Challenges that Dinesh Khara, the new SBI chief faces

Relations with the government, the bank's majority owner, are a tricky issue for all SBI chiefs, and, like all his predecessors, Khara will be closely watched for his equations with the finance ministry representative on the SBI board.

On August 28, Dinesh Kumar Khara received a birthday present of sorts.

The Banks Board Bureau, the autonomous body set up in 2016 to improve governance in public sector banks, recommended his name for the post of arguably the country’s most powerful banker.

Assuming the government approves Khara’s name as chairman of the State Bank of India, the country’s largest lender, he will move to the corner office at State Bank Bhavan in Mumbai’s Nariman Point on October 8.

He succeeds Rajnish Kumar, who completes his three-year term.

If Khara’s name is finalised, he will get a three-year extension, since he would have retired in August 2021 in the ordinary course.

An MBA from the Faculty of Management Studies (FMS), Delhi, Khara has risen through the SBI ranks - he joined as a probationary officer in 1984.

So insiders say he is unlikely to make radical changes to the bank’s style of functioning.

He knows the institution better than most, having served in almost all the major verticals, including a stint at SBI’s Chicago office.

In any case, he was part of the top management having been appointed a managing director in 2016 (the three other MDs had also been interviewed for the post).

Against this backdrop, Khara will have to hit the ground running and prepare his plan of action.

Being an insider, Khara knows SBI culture well and has the backing of an experienced team.

Apart from his wide experience within SBI, his biggest asset could be his mild and polite personality - quite contradictory to the stereotypical image of the Delhi boy as brash and pushy.

A senior SBI banker who has worked closely with Khara said he was no pushover, though; he could be firm even as he remained congenial.

This ability is expected to stand him in good stead in carrying the bank’s stakeholders at a uniquely challenging time, thanks to the economic destruction caused by the Covid-19 pandemic.

Indeed, relations with the government, its majority owner, are a tricky issue for all SBI chiefs, and, like all his predecessors, Khara will be closely watched for his equations with the finance ministry representative on the SBI board.

Everyone acknowledges that the road ahead for the Indian banking sector is going to be very bumpy.

Maintaining the tempo of credit and keep an eye on asset quality at the same time will be a major ask.

Keeping slippages to a bare minimum will demand lot of attention, a senior banker pointed out.

Khara has the advantage of taking charge of a bank with a better asset quality and capital adequacy profile than four years ago.

In March 2016, SBI’s gross non-performing assets (or bad loans) were at 6.5 per cent with provision coverage ratio (PCR) standing at 60.7 per cent.

Bad loans moved up in later years as a result of the clean-up act under the RBI-mandated asset quality review (AQR) to touch a peak of 19.91 per cent with PCR of 66.17 per cent in March 2018. By June 2020, bad loans had declined to 5.44 per cent with PCR of 86.32 per cent in June 2020.

The capital adequacy ratio was 13.12 per cent in March 2016 and moved up to 13.4 per cent in June 2020.

In this four-year period, the bank learned how money moves in corporate and how to recover it.

Now credit underwriting and monitoring standards are much tighter.

This will come handy for Khara in debt recast and credit support.

As head of the subsidiaries and associates portfolio, Khara has been involved in integration of associates with the main bank.

Many officials from erstwhile associates are moving up the channel to be part of top management.

That assimilation takes place has to be seen as a human resource challenge.

The pandemic has accelerated the pace of changes, especially for electronic banking - retail, MSME and corporate. Building on the “Yono”, SBI’s integrated digital banking platform, and hastening the pace of digital banking will also be a crucial task.

Also, as with SBI’s private sector counterparts - ICICI and HDFC and Axis - projecting a “One SBI” identity across financial services will have to be a priority.

Having shepherded subsidiaries such as the mutual fund, Khara understands their importance for fee income by cross-selling to SBI’s customer base, which is almost one-third of India’s population.

This has the potential to become a steady source of rising revenues as support to interest income in lean times.

A clutch of robust subsidiaries will also be a good source for capital generation.

The bank has not raised equity capital in the last three years and monetisation of part of its stakes in subsidiaries will be one critical source of capital, a senior SBI executive pointed out.

Photograph: Rupak De Chowdhury/Reuters