was subscribed 41 times. After the IPO, the foreign shareholding was down to about 45%.

What are the regulatory hurdles you are facing now?

The requirement under the Banking Regulation Act, 1949, is that an MD of a bank cannot have substantial equity holdings in any other company. The Act defines substantial as ₹5 lakh face value of the shares held in any company. UFSL is the holding company which went public. All our shareholding is in UFSL, which owns 100% of the bank. As the MD of the bank, I cannot own shares of the holding company as it is a separate legal entity. Four of the 10 SFBs have this holding company structure where the MDs are impacted. Now all of us were required to divest our shares and only allowed to hold the minimum permitted. I owned around 2% of UFSL when we went public. I had to go through the process of divesting my shares. Right now, I own only 50,000 shares of UFSL. The rest I have either given away to my children or sold. In the process, I turned myself into a ‘Gandhian capitalist.’ Besides, when the rules and regulations for SFBs were being formulated we had discussions with the RBI. The rule was that on completion of three years, the bank has to list but we had already listed the holding company (UFSL) which owns 100% of the bank; virtually that means the bank is listed, but technically the holding company is listed. We had requested them to allow us to do a reverse merger [between Ujjivan Small Finance Bank and the listed NBFC entity]. But unfortunately, the RBI decided that we have to list the bank; and right now that is a big challenge for us. By February 1, 2020, we have to list the bank and by February 1, 2022, we have to reduce the promoter shareholding in the bank to 40% ... We also need to protect the interests of our original investors. If we are to have two [listed] entities, the value of the holding company will surely fall. So how do we protect the value of our early investors? We are working on various alternatives.

You are currently working on your succession planning. So, how tough it is for you to let go?

As the leader of an organisation, to find a good successor and ensuring there is a smooth transition are among my key responsibilities. So we have tried to identify people who understand the value and objective of Ujjivan—about financial inclusion and becoming a mass-market brand. In the next seven-eight years, we need to get to 40 million customers from 4 million at present. That person should be able to do that; we need a person who has that kind of background to drive a vision, not just a business. It’s not easy to find somebody who shares the same vision [as me]. And also the person has to be based in Bengaluru. Most bankers are based in Mumbai.

Any learning from IT major Infosys in terms of getting a successor from outside to run the company?

Infosys is a big lesson for me. So I don’t want to be in the predicament of Mr. [N.R.] Narayana Murthy; that is why selection is very important and alignment of objective is very important; alignment of goals and values is important. Also most of my career I spent with Citibank. It had a brilliant charismatic leader in John Reed [former Citigroup CEO], under whom actually the brand grew dramatically. But his biggest folly was his succession. Anyone who came close to becoming his successor within the organisation, unfortunately, did not survive. They all left and became leaders of other banks. Ultimately what happened was he did a merger with financial conglomerate Travelers Group, and then Travelers took over Citi and virtually destroyed what Citi was. I have seen this happen and want to ensure I’m neither in NRN’s predicament nor make the same mistakes that John Reed made.

What are your goals before you retire?

For this year, one is to manage the transition to the new leadership; two is the whole regulatory issue—to complete the listing and all of that; and three, obviously we have to grow the business. At the same time, there are a lot of testing issues—making sure all the processes and systems are in place and are compliant from a regulatory point of view. Apart from that, I am reading books on Swami Vivekananda’s works and teachings. I am trying to understand from those books what is atma [the soul]. Are you content with your achievements? What is your post-retirement plan? I am very content with myself (laughs). Post-retirement plan is to read Swami Vivekananda’s books more thoroughly. I started my career as a full-time banker in 1975, so I have been working for over 45 years. Before that, I went for my MBA degree and worked in Kolkata for two years. It is now time to relax a bit. Travelling and reading will definitely be a part of my retirement plan. I have a pile of books I want to read.

Management Changes

The Gandhian capitalist of Ujjivan