• SBI leveraged the trinity of Unique Identification Authority of India (UIDAI), Jan Dhan Yojana – the government flagship scheme to make banking services affordable and accessible to the common people – and mobile penetration to bring over 122 million people under a formal financial system 
• The bank migrated 90% of its transaction outside of branch to digital, with close to 5,000 employees in the technology department
• The bank expects to grow organically by acquiring more customers, as opposed to acquiring other financial institutions, given the wave of consolidation in India

Rajnish Kumar was appointed chairman of the State Bank of India (SBI), the country’s largest bank, in October 2017. A career SBI banker who joined in 1980 as a probationary officer, he rose through the ranks to become the managing director of the national banking group in November 2015 before his current role. He was also previously managing director and CEO of SBI Capital Markets Limited, the merchant banking arm of SBI.

Following a Reserve Bank of India (RBI)-directed merger in 2017 with State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala, State Bank of Hyderabad and Bharatiya Mahila Bank, it grew its total assets to about $560 billion, serving about 430 million customers through a vast network of more than 22,000 branches/outlets and 200,000 employees. It accounts for about one quarter share of the total deposits and loan market.

The Indian banking industry is facing a spate of government-initiated mega bank mergers that will see the number of public sector banks (PSBs) reduced from 19 to 12 by April 2020, of which 10 will be combined to create four large regional banks. This is in part due to the prevalence of poorly run PSBs that have contributed to deteriorating non-performing assets (NPAs), accounting for between 70% and 90% of bad loans in the industry. The government have had to step in to re-capitalise the banks, to the tune of $42 billion (INR 3 trillion) or roughly 2% of the country’s GDP since 2008.

We spoke to Kumar about the impact of ongoing industry consolidation, state of industry asset quality and wider adoption of digital technology and transformation on SBI.

Foo Boon Ping (FBP): Mr. Kumar, what is your vision for the bank amidst the current challenges that it and the industry are going through?

Rajnish Kumar (RK): When I took over in October 2017 and after that, we rearticulated our vision, mission and values statement. The vision of the bank is to be the bank of choice for transforming India. The value system is STEPS. It’s very easy to remember for my people down the line, which emphasise service, transparency, ethics, politeness and sustainability. It is based on this foundation and the vision to bring about the latest technology in banking and financial services to ordinary citizens of India. 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 overreaching vision, mission and values of the State Bank.

Taking the collaborative approach

FBP: Now you are the largest bank in India, so in many ways you play a very important role in terms of being a conduit for economic development. You are also a purveyor of 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 and with the tension that is brought about by new players, fintechs, and big techs?

RK: 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 we have a huge customer base. Almost one in two 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. 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 banking to the people who are underprivileged and in the ladder, who are at the bottom. Technology has enabled us to do that.

In 2014, Prime Minister Modi launched what we call PM Jan Dhan Yojana, PMJDY, which means wealth of the common people. Now about 350 million people 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. These have enabled us to take banking to every citizen of the country. To be competitive in the investment in technology, (we must) be 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 peer-to-peer 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% and 30%. Our 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 that 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: 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 as fintechs need the bank for scale and strategies. How do you see the competitive landscape? With big data, are you in a position to better understand customers?

RK: The key word here is of course, collaboration. In today’s time, we have a very active engagement programme 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 find that many fintechs have good ideas but their capability to scale up is very limited. For financial services, one key factor is trust and with legacy banks like us, they do very well. People trust us with their money, for their security so that’s trust factor plus the convenience. Many times fintechs, for example, Google Pay has become very popular, but still, the underlying banking services are with the traditional bank where we own the customer account. They provide what you call over-the-top application.

E-commerce is flourishing everywhere in the world so it is flourishing in India also. There are many players: Amazon is one of them, the 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. For such a vast country, there is a place for everyone. Legacy banks 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. 

The collective role of SBI

FBP: How do you see the role for the State Bank of India in terms of unlocking the economic potential of India? You were the fastest growing economy when China started to slow down 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 and Japanese banks. In many countries, the big state banks were the driving engines. They were financing the industrialisation of those countries. What role do you see yourself in?

RK: The State bank of India, 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. 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 programme. 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. Adoption of technology and distribution reach; we have all the products and services through our subsidiaries, joint ventures, which anybody would know as the financial superstore. 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 products and services across the spectrum. There, the State Bank of India is very uniquely positioned. 

FBP: Prime Minister Modi has also kicked off this move towards consolidation of the industry with a scheme to reduce the current state banks from 19 to 12. You started the process to do your consolidation of the federal associated subsidiaries. How do you see this playing out? How much bigger do you think State Bank will become? 

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 capital and system overall, I don’t think was serving any purpose. So, we need strong banks. We need banks that have the capability to invest in modernisation and technology.

Technology today requires a 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 and 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, are moving in the right direction. In this transition phase, there will be issues and challenges which happen 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 banks by nature, will still have the same level of inefficiency, even as they get larger. 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. Any consolidation has to be backed by the governors, reforms and governance. Where the government role is concerned, it is to put in a very high qualified, professionally-managed board and professional team plus provide incentives and remove the rigidities in the HR practices. But I think the government, as an owner and its department of financial services, after managing and looking after 19 banks to now 12 banks, I think it will be easier for them also. In terms of governance, putting in the required structure in place around the governance and risk management is better. SBI 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 our size, I don’t think it is warranted. 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. Our digital footprint is growing very rapidly.

FBP: The State Bank has a very strong liquidity and capital position, but the other state-owned banks are not in a similar position, and there is this recapitalisation of  the state banks, through mergers and acquisition. How do you see that happening?

RK: Basically like whatever was the government’s recapitalisation programme. This year, for example, they decided to give upfront INR 700 billion ($9.8 billion). 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. That will leave the capital for growth apart from providing regulatory capital, whatever is required. We are very well capitalised. We don’t need any money from the government for our capital need, and we will be on our own. Now the effort would be that we give a demand, we boost the supply of credit and hopefully there will be demand also.

Globally there are issues and most of economies have 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, that is a very significant delivery, a bold move by the government to attract investment in the country and that should be helpful. Plus the corporate tax rate cut has suddenly changed the sentiment in a single stroke. 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. We are ready and we have everything in place.

Going global

FBP: As you evolve into a digital bank, what is your strategy? You are an incumbent, you’re a market leader and you have a dominant position. How would you look at collaborating? 

RK: Our strategy is whatever we do, in terms of digitisation or data analytics, primarily has two-three objectives. One is customer experience. Anything we do is customer facing, like our mobile application and omni-channel, which is very popular in India now. Within a span of less than two years, I have 13 million registered users. 

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. For UK customers we will be launching, You Only Need One (YONO) global. So we are taking it overseas in 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. 

We are using data analytics in a big way for lead generation and underwriting the pre-approved personal loan, which we launched on the YONO platform. In four months, we have been able to build a very profitable book of more than $1 billion equivalent. So the opportunities are huge and it is bringing in a 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. That time has come down to 10 to 12 minutes, the same for setting up loans. That is the advantage, the cost efficiencies, and the other is business growth, fully digital at a fraction of the cost. The third element of the strategy is 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: You play an important social role, especially with new technology like AI and machine learning, which are going to disrupt how work is being done. As one of the biggest employers in India, how would you approach that?

RK: One is to 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, gives a very unique capability to State Bank of India to analyse that data and use it for upsell and cross-sell. 

The composition of the workforce will be 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. 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. 

The bank is definitely transforming itself. This journey will continue.