The New Age Banks: Promise, Performance and Progression

The dust seems to have finally settled on the hustle and bustle that had overwhelmed the banking industry in the last couple of years. In his three year stint at the helm of the Reserve Bank, Raghuram Rajan managed to establish the legacy of opening up the license regime again, and hitherto the industry saw a plethora of banks lap up the licenses on offer and get ready to make India both ‘banked’ and ‘bankable’. What started off as two universal banking licenses, the majority of the licenses have come in the form of small finance banks and payment banks, based all across the country (unlike the conventional concentration in Mumbai). The war for talent has now eased up, the sheen and the novelty of their value proposition is now mellowed, and gradually business realities are now taking the forefront as the honeymoon period gets over. The sagging banking industry certainly got a shot in its arm, and now the time has come to translate promise into performance.

As banks start/get ready to start operations, why is it that some banks have begun rather well while others have stuttered and spluttered as they revved up their engines? Why some banks are well-poised to commence business while others are still in a stalemate of over-planning? While the background, style of ownership and challenges for many of the small finance banks remains similar, why are some ahead of the curve while others are still trying to find their direction?

We tried to analyze some key talent issues that plague these new age banks and what some of them have done, done right and not done at all which may hold the answer to the divergence in market perception. While it may be a tad early to comment on what the success factors will be as the new banks begin or consolidate operations, it is worth a shot to see what could be simple answers to a seemingly large and complex conundrum. The conundrum of complacency.

A very critical consideration of getting the organization structure and key roles in place is a must. This sets up the stage for getting or developing the right talent.

The build v/s buy paradox

Talent development has been one of the key focus areas for Indian banks in the last few years. With an ever-increasing pressure from regulators defining the 'way to do business' coupled with depleting margins and severe competition, banks have been forced to realign their talent strategy from ‘buy’ to ‘build’. However, with the advent of the new banks, and the push to get ready talent as quickly as possible, the rules of the game have again been altered.

The grant of new licenses to mostly micro lenders who had no or limited idea of the banking world created a huge need to have talent with prior regulatory knowledge, liabilities sales, operations and product experience. Established local retail banks and MNCs rushed to ring-fence their key/critical talent with higher pay increases supported by significant bonus/LTI grants. While this helped them reduce the risk of key talent attrition, the larger impact came on the mid to senior management population who were not part of the above elite pool. Some of the new banks, who were blessed with deep pockets, could afford the big names from the industry while others had a clear strategy of hiring their one-downs or in some cases two-downs with a view to nurture them.

Two clear themes emerged in this situation:

  • Buying ready talent
  • Building talent over time

Buying ready talent: One of the easier ways adopted by few players was where the 'Head of' a function was hired from an established bank to perform the same job at a new bank. While this was the simpler option, such profiles often came with their 'baggage' from previous organizations and were guilty of replicating what they did during their previous stint without much understanding of the current scenario and/or the DNA of the new bank. Even after hiring the best from the market often banks saw a significant challenge with their existing base of employees who were responsible for the larger implementation. After operating for a year or so, the misalignment was pretty visible and led to sizeable rethink and in a few cases, reversal of the talent flow from the market.

Building talent over time: This was another gamble especially for banks who could not afford the big names. Hiring the one- and two-downs was a great move only for those who laid their hands on folks who were ready for the next level job. In the euphoria and lack of visibility of what lies next, often the ready talent (which was far and few) was missed. However, this bargain paid off for those who had a clear strategy around how they want to groom this talent to drive the long-term objective/strategy. It also helped firms maintain their fabric intact with respect to the broader operating culture and core values. While building the team, it was the promoter group who played a key role in defining the way forward while the C-Suite profiles helped in the implementation. However, the story did not end here especially with the amount of stress it created for the promoter group who had to involve themselves into defining everything from the product to technology to human capital, given the relative lack of experience of the new hires.

Misaligned mobility

The other phenomenon which challenged these banks was the existing employee base. Most of these organizations were into micro lending and have a base of talent who are either class 10th/12th pass or graduates at the entry level. With the banks planning on a number of branches, there is an inherent need to have tellers, customer service representatives, liabilities sales managers/ RMs, branch managers, etc. These organizations tried to work on a simple formula of upgrading the skills of their best performers to meet the needs of branch banking. This posed its own issues as sales of asset products – where you lend money is very different from liability products where you accept deposits from customers. Most of this talent who was moved saw immediate success as they could tap into their existing customer base and get those accounts into the bank. However, this story did not last as the accounts did not get the servicing which they deserved to deepen the kitty. In many cases, the science or logic behind such movement was missing and that led to a lot of misalignment and consequent disengagement amongst the existing base especially those who moved from the established business to the new one. This ended up being the case for those who already had an asset-centric business as well as for those new banks where microfinance lending was the core and both retail assets and liabilities got added.

