A.K.Purwar, Group Chairman, State Bank of India: Banking the retail drive to the hilt

With regulation wood paneling, chunky sofas and forlorn money plants, it is easy to dismiss this as any other public sector bank office. At least at first glance. Look again. Tucked away in a corner is the only giveaway-a miniature acrylic ATM with State Bank of India emblazoned in bright cerulean. We are on the 11th floor of State Bank Bhawan in Mumbai's Nariman Point and this is home to T. S. Bhattacharya, Chief General Manager, and the man spearheading State Bank of India's retail drive. Behind him is all the financial muscle and might of India's largest state-owned bank (assets valued at a staggering Rs 3,48,228 crore) and a brief direct from Group Chairman A.K. Purwar to go retail.

Seven floors up, congratulatory messages are still pouring into A.K. Purwar's bronze statuette lined office. It is barely a fortnight since he took over from previous chairman Janki Ballabh and he's already in the thick of action. "Technology, credit quality and retail; these are going to be my immediate priorities," outlines the grey-suited former chairman of State Bank of Patiala. "The consumer is going to be wooed with new product launches, innovations and faster credit delivery," says the affable Purwar who wants to launch at least "one new product every month".

And what does Bhattacharya, the 55-year old former nuclear physicist and head of State Bank of India's personal banking (or "P segment" if you prefer SBI-speak), have to say about SBI's retail drive initiated around three years back. "Nobody is closer to the customer than we are." With a staggering 13,000 branches (many of them in the heart of rural India) and 51 foreign offices, few can compete with SBI's reach. But just being close to the customer is not enough. To succeed in the retail space banks also need to be nimble and aggressive. Quick to spot opportunities and meet a customer's entire basket of credit needs. Be it deposits, home loans, credit cards, auto loans or personal loans. This is something the new chairman realises. "We have to become a one-stop shop meeting all the consumers' banking and loan needs; They shouldn't have to turn to anyone else."

So Far, So Good
Giants take time to stir and true to its public sector pedigree the 47-year-old State Bank was the last off the block with its go-go retail gambit. Thus far, that doesn't seem to have stopped the behemoth from meeting its targets. "Apart from auto loans we're bang on target," states a smug Bhattacharya. Home loans- these constitute 75-80 per cent of its total retail credit offtake-is where the bank has been spectacularly successful. For the year ended March 2002 SBI disbursed house loans totaling Rs 3,500 crores, a little over double what it did the previous year. "Let me point out that this is all purely retail and not wholesale," says Bhattarcharya, pulling out an array of complicated spreadsheets from a blue plastic tray. SBI hopes to disburse Rs 6,000 crore by March next year.

T.S.Bhattacharya, Chief General Manager, SBI

The bank has also struck gold with its foray into credit cards. Its three-and-a-half year joint venture with ge has a million live cards and the business is growing at a rate of 20 per cent (net of attrition). Still, it is not growth but customer psyche that has Bhattarcharchya, who also looks after the bank's product development, worried. "Card culture is still limited to metros and large cities. I mean how can usage really pick up when even today some establishments add around 2-3 per cent to the bill if a customer pays by card; it is so absurd."

That reality and rationality don't always go hand in hand is something SBI is discovering in the automobile loan market. Despite offering competitive interest rates it has been unable to break into the market primarily due to its inability to strike relationships with big-ticket auto dealers who control the market and sway customer decisions. Peeved at how ICICI Bank has moved to the numero uno slot in the segment primarily on the back of the rapport it enjoys with auto dealers, SBI is now trying to directly woo major auto manufacturers and recently tied up with Tata Engineering to be its preferred banker.

In fact, corporate relationships will become increasingly important to SBI in its quest to become India's number 1 retail bank. HDFC Bank and ICICI Bank built their retail base by aggressively wooing corporates that opened salary accounts for their employees with the banks. Chuckles a confident Bhattacharya: "We're principal lenders to 250 top companies in the country and there's no reason why this relationship can't be leveraged to our advantage." And given that the government still holds more than 59 per cent in SBI, the bank is hoping to turn a similar trick with state governments too.

