The IT czar, who bagged the Business Today's Best CEO
2013 award, has never attended any management school. His lessons in
running a company have come from real-life experiences.
- How TCS became an Indian multinational company?
Tata Consultancy Services (TCS) did not become an
Indian multinational company
overnight. The company embraced certain critical qualities that have
made its journey so far very transformational. J. Rajagopal, executive
vice-president & global head, consulting, TCS reveals what these
qualities are:
Growth: In TCS, less than 25 per cent
growth is not considered good enough. In the last 10 years, barring a
few instances, the company has delivered
high levels of growth almost every quarter.
"To sustain this growth, we recruit 30,000 to 40,000 employees every
year by visiting 500 engineering colleges," Rajagopal said. The
company's growth does not just come from USA or Europe. It has also
ventured into other markets. It has 11,000 employees in Latin America
and 11 offices across 11 cities. Of late, it has enhanced its focus on
emerging markets.
Customer focus: "We will do anything
for our customers. When GE wanted us to move to China we did. Same is
the case with Latin America. One of our customers requested and we
obliged," said Rajagopal. The company also constantly moves up the value
chain in line with customer needs.
Innovation: TCS
was the first IT company to set up research laboratories. It struck
alliances with various universities across the world. It also reached
out to start-ups to set up co-innovation networks globally. This has
enabled it embrace innovation when it comes to business models,
processes etc.
Quality: With India not known for its
manufacturing prowess, TCS from the beginning instilled a high level of
rigour when it came to quality. "There are over 25 metrics that we use
to
evaluate our performance ," Rajagopal said.
Learning: Learning
is a continuous process within the company. "We never shy away from
learning, especially from our global customers. We learnt a lot from
GE," he added.
Culture: The culture across TCS has
always been entrepreneurial. This helped it retain talent. The culture
involved being flexible to customer needs, maintaining a high level of
ethics and execution to perfection.
It is these characteristics
that helped the company widen its lead when it came to the leadership
position among its Indian peers and will help TCS as it takes on global
giants such as IBM and Accenture.
At a recent event to open a branch of Kotak Mahindra Bank in Mumbai,
the lender's founder Uday Kotak summed up the challenges facing the
Indian banking sector in the shortest possible way: "In a bank's balance
sheet, liabilities are actually assets and assets are liabilities." He
then explained his statement. A bank lists the current and savings
account deposits as liabilities on its balance sheet. These low-cost
deposits are helping banks maintain a healthy margin in the current
worsening economic scenario. On the assets side of the balance sheet are
corporate and retail loans that earn interest for banks. But, with many
borrowers unable to repay, these assets are turning into liabilities.
Indian
banks have a lot of things going against them currently, from a slowing
economy and rising loan defaults to allegations of money laundering. A
few banks have, however, faced the headwinds strongly.
The
Business Today-KPMG Best Bank 2013 study lists 13 toppers this year.
After a gap of five years,
HDFC Bank has emerged
as the best large bank because of good asset quality, high loan
growth, a healthy capital adequacy ratio and an improvement in returns
on capital employed. YES Bank remains the best mid-sized bank for the
second year running.
For other banks, challenges are only multiplying. The
asset quality of banks
has been deteriorating for the past two years as economic growth
slipped to its lowest level in a decade while inflation and interest
rates remained high. Gross bad loans have spiked to nearly four per cent
of total lending from 2.36 per cent three years ago. The Reserve Bank
of India estimates gross bad loans to touch 4.4 per cent by the end of
the current fiscal year.
FULL COVERAGE: India's Top Lenders
More debt would have turned sour had banks not restructured
stressed corporate loans. The banking system's restructured assets are
at an alarmingly high level of more than six per cent. Punjab National
Bank (PNB), Central Bank of India and Allahabad Bank all have
outstanding restructured assets at more than 10 per cent.
In a recent interview with
Business Today,
RBI Governor Raghuram Rajan
emphasised on speeding up the loan recovery process through debt
recovery tribunals and asset reconstruction companies. "Our institutions
dealing with distress are under-developed. That will make it hard for
banks to take risks if they have no hope for recovery. We have to
improve them," he said.
The deteriorating asset quality is
putting tremendous pressure on banks' capital base. The Basel-III
regulations require banks to set aside more capital for absorbing future
liquidity shocks or any risk arising in the financial system. According
to the RBI, Indian banks are likely to raise Rs 2.7 trillion of tier-I
equity capital in the next five years. (One trillion equals 100,000
crore).
WATCH: Leaders share the strategy for their banksThe
capital adequacy ratio at many state-run banks such as PNB, Bank of
India, Andhra Bank and Union Bank of India is closer to the RBI's
minimum norm of nine per cent. This leaves them with little room to
breathe easy.
M.S. Raghavan, Chairman and
Managing Director of IDBI Bank,
says banks will see formidable challenges to expansion when the
Basel-III norms are fully implemented by 2018. "We will have to keep
generating incremental capital," he says.
The banking sector is
also waking up to the challenges of funding infrastructure projects.
These projects were earlier the domain of development financial
institutions like the Industrial Development Bank of India and
Industrial Credit and Investment Corporation of India, the former
avatars of IDBI Bank and ICICI Bank respectively.
With
the government and private sector looking to invest billions of dollars
to build roads, power plants and ports, many banks ramped up their
exposure to the sector. Loans to these projects are typically for the
long term, say 20 years. But most funds that banks raise are shorter in
maturity. This results in a mismatch.
"Banks do not have the
ability or the expertise to assess risk in an infrastructure project,"
says a former chairman of a development finance institution, who does
not want to be named.
Shikha Sharma, CEO of Axis Bank, says banks should be allowed to raise long-duration funds by issuing tax-free bonds.
Banks
are tightening their regulatory and governance structures, after a news
portal exposed their liberal attitude toward know-your-customer norms
and anti-money laundering rules. They must also improve efficiency,
especially considering that competition in the sector is about to
intensify. The RBI will soon issue new banking licences.
Foreign
banks, which curbed retail lending after the 2008 financial crisis,
have cleaned their balance sheets and are again looking to expand in
India. The RBI has said that if foreign banks shift to a model where
they set up wholly owned subsidiaries instead of the current branch
structure, it will treat them on nearly equal terms with local lenders.
Rajan had
earlier told Business Today
that the RBI will put enough safeguards into the policy so that there
is no chance of having a foreign-dominated banking system. "At the same
time, let us not be afraid of foreign banks bringing in more innovation
capabilities. The system will benefit," he said.
The challenges
aside, there have been several welcome developments in the banking
sector over the past few years. Private lenders are leveraging social
media to engage customers and boost brand visibility. In state-run
banks, many women have entered the corner office. Many banks are also
looking to offer customised products to those who do not have access to
the banking system currently.
Still, the road ahead for banks is a
bumpy one. As competition intensifies, the existing banks will have to
think of innovative strategies to retain customers. Axis Bank's Sharma
says it takes time to build a bank from scratch. "Our job in the
meantime is to make sure that our bank is strong, profitable, well
capitalised and has a right offering," she adds.
