Interviewed By Foo Boon Ping
Rajnish Kumar, chairman, State Bank of India (SBI) discusses how SBI, as the largest bank in India, will play a crucial role in unlocking the economic potential through financial and technological inclusion
Foo Boon Ping (FBP), The Asian Banker: Very happy to be in London at the sideline of SIBOS 2019 and a pleasure to be meeting with the chairman of the leading bank in India, the State Bank of India. We're speaking to Mr. Rajnish Kumar, the newly appointed chairman for the past year and who's a veteran SBI banker, joined in the 80s. Now, Mr. Kumar, since taking up the chairmanship of the bank, what is your vision for the bank, amidst the current challenges that the bank itself is going through and the industry as a whole is going through?
Rajnish Kumar (RK), State Bank of India: So when I took over in October 2017 and after that, we rearticulated our vision, mission and values statement, and the vision of the bank is to be the bank of choice for transforming India. The value system is STEPS. Very easy to remember for my people down the line, which emphasize service, transparency, ethics, politeness and sustainability. So that is the foundation and based on this foundation and the vision about bringing about the latest technology in the banking and financial services to the ordinary citizen of India and the changes which are happening globally on the technology front, as well as in India. So the changes are very fast, the way we live our lives, it is changing. How as the largest bank in the country, which has 430 million customers, almost the population of Europe, how do we bring the latest in the technology and make their life easy? Whether it is in banking or many other activities, which they do in their daily lives. So that is the overarching vision, mission and values of the State Bank.
FBP: Now you are the largest bank in India right, so, in many ways you play a very important role in terms of now being a conduit for economic development. You are also a purveyor of maybe policies for the government. At the same time, the industry is moving towards being more customer centric. How do you balance the different demands from the state, from the government and with the tension that is brought about by new players, competition, fintechs, big techs??
RK: So basically, it is about the government's demand too. If you look at the State Bank of India’s history, it has always been part of the social economic development of India. The expectation from the government would largely be in the financial inclusion and the social inclusion where we do a pretty good job, because we have a huge distribution reach and as I mentioned, that we have a huge customer base. Almost second out of every Indian has a banking relationship with the State Bank of India. So its capability to contribute to the social economic development of the country is huge. And at the same time, we are conscious and aware that we have to compete, we have to be an efficient bank, financially strong and should bring about the use of technology. Without technology, it was not possible to take the banking to the people who are underprivileged and, in the ladder, they are at the bottom. Technology has enabled us to do that. In 2014, when Prime Minister Modi launched what we call PM Jan Dhan Yojana, PMJDY, which means wealth of the common people. Now about 350 million people, they have opened accounts and have come into the formal banking system. Out of that, almost one third, 30% to 35% is with State Bank of India. So why and how is this happening? It is not possible to serve such a huge market segment through our branches alone. It is the power of, what we call JM Trinity, the Jan Dhan Account, then Aadhar, which is the unique identity system in India, and the mobile phone plus our business correspondence, what we call kiosk banking, which is managed by the business correspondent. That has enabled us to take banking to every citizen of the country. To be competitive, the investment in technology, keeping aware, abreast of what is happening worldwide. So despite being a legacy bank, we have not ceded even an inch, as far as our competitive position is concerned. Fintechs mostly are either in payment system or in P2P lending or some other activities. Despite all the fintechs being there, the State Bank’s market share in all the payment modes and means, ranges anywhere between 20% to 30%. My share in India's large network is 13%. But our share in the business activity is much higher than our branch network. In terms of technology today, we are considered to be one of the most advanced banks in the country, and is despite the fact that we are a legacy bank and the ownership is with the government. But really, this is not a hindrance or a roadblock.
FBP: So we have seen a few iterations of digital disruption. Initially, there was this big fear and threat about banks being disrupted or displaced by fintech. Now, the realisation is that, this is going to be a more collaborative space where you all co-exist and you will be able to leverage off their innovation. But the fintech needs the bank for various skill and strategy. India has been a test base for a lot of international big techs, Amazon, Google have been there, or are there like Alibaba, Paytm. How do you see the competitive landscape, obviously, being tagged with big data? Are you in a position to better understand customers?