Many of these banks lacked an overall talent strategy which has led to the chaos which they are currently experiencing. With no defined culture and rampant hiring across multiple organizations, firms have witnessed dilution of their core values and emergence of new colleagues have often found themselves as 'misfits'. Many of these organizations also failed to address this entire divide of old v/s new employees which led to an 'us v/s them' phenomenon and sometimes the promoter group was also found further widening this divide. Some of the promoters have also faced a challenge of holding key decision-making close to them than leaving it to professionals to manage. This is often creating a challenging atmosphere for the senior folks who are used to a different style of working in their long careers. This has, in some cases, created dissonance amongst the top management team which is unable to voice their views/opinions and contribute to the transformation and ongoing operations of the firm.

The success of the firm often starts with defining the values and culture of the firm. And this is where the promoters need to play a key role in starting from articulating the values they stand for and the culture tenets they want to build. Storytellers are important and that’s what today’s successful organizations are encouraging and thereby driving the larger value system and thus defining the overall work environment. Firms have realized that pay alone will not be the lever to keep people engaged in the long run especially with a diverse set of employee base and thus the need to exert the other pillars of rewards to drive engagement and stickiness with the firm in the overall strategy.

The first amongst equals

However, this is not the scenario for all the banks who have received the license in the recent past. There are organizations who had it all planned – starting from articulating their core business strategy, developing an organization structure – the take-off project phase to banking operations launch phase to a 2-3 years steady state, linking it to the talent strategy, rewards strategy and broader HR needs like culture, competency frameworks, selection tools and training. Some organizations even went ahead with providing their employees with an experience platform very similar to what they offered to their external customers. While building a new organization with a significant number of external professionals coming in with diverse capability, from relatively more mature organizations, some of the firms have focused on essentials to ensure the hygiene apart from a few strategic processes. Armed with best-in-class solutions for their people and processes, these firms found it easier to take the quantum leap and commence their operations in the right manner and with the adequate firepower.

These were not the ones that were satisfied with only getting the basics in place – compensation strategies, grading structures and HR policies. They figured out the power of the softer aspects and delved into creating the culture and value proposition and hence, laid the foundation of a long-term employee-centric institution. They used scientific tools to hire the right talent from the market aligned to their desired culture and decided to pay a premium for the critical skills required. They inculcated the right practices of performance management and measurement upfront, so as to drive accountability and appropriate behaviors in an industry which has oft been lambasted for its myopic approach. They were able to ensure that the incoming talent and existing populations were allowed to co-exist and be clear about the future path of growth and advancement for both sets.

Getting ready for the race

Despite all the challenges we spoke of earlier, there is enough and more success we see on the business front with firms making strong starts. What is important to note is that there are challenges and they will grow in stature but it’s important that the firms identify the pain areas and address them sooner than later else they will end up with a problem which may soon assume gargantuan proportions. This is where the CEOs need to rise above and create an environment where views and opinions of every individual is respected and leave the job for the best suited individual to manage. The other aspect one should not forget is that the regulators will come back heavily and they usually go beyond the tangible success to look for the loopholes to make the industry robust and sustainable in the long run.

The banking industry is getting crowded and while one can certainly point out towards the huge untapped opportunity in the country’s hinterland, pure demand may not be sufficient to drive the success of the newly turned banks. A lot of internal cleansing and preparation is required to make the cut to reach the next level of scalability and emerge as a long run focused sustainable bank. While some have taken the extreme routes of either over-planning each detail of human capital and then hitting the ground or simply starting business and then taking up critical interventions one by one, not everyone has to follow these models. A balanced approach which marries the practical business realities and also takes stock of the firepower required is good enough to make a sound start. The rest can follow in a timely and tapered fashion but at least one will stay true to the maxim – well begun is half done.

Roopank Chaudhary
Associate Partner, McLagan
Surya De
Senior Consultant, McLagan

For more information, please write to us at talentscapes@aonhewitt.com
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