State Bank of India chairman Om Prakash Bhatt tells Karina Robinson how the bank’s mission is more than delivering higher profits.
Om Prakash Bhatt, chairman of State Bank of India (SBI), a bank with 134 million customers and more than 10,000 branches, mumbled that he found my title of “senior” editor “intimidating”. The softly-spoken SBI-lifer, who recently spearheaded a campaign to recruit 20,000 new staff, may be self-effacing but he is responsible for a brave attempt to shake up a behemoth in one of the world’s most exciting economies.
The 57-year-old, who joined the bank in 1972 after completing his MA in physics and English literature, saw SBI lose its cachet as the employer of choice when the Indian banking sector was transformed with the arrival of ICICI and other private sector banks. He and the other fast-track managers sat around discussing what needed to be done.
“So, when I sat in this chair, I said: ‘Why can’t we do all that!’” he exclaims, bouncing on his chair in the book-filled bar of the Cinnamon Club, an Indian restaurant close to the Houses of Parliament in London. There were no recognisable English politicians in the restaurant, but Mr Bhatt would have been very comfortable with them. The Indian government owns 59.7% of the bank, with the rest mainly in the hands of foreign and Indian institutions.
A recent attempt to raise capital via a private placement of 7% of the bank’s shares with foreign institutional investors foundered amid a huge political uproar, say bankers, due to its emblematic status. Mr Bhatt, who as chairman of SBI owes his post to the appointments committee of the cabinet, disputes this.
“No, no, there was no political uproar,” he says. “There is now an amendment in Parliament to lower the stake to 51%.”
Soaring inflation
In the meantime, SBI raised $4.2bn via a rights issue in March to boost its capital adequacy as India’s growth slows on the back of soaring inflation – now at a 13-year high of 11.6% – and widening deficits on the current and fiscal accounts. Banking looks likely to be much more challenging.
Economists are predicting a slowing of growth rates to 7.5% a year, which is not enough to improve the lot of the 240 million Indians who live below the poverty line, a topic close to Mr Bhatt’s heart. He notes that, historically, 7.5% is still high compared with gross domestic product growth rates of 3.5% until the 1990s, which became known as the Hindu rate of growth – and he expects the rate to move up again in future years.
Return on assets
Along with the government’s direct attack on poverty via employment schemes and investments in health and education, there is SBI’s role as “the largest ‘development bank’ in the world due to the sheer amount of money it contributes”, as Mr Bhatt describes it.
He talks excitedly about bringing the unbanked into the banking system using technology. The core banking transformation (see The Banker's supplement: Technology at the Core of Transformation) ties into this.
Hard-headed bankers and foreign investors, however, are not interested in the development aspect of the bank’s business. Instead, they criticise SBI for its low profitability relative to its peers. India’s largest bank, which has assets of $256,914m almost triple that of its closest competitor, lies in 10th place in India on its return on assets ratio, at 1.34%.
Mr Bhatt disputes the way that the bank is compared to its rivals, noting that it is really made up of three units – the development bank, the commercial bank and an investment bank – and if each was judged against its peers in those categories, the comparison would be more flattering.
Although he has made major inroads into the business model to deliver higher profits – SBI’s pre-tax profits rose 31% to $3,436m in the financial year to March 2008, according to The Banker, with a major increase in fee income and a reduction of the cost/ income ratio, Mr Bhatt also believes there is more to SBI’s mission.
“I am all for these legacies [of helping the poor]. It is a different country [to those in the West] and we have a relatively different philosophy,” says the wavy-haired father of two. Both of his daughters live in the US, a less-welcome legacy of his time in Washington DC, working for the bank.
He believes that SBI is able to recruit talented bankers, despite offering more modest salaries than the private sector, because of its values and the ability to offer the poorer sector of society loans for houses and their other needs, earning spiritual merit.
“Our culture is less driven by crass mercantilism,” he says, pointedly.
Response time
A well-respected private banker, Udayan Bose, the former founder chairman of Lazard India and currently chairman of Thomas Cook India, has only kind words for him.
“He is a competent and honest man, hugely respected in India, who is doing his best to turn around SBI. This is an immense challenge,” says Mr Bose.
Part of the challenge for Mr Bhatt is lifting the bank’s rate of innovation and its efficiency, say critics.
The be-suited and be-ringed banker, whose right hand boasts an emerald, a diamond (“It’s glass, but call it that!”), a blue sapphire and a boat nail shaped into a ring to ward off evil – all presents from his wife – acknowledges this with a few caveats.
“In some ways, yes, our response rates are slow, in some ways no,” he says, pointing out that the turnaround time for personal loans is closely monitored and has been improving steadily. “Our average response time is better than the sector.”
On the corporate side, he admits that the bank is slower than its rivals but this is only because its appraisal process is so rigorous. There are a few noteworthy exceptions, however, such as helping to finance the $8.1bn Tata Steel bid for Anglo-Dutch steel company Corus in 2006. “We were able to do it in two minutes, before the tea was over,” he says proudly.
The wave of India’s top companies acquiring foreign companies is being ridden by SBI, which banks more than half of them in one way or another. The international banking loan book grew by 50% in the past year.
Mr Bhatt believes that the bank needs to do more. Some 10% of SBI’s profits come from international operations – up from 7% when he took over in July 2006 – and he wants this to rise to 25% by 2012. The bank will move into markets where there is Indian-related growth, such as the US, the UK, the Gulf and the Middle East, and even possibly Africa, he adds.
“There are supposedly good bargains in the markets,” he says, with a twinkle in his eye, “but there may not be.” However, Mr Bhatt says that he needs to talk to the government about the change in strategy and does not see the new direction being implemented for a year – not the sort of time horizon one would hear from a private sector bank. There is little doubt, though, that he will get his way. After all, his main hobby apart from reading is talking.
“I love to talk. Even if I am alone, the cell phone is always there,” he says with contentment.
Vested interests
The power of talking has come in handy in his attempt to lead some sort of consolidation in the fragmented banking sector, 71% of which is in state hands. SBI is intent on consolidating State Bank of Saurashtra, one of eight associates, all of which would be consolidated if the government approves the Saurashtra move.
“We are trying to consolidate one little bank and it has gone up to cabinet level,” explains Mr Bhatt. “[If it happens] it will become a benchmark for the industry. Industry will then know how to placate [vested] interests.”
He denies that he might be out of a job when a new government takes power. Private bankers say technocratic finance minister Palanappian Chidambaram was responsible for his appointment, bypassing bankers more senior than him. It is widely expected that the current Congress Party-led coalition will be ousted after elections in the first half of 2009.
Disappointment at the demise of this government’s much-heralded liberalisation policies, killed by the fighting within the coalition government, is not something he can admit to. “You are going to get me in trouble,” he chuckles.
Karina Robinson