RK: So the key word here is of course, collaboration. And in today's time, we have a very active engagement program with fintechs. So we either procure from them, if we find something is good, or we partner with them to scale up. Many times, I found that many fintechs, they have good ideas but their capability to scale up is very limited. About the financial services, one key factor is trust and with legacy banks like us, they do very well. People trust us. People trust us with their money, for their security so that trust factor plus the convenience. Many times fintechs, say for example, Google Pay that was launched about two years back and it has become very popular, but still the underlying banking services are with the traditional bank. They provide, what you call the OTT, the application is there. Because Google’s customer base is huge so people are using Google Pay, but the underlying transactions are still happening with the banks, where we own the customer account. So that is a very good example of some sort of a collaborative ecosystem which is emerging. Online, e-commerce is flourishing everywhere in the world so it is flourishing in India also. There are many players, Amazon is one of them, then Walmart-Flipkart combination is another, Reliance is coming in a big way and we are still in the early stages of development in India. So the potential is huge. The country’s population is huge. So for such a vast country, there is a place for everyone and certain advantages which legacy banks have, they have to keep that advantage and at the same time, innovate. Innovation can be on your own or you may be developing certain things or you maybe collaborating. There should not be any hesitation in taking a collaborative approach.
FBP: Do you see there's a role for the State Bank of India in terms of unlocking the economic potential of India, for its population size, for the size of its economy, on a regional basis? Maybe you have grown at one point in 2017, you were the fastest growing economy when China started to slow down and the banking sector plays a very important part in financing growth, but Indian banks need to be bigger, you are the biggest now, but on a regional basis, you are not, as compared with the Chinese banks, the Japanese banks. What role do you see yourself in? In many countries, the big staple banks were the driving engines. They were financing the industrialization of those countries.
RK: The State bank of India, as you said, being the largest bank in the country and one of the strongest banks also, we are present across all the market segments. The State Bank of India in that sense, is very uniquely positioned. So we have the capability for funding the infrastructure. We have the capability to fund the large corporates. And we have the capability to do even small loans like Mudra loans, which is a very popular self-employment generation program. We are quite big in agriculture financing, SME financing. In housing loans today, we are the largest player in the market. And that's why the role of the State Bank of India in the economic growth of the country, is very significant. The original mandate of the State Bank of India is that we contribute to the social and economic development of the country. We are uniquely positioned, because as I said, there is the trust factor which is huge in the country and in the State Bank of India. Adoption of technology and distribution reach; we have all products and services through our subsidiaries, joint ventures, which anybody would know as the financial superstore. So I think in today's time, it's very difficult for anyone to provide the range of products and services across all segments, which a single bank can do. Somebody will be strong in corporate banking, someone may be strong in SME banking, some maybe strong in micro finance, but we are capable of delivering product and services across the spectrum. There, the State Bank of India is very uniquely positioned.
FBP: So Prime Minister Modi has also kicked off this move towards consolidation of the industry, this quarter. The scheme to reduce the current state banks 27 to 12. And you started the process to do your consolidation of the federal associated subsidiary. How do you see this playing out? Do you think State Bank will become bigger?
RK: State Bank is already big. We will continue to at least maintain our market share, as far as the consolidation is concerned. Because the ownership is all with the government, so the fragmentation of the capital and the system overall, I don't think it was serving any purpose. So we need strong banks. We need the banks that have the capability to invest in modernisation and invest in technology. Technology today, it requires considerable amount of investment. If it is a very small bank, it is very difficult to invest in technology, with the kind of demands which are coming up. In such a scenario, I think the strategy overall is very good that a couple of large government-owned banks where the capital is not fragmented, the resources are not fragmented, and there are economics of scale. There may be a few banks, which will be region-based even with this consolidation exercise and there are four banks, which are strong regional players who will remain. Ideally, I think the banks, particularly the government-owned banks, is moving in the right direction. In this transition phase, there will be issues and challenges which happens in any merger. But once you overcome that and once you implement the idea, I’m of the opinion that the banking system in India will emerge stronger than what we are today.
FBP: The detractors will say the state-owned bank by nature, because now they can get larger, but they will still have the same level of inefficiency. For example, in state directed loans, will consolidation be enough?