So, apart from the obvious advantages of being a state-owned bank what is it that SBI has going for it? Ask any banker worth his balance sheet and the first thing he will say is "low costs of funds". Being the country's largest bank with 100 million accounts and 25 million transactions a day means that SBI can raise money at an extremely cheap rate. Currently, the bank's cost of funds is around 6.5 per cent, a figure that is on a downward spiral.

What this means is that should SBI want to capture marketshare it can do so easily by sacrificing its spread (what the bank earns, the difference between its borrowing rate for funds and lending rate). And it seems to be doing exactly that in the home finance market. This month, the bank has already reduced the interest rates it charges on housing loans by 25 basis points across all tenures-its such third reduction in the last four months.

But what SBI really has going for it is something less tangible-its brand name. Ajay Bimbhet, Head (Retail Banking), idbi Bank, acknowledges that even today SBI evokes tremendous loyalty. "In many cases, entire generations have been banking with SBI; depositors don't desert banks overnight for better service."

The Road Ahead

SBI's big retail offensive comes at a time when banks such as ICICI Bank, HDFC Bank, idbiBank, and uti Bank are firmly entrenched in the market. There's room for all says Chanda Kochhar, Executive Director, ICICI Bank: "The retail market is growing at 30 per cent; given low penetration levels and rising purchasing power of the middle class, there's still untapped potential." Still, with every player offering swank branches, ATM cards and 24-hour helplines, there's very little to differentiate one bank from the other.

As the retail segment gets more competitive, reckon experts, the effective deployment of technology will increasingly hold the key. Says Hitesh Maheshwari, Head (Financial Sector), Crisil, "The enviable reach, which SBI already enjoys will need to be coupled with operational best practices and good credit management; both of which are essentially systems driven." Not surprisingly, SBI's great retail thrust is backed by an ambitious tech play.

With tech-savvy Purwar-he launched major computerisation drives on all his previous assignments including one in SBI's Tokyo branch-at the helm, SBI is pumping in Rs 500 crore to integrate its delivery points (call centers, automatic teller machines, as well as branches) with its product channels (deposits, mutual funds and insurance products). Back offices will be centralised and branches networked to ensure free flow of information. "Our goal is convenience banking," gushes an excited Balasubramanya, vp & Project Director, tcs, and the man who's in charge of SBI's centralised core banking system. "From being a customer of the branch to a customer of the bank."

That's an exercise that will involve networking SBI branches numbering between 4,000 and 5,000 within the next three years, installing more ATMs and centralising back offices. For a start, costs will come down: a manual transaction at a branch costs 76 paise whereas the same costs only 26 paise on an ATM. And information and data-crunching capabilities will also improve dramatically. "Data mining, risk analysis, leveraging to cross-sell, newer products, instant tracking of asset-liability mismatch; it'll all become possible," says tcs' Balasubramanya.

Ironically SBI's biggest challenge may not be new technology but changing the mindset of a workforce unfamiliar with the notion of customer service. "As a bank becomes more technology-driven, there's a pressing need to have a human interface," says idbi Bank's Bimbhet. "And while SBI is currently in the technology mode, its levels of customer service will need to go up if it wishes to retain customers."

The perception of SBI being a sluggish bureaucratic organisation with a bloated workforce(2,14,845 at last count) still lingers. SBI's price-earnings multiple is a sluggish 5.6, while HDFC Bank's is an impressive 18. That's true for other public sector bank and private sector bank comparisons too.

"This is due to the perceived differential in the operational efficiency of the banks," clarifies Crisil's Maheshwari. A change may be in the offing. Thus far, languishing around Rs 230, the SBI scrip crossed Rs 260 over the last two months Says Mihir Marfatia, who is a research analyst with the Mumbai-based Khandwala Securities, "I see the upward trend continuing with the two major triggers being the divestment of the government stake and removal of the 10 per cent voting cap on strategic investors."

Cheery targets like lowering net NPA (non performing assets) levels to 2 per cent or gradually networking all of SBI's branches will test Purwar's mettle by the time he steps down as chairman in 2006. Ambitious? Definitely. But then as the conservative banker from Allahabad would probably ask, "Is there there any other way to be?"

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