Tamal Bandyopadhyay: The new SBI chief's agenda

With its market share declining, the author outlines action areas for the new chief.

Which bank chairman runs 13 banks? If you find this puzzle too hard to crack, take a look at the organisational structure of the State Bank of India (SBI). Each of the 13 circles of the country's largest commercial bank is as big as some of the smaller public sector banks. The circles also have local boards. If you want to dismiss this as a pure logistics issue, then pour over the businesses run by SBI. There are six banks within the bank. They take care of businesses of very large corporations, medium corporations, small business units, agriculture, government business and retail loans including mortgages. No wonder, there is so much hype surrounding the appointment of the chief of this financial intermediary.

Under A K Purwar's stewardship, the bank has acquired a certain degree of aggression. It has also made its presence felt in the retail segment. This has been possible by Purwar's push for technology and product development. Consultancy firm McKinsey was invited to revisit the bank after a decade of re-engineering its business processes.

However, the task is not completed and the new SBI chairman will possibly have the toughest assignment in the Indian financial sector as he would be required to meet the challenges from big foreign players when the sector opens up in 2009.

SBI has an asset base of Rs 4,93,870 crore. It has a branch network of 9,000 and if one takes into account the branches of its associate banks, the total number of branches of the SBI family could be over 14,000. Very few banks in the world have such a huge brick-and-mortar network. Even after the successful implementation of a voluntary retirement scheme (VRS) in 2001, the bank has over two lakh employees on its payroll. The SBI family's staff strength is around 3 lakh.

However, if these numbers give you the impression that SBI is a global player, you're mistaken. On the strength of its 2004-05 balance sheet, the bank ranked 93rd among top global banks. It has slipped 11 slots "" in 2003-04, its position was 82nd. On the basis of assets, its global position last year was 84; on profits on average capital, 104, and return on assets, 407. Even within Asia, its rank was 11. Bank of China, which stood first in the regional rankings, was 11th on a global basis.

What is worrisome is that even on domestic turf, SBI is losing its market share continuously. For instance, in 2002, with a deposit kitty of Rs 2,70,560 crore, SBI accounted for 22.5 per cent of the total banking sector in India. That had shrunk to 20.2 per cent in 2005. We are yet to get the industry figures of 2006. Similarly, its share of advance portfolio came down from 18.73 per cent in 2002, to 17.73 per cent in 2005. The sharpest fall in market share is seen in the total asset category. Here, the market share of SBI has dropped by three percentage points between 2002 and 2005 "" from 22.71 per cent to 19.72 per cent.

Finance minister P Chidambaram is keen on positioning SBI as a global bank. It has been trying to increase its global footprint through overseas acquisitions. It has picked up a 51 per cent stake in the Mauritius-based Indian Ocean International Bank for $10 million. This bank has a net work of 10 branches and 10 ATMs. This was followed with the acquisition of a 76 per cent stake in closely-held Giro Commercial Bank of Kenya for about $7 million. This bank has six branches in Nairobi and one each in Mombassa and Kisumu. SBI's sole acquisition in Asia is a 76 per cent stake in PT Bank IndoMonex for about $6 million. The closely held entity has seven offices located in Jakarta, Bandung and Surabaya. Overall, the sizes of the acquisitions are so small that a few hundred of such acquisitions will not add much flesh to the bank's balance sheet and help catapult it into the global league.

One way of combating competition and regaining the market share could be putting in place the right technology platform. SBI enjoys enormous advantage over competition by virtue of its relatively lower cost of funds and wider reach. But new private and foreign banks have blunted the twin benefits of SBI by their superior technology. Even though SBI has managed to hold on to its one-third market share in businesses like foreign exchange and letter of credit and guarantees, its share of other fee-based businesses like issuance of drafts and dividend warrants is shrinking.

Purwar has made the beginning by launching the technology drive but the new chairman would need to take it to the logical end fast. About 3,200 of its branches have been covered by core banking solution. Once the core banking solution is spread across 4,500 branches, the bank will be able to cover 85 per cent of its total business with a centralised control system.

The next critical area is the quality of manpower. About 50 per cent of SBI's employee strength belongs to the clerks and cashier categories while officers and sub-staff account for one-fourth of the payroll each. Even among the officers, there are many who were clerks and even messengers. Making them techno-savvy is not an easy task.

Finally, the new chairman may have to strike a new relationship with the government as the Reserve Bank of India is set to divest its 59 per cent stake in the bank in favour of the government. This will make SBI a directly government-owned bank. The RBI will not make any money by divesting the stake. It wants to get out of the ownership of SBI to avoid conflict of interest by being the owner of a bank and the banking sector regulator. In 1955, the erstwhile Imperial Bank of India was converted into an RBI subsidiary to avoid government's direct interference, if any. By changing the track, the bank may face different kinds of pulls and pressures on its growth path. The new CEO's task will be to iron out these glitches and make the banking giant run.