RK: When you consolidate, there are many other measures, which have come out about the board composition and putting more high-quality professionals on the board. So any consolidation it has to be backed by the governors, reforms and governance. Where the government role is concerned, it is to put in a very high quality professionally managed board and professional team plus provide incentives and remove the rigidities in the HR practices. But I think government, as an owner and its department of financial services, after managing and looking after 17 banks to now 12 banks, I think it will be easier for them also. As I said earlier in terms of governance, putting in the required structure in place around the governance and risk management, is better. SBI if you look at it, is considered to be one of the better managed banks, in terms of governance.
FBP: Will it be better managed as a government owned bank in the very competitive market where it assumes an even bigger scale or is there a case for privatisation?
RK: As far as SBI is concerned, we are happy to retain our market share. We will continue our organic growth. Acquisition, as a strategy to grow for our size, I don't think it is warranted. There's no need for it. There's a need for a few other banks which are larger and closer in the scale to State Bank of India because even after merger, the gap is still quite significant. The next bank would be one third of the size of State Bank of India. So there’s scope for increasing their size. We will continue to grow, the customer base. Every day I have 100,000 new accounts if not customers. So we are growing, our digital footprint is growing very rapidly. As I was mentioning about the landing opportunities, we are very uniquely positioned. Nobody has that capability to appraise projects or write high value loans or high-ticket loans. So that way we are uniquely positioned and continue to grow. But acquisition is not on our agenda as a strategy to grow.
FBP: Talk to us about the current challenges the industry faces in terms of dealing with asset quality. The banks are carrying a lot of baggage and in a way that has kind of restricted the ability to lend to the economy as a whole and fear about liquidity. How would you react to that?
RK: As far as asset quality is concerned I think March 2018, that financial year was the worst in terms of slippages, in terms of provision.
FBP: Is there more to done?
RK: I think it has come down. All banks, their provision coverage ratio, the loan loss coverage ratio has gone up for all banks. As for State Bank of India, we are nearly at 79%-80%, and slippages have come down. This year, we were expecting that it will further come down but that's not happening. That is the only thing where there is little bit of concern. The first slippage is in 2019. They’ve come down quite significantly and the expectation this year was also that it will compound further for the State Bank of India. Maybe it will be true for most of the banks, for which it is not coming down further.
FBP: The State Bank,you are well capitalised, with very strong liquidity in the capital position, but the other state-owned banks are not in similar position and the talk of recapitalising some of the state banks, through mergers and acquisition. How do you see that happening?
RK: So basically like whatever was the government's recapitalisation program. And for this year, for example, 700 billion rupees they decided to give upfront and it will happen by 30th September. With that, I think the capital needs of most of the banks will be met while allocating the capital requirement of the merged entity. That has been taken care of, the capital has been given to those banks who will be acquiring other banks. So the government has already planned it that way. That will leave the capital for growth apart from providing regulatory capital, whatever is required. As you mentioned, we are very well capitalised, we said that we don't need any money from the government for our capital need, and we will be on our own. So now the effort would be that we give a demand, we boost the supply of credit and hopefully there will be demand also. The busy season is coming up and the monsoons have been good.
FBP: There’s demand but also overall the market is down, the growth down and there is heightened risk.
RK: Globally there are issues and most of the economy has issues about growth, but India is still doing better than all other economies at 5% plus. It is not a satisfactory level for a country like India where you need to remove poverty in a big way. But with the latest announcements about the cut in corporate tax rate, which happened 2-3 days back, so, that is a very significant delivery, a bold move by the government to attract investment in the country and that should be helpful. As I said that monsoons have been good by and large, not evenly spread, but still a favorable monsoon. The coming festival season, we will be entering what we call the busy season. Plus the corporate tax rate cut has suddenly changed the sentiment in a single stroke, I would say. That way, I think we will get some good growth opportunities and we are ready to capitalise on that as we have the capability in terms of resources, capability in terms of processes and capabilities in terms of capital liquidity. So from our side we are ready and we have everything in place.
FBP: On this consolidation, the kind of this whole consolidation move, how do you see the timeline playing out? When could we expect it?
RK: So the balance sheet merger will be from first April, because the financial year ends on March 31. So 1st April 2020, that would be the merger date of the balance sheet. Then the banks, they have to decide over what period they will be able to do, what we call the data merger. In case of State Bank of India, it happened pretty fast. We could do it in just eight weeks, because the platform was the same.
