State Bank of India: A digital dilemma

Rajnish Kumar, chairman of State Bank of India

You could forgive Rajnish Kumar for being overwhelmed by the demands of his job. Sure, he knows his employer inside and out: the chairman of State Bank of India (SBI) has been at the country’s largest lender since 1980, joining as a probationary officer.

But his to-do list the day he ascended to his job in October 2017, succeeding the colourful and engaging Arundhati Bhattacharya, would have bent or broken a weaker mind. 

India’s state banks, including SBI, were groaning under a mountain of bad loans, many stemming from failed infrastructure projects. The chairman faced soggy profits, a sliding share price and the encroachment onto its once-hallowed turf by a plethora of well-run private banks.

Two years on though, he seems as brimming with vim as he was on day one. This is a man – and a bank – on a mission. 

SBI’s role in Indian life is fascinating and complex. On the one hand, it’s a big, listed commercial bank that is expected to deliver a profit to shareholders. But it is also a financial institution with real heart, one that finds purpose in its ability to serve society. 

Asked what makes SBI stand out from the crowd, Kumar replies: “What will remain unchanged is our bank’s values. Service, transparency, ethics, politeness and sustainability – these are the guiding principles of everything we do.”

These core beliefs pervade an institution that, along with the central bank, acts as the bedrock of Indian financial life. 

Its dimensions are staggering: assets of $530 billion at the end of March 2019; more than 22,000 branches, scattered across 35 countries, serving 420 million individual account holders. The bank dominates its home market, accounting for a quarter of all loans and deposits. Rare is the Indian settlement that doesn’t have at least one SBI branch.

Asked who had the biggest influence on his career, Kumar remembers an event nearly four decades earlier. 

“‘Don’t cover up or try to hide mistakes’ – this was the lesson I learned on my first day from a branch accountant,” he says. “In retrospect, it was a fantastic piece of advice. Many of the problems we see today in the corporate world or financial system can be easily avoided by following this simple principle.”

At one level, he was an unusual choice for chairman, having headed its merchant banking arm, SBI Caps, before rising to managing director level in 2015. 

Yet in others, he fit the bill perfectly, a veteran banker who has crisscrossed the country in the course of his career, spending time in the far northeast, where community matters more than sharp suits.

And he has surprised on the upside, tackling bad loans and getting the lender back in the black. 

SBI reported net profit of $323 million in the three months to the end of June, against a $117 million loss in the same period a year ago. On his watch, Kumar has written off Rs1 trillion ($14 billion) in the two years to the end of March 2019.

He has been outspoken on a raft of issues, calling in August for government stimulus to revive a stalled economy. 

Kumar is also on a mission to deal with a crisis that has enveloped India’s shadow lenders, not by bailing them out, but by building a mortgage and small-business loan book that targets abandoned customers.

Beyond the need to find a solution to India’s torrid state banks, still weighed down by $150 billion in stressed assets, the biggest challenge facing Kumar is a digital one. 

“Legacy banks are facing huge competition from fintech,” he says, adding that SBI’s approach has been to partner with them while encouraging internal innovation.

Since the shock of demonetization in late 2016, SBI has rolled out a host of digital services, including Mingle, a social banking application; Buddy, a digital wallet; and Digital Village, a financial-cum-educational initiative designed to create ‘cashless ecosystems’ in local communities.

He embraces the new. 

“Traditional banking is undergoing a much-needed digital transformation, with changing customer requirements and disruptions by the new-age players forcing established players to adopt and innovate constantly.” 

He adds that “nimble and agile” fintechs and private banks have “thrown down the gauntlet, [forcing] traditional banks to take up the challenge”.

Another concern is what to do with all those branches. SBI’s physical presence was once its biggest advantage, and in India’s remote regions, it probably still is. 

But as more customers move online, what will it do with all that real estate? If it means shutting branches, will that damage its brand and sever its connection to India’s soul? 

For India’s largest lender, these are big questions with no immediately visible answer.