Axis of faith?
UTI Bank has come a long way since 2001, but has to counter the new challenges

(column by Gyanendra Kashyap)

In the month of January 2008, UTI Bank is slated to change its name to Axis Bank, and in the process break away from a legacy of triumphs as well as tragedies. The board felt that the existence of several shareholder-unrelated entities using the UTI brand was leading to a brand confusion, which led them to take this decision.

While the branding legacy will be lost, the bank itself has found its way quite well, especially after it was written off due to the US-64 scam in 2001. With deposits of Rs.580 billion and over 5.9 million accounts by the end of March 2007, the bank has come a long way from its humble beginnings in December 1993, when its deposits stood at Rs.1.15 billion. The stride forward has been truly remarkable. Within a few years of operations, the bank went public in September 1998 with a Rs.710 million public issue, which was eventually oversubscribed by 1.2 times.

Commenting on the bank’s achievements, CMD Dr. P. J. Nayak stated, “At the end of March 2007, the bank increased its reach to 332 cities, towns & villages across the country through 508 branches & extension counters and 2,341 ATMs.” The bourses are ecstatic as well. The share price was trading at Rs.559.35 and market capitalization was worth Rs.162.85 billion (as on June 1, 2007). The results have been overwhelming; the bank has registered net profits of Rs.6.6 billion for 2007, a massive surge of 38.5% over last year’s profits.

Resurrection Complete?
Under leadership of Dr. Nayak, the bank has given intensive focus on ensuring a robust IT infrastructure, better risk management & employee empowerment. Thereafter, the bank, with its extensive network of branches & ATMs across the country, has successfully managed to gradually bring down its percentage of NPAs to 0.61 (FY 2006-07) from 1.92 (FY 2002-03). It has also been ranked 3rd by Bloomberg in the Underwriters League Table for Indian Domestic Bonds for the calendar year 2006, and ranked 2nd by Prime Database for Arrangers of Corporate Bonds for the year ending March 2007. “The bank is one of the few banks in India that has built up a fully integrated centralised banking architecture to offer banking services anywhere, anytime,” comments Hemant Kaul, President Retail Banking, UTI Bank.

Embracing the spirit of globalisation, the bank got itself listed on London Stock Exchange (LSE) in March 2005, raised $239.30 million through Global Depository Receipts (GDRs), and in April 2006, opened its first foreign branch in Singapore. As an appreciation of its pioneering efforts in terms of both services and products, it was awarded the International Financing Review (IFR) Asia ‘India Bond House’ award for the year 2005. The award proved to be just the beginning for the bank and once again in August 2006, it hit the bull’s eye to become the first Indian bank to issue Foreign Currency Hybrid Capital in the international market. More recently, it has tied up with India Infrastructure Finance Company (IIFCL) to provide finance for infrastructure projects in the country.

States Kaul on the future strategic planning, “The bank seeks to maintain and enhance a strong retail and corporate franchise, strengthen the structures and delivery channels for SME and agricultural businesses, exploit cross-sell opportunities, offer private banking for high-net worth customers, consolidate new business initiatives such as credit cards, wealth management & bancassurance for life insurance and encash opportunities through overseas offices for cross-border trade finance, syndication of debt & NRI business development.” UTI Bank is looking to raise $600 million through Global Depository Receipts (GDR) and list the same on the London Stock Exchange.

Of late, the banking behemoth has been much in the news for obvious reasons – the name change and Nayak’s proposal to quit over issues concerning the split in the roles of CMD (the splitting of roles is much in lines with the Ganguly Committee report on corporate governance & international best practices). The five year - term for using the UTI name (owned by UTI Asset Management Company) expired in January; the bank has decided to adopt the brand name of Axis.

“The bank will strive to make a seamless transition from the old identity to the new by the end of the year,” adds Kaul. UTI has hired advertising firm O&M to help in the re-branding exercise and to create awareness of the new brand across the country. Dr.P. J. Nayak’s term as CMD comes to an end on July 31, 2007, but then the bank’s shareholders have already approved his appointment as Executive Chairman in accordance with the Banking Regulation Act. The next few years will be critical for the bank as it undertakes the re-branding exercise and enters into new ventures like life insurance, mutual funds & private equity. UTI Bank has already joined hands with UTI Mutual Fund to launch services to help its investors & subscribers as well as to redeem UTI Mutual Fund schemes through the bank’s network of ATMs across the nation. It has been a strategic intent on the part of the bank to partner on customer friendly initiatives, which reinforce its intent to rope in more such customers for its mutual fund schemes. When asked about UTI’s key strength as it looks towards the future, Kaul states, “The key diff erentiator for UTI Bank is the quality of its human resources. These are some of the most talented people who have domain expertise in specialised functions like capital markets, corporate credit, treasury, risk, wealth management & management of third party products.”