FBP: Will you be involved in the coming phase as well?
RK: No. But we are there if any advice is needed or any learnings on the experience so that we keep on sharing and we would be happy to share if any help is needed. Because we have already done merger of six banks, even though five of them were our associate banks, and there are many learnings there. So all these banks, they can they can use that learning and experience from a State Bank of India and now Bank of Baroda which is merging two banks with itself. So they don't have to reinvent something, the processes and how to go about it. That is very much available.
FBP: And finally, talk about the opposition. As you evolve into a digital bank, all the banks are becoming digital, what is your strategy? You are an incumbent, you’re market leader and you have a dominant position. We’re talking about the open API center; only if you give them the opportunity to kind of leverage off in a way you have profitable business. How would you look at collaborating?
RK: So our strategy is like whatever we do, in terms of digitisation, data analytics, primarily has 2-3 objectives. One is the customer experience, anything we do customer facing, like our mobile application, which is Omni-channel, which has become very popular in India now. Within a span of less than two years, I have 13 million registered users.
FBP: With the whole e-KYC onboarding?
RK: Onboarding and everything. This is not only digital banking, all of our financial service products – life insurance, general insurance, credit cards, mutual funds – everything is available on one platform plus what we call bookends order or shopping or e-commerce. So it is becoming a large platform in itself. Customer convenience and experience is fantastic on this platform and continuously we are building. In fact, this evening, for UK customers I will be launching, YONO global. So we are taking it overseas. So UK, Canada, Singapore, wherever we have a good retail customer base, we will take it there, and it will be very convenient, particularly for the Indian diaspora and local citizens from that particular country.
FBP: So it's got a lot of cross-border functionality, foreign exchange?
RK: Yes, absolutely. And the other is, of course, using the data analytics in a big way for lead generation and underwriting the pre-approved personal loan, which we launched on the Yono platform. So in four months, we have been able to build a book of more than $1 billion equivalent, a very profitable book. So the opportunities are huge and it is bringing in lot of cost efficiencies for the bank. Initially, when we were doing a branch level account opening, the process would take 40 to 45 minutes for setting up a single account. Now, that time has come down to 10 to 12 minutes, the same for setting up loans. So that is the advantage on one hand, the cost efficiencies, and the other is business growth, many fully digital and at a fraction of the cost. The third element of the strategy, which I mentioned in the beginning of our conversation, that as far as the payment fees is concerned, because of the huge customer base and SBI being a very big player as far as the country's payment system is concerned, we have to maintain our leadership position in that space. So whatever developments are happening, we are part of those developments and will continue to be.
FBP: Do you play an important social role? The new technology like AI and machine learning that is going to disrupt how work is being done. How do you approach that being one of the big employers?
RK: Of course, there are thousands of employees. One is that re-train the employees. The roles are changing and more people are now in sales and service rather than doing transaction banking. As for State Bank of India, we have been able to migrate transactions out of the branch to the extent of 90%. Now, only 9.9% transactions are happening at the branches, which is a big shift. The transaction history and data which is available, it gives a very unique capability to State Bank of India to analyse that data and use it for upsell and cross-sell.
FBP: The composition of your workforce will be very different.
RK: Very different. It requires a lot of staff engagement. But what I have found is that they are very useful resource in taking forward the digital banking and it helps.
FBP: So the other banks I was talking to are building huge technology teams, thousands of data scientists or AI specialists. How big is your technology team?
RK: We have a very big technology team. In technology, we're employing almost close to 5,000 people and half of them are from the bank and half of them are from our partners. It is a very collaborative effort. The demand keeps on coming for increasing the staff and the nature, like you know, there's a huge demand for data scientists right now. Our data analytics department is also doing a fantastic job and giving us a lot of help.
FBP: Right. Like the engine driving the bank?
RK: Yes, very much. The bank is definitely transforming itself. This journey will continue.
FBP: We’ll be here at The Asian Banker tracking State Bank of India in terms of your progress as you maintain your position in the industry, leading the industry in governance, in terms of this move towards digitalisation. Thank you so much.
RK: Thank you.