A Whole New World
Besides brand building, UTI has to also cope with the rapid upheavals that are anticipated in the banking sector. Consumers, competition as well as policymakers are driving tremendous change in the banking industry. The environment is highly chaotic. Public sector banks too have turned on the white heat of competition back on the private sector banks.

State Bank of India still continues to book heavy profits and tops the list of profitable banks with profits of Rs.45.4 billion. Comparisons based on profitability reveal that UTI Bank (with reported profits of Rs.6.59 billion) still has a fair way to go before it can outclass the likes of ICICI Bank (reported profits of Rs.31.1 billion) & HDFC Bank (reported profits of Rs.11.41 billion) and truly announce its global arrival.

Moreover, interest rates have been continuously raised twice by the central bank since December by 25 basis points each time, making the environment volatile for investors. And as exchange rates (fluctuating between Rs.40 & Rs.41) seem more volatile, risk management has become a core activity. The opportunity is expected to greatly accentuate with the sector being opened up for global players in 2009. The opening up of the Indian banking sector should act as a catalyst for action and usher in transformational phase of organic & inorganic growth.

The dynamics of rural India are also changing; with the economy surging (growing by 9.4%), agricultural income is on the rise. The market, once a forte of public sector banks, has huge potential not only for micro credit companies, but also for credit to SMEs & commercial banking. UTI can’t afford to be a mere spectator to these changing paradigms.

The deadline for the implementation of Basel II norms (originally set for March 31, 2007) has been extended to March 2008 for foreign banks in India & Indian banks operating abroad & March 2009 for other scheduled commercial banks. But the fact that the international exposure of Indian banks has been limited so far raises a question as to what effect the implementation will have on the structure of banking in India. Thus the immediate agenda for the bank is to raise capital for boosting business growth and meeting Basel II requirements. To this end, UTI Bank is taking steps for a smooth transition.

With the entry of foreign banks, consolidation is certainly going to play a pivotal role. It remains to be seen how UTI Bank responds to this; given the fact that its proposed merger with Global Trust Bank was a failure. The bank had attributed the failure of this merger to imperfect information and inadequate appreciation of issues. But in the near future, UTI will have to play a far more aggressive role in the consolidation phase, which now seems imminent. And to top it all, the miracle man who bets on employee empowerment may or may not remain the Nayak of the banking giant. So the bank will now have to tackle a new paradigm, sans its Nayak and sans its legacy brand name. Now it’s going to be Axis all the way...

(End of Gyanendra Kashyap column)

When the sky fell on us (64)!

What’s in a name – a name is after all a name and nothing more. Well, don’t be so sure! Who better than UTI to know plight of a name, and more so when the name has been associated with a cataclysmic scam, that shook the nation and the mere allusion to which fills investors’ mind with torturous dread till date.

Mention Harshad Mehta, Ketan Pareekh, C.R. Bhansali, Teak Equity, Vanishing Company, UTI et al and ‘SC- A-M’ is the top of mind association. This is precisely the beauty and power of a name; it can create, and it can destroy. Although the name UTI has instilled a feeling of trust, the name has a dark past as well.

UTI Bank itself has nothing much to do with this history, yet such is the power of the name that even to the most prudent and the intelligent, the name UTI brings back ghastly memoirs of the 2001 scam – the US-64 scheme fiasco (perpetrated by UTI AMC). It is a matter of a fraction of a second before one delves into the past and imagines the plight of a retired person who would have put a large part of his or her PF, gratuity et al in the US-64 scheme, considering it to be the safest possible investment on earth. Not only did the small investor’s income (interest/dividend) become half overnight and shatter this belief; they also lost a major part of their precious earnings. The entire episode cost the nation billions, eroded the confidence in the most holy of all financial institutions. The capital base of UTI AMC fell by 33% from Rs.750 billion to Rs.500 billion, making this an Rs.250 billion scam. The names of the Johri brothers (Anand & Arvind Johri, the promoters of Cyberspace Infosys, where UTI purchased over 0.3 million shares at an exorbitant price of Rs.930 per share; share prices plummeted to just Re.1 in less than a year’s time), the true beneficiaries of the UTI fiasco; apparently seems to have found a permanent place in the grey cells. Yashwant Sinha, the then Finance Minister, proclaimed in Rajya Sabha that the government would work towards “bringing greater transparency in UTI.” Top officials included the then UTI Chief P.S. Subramanium and seven directors were compelled under the situation to tender their resignations. And the disgrace didn’t end there. After that, the Anti-Corruption unit of the CBI conducted raids on Subramanium & other top UTI Bank officials.

UTI Bank faced a lot of flak for it, despite having no relation to the scam (besides the name, of course!). It was also alleged that Dr. Nayak had been one of the perpetrators, but eventually, he managed to come clean. And slowly but surely, even UTI Bank managed to move beyond the stigma of the name. Now, with the change of name to Axis, that past seems to be buried forever... at least one hopes so!