On November 12, 1989, just after midnight, over 20,000 Germans drunk on the prospect of freedom cheered as the Berlin Wall fell, heralding the collapse of East Germany. As a thousand flashbulbs went off, also joining in-or at least witnessing-the unbridled merriment and delirium was one Y. Radhakrishan, Chief Executive Officer of the Moscow office of the State Bank of India (SBI).

Twenty-three years on Radhakrishnan, whose term as Managing Director & Group Executive (Corporate Banking) of the Indian banking monolith ended on June 30, 2002, recollects with visible nostalgia the events of that day. The writing was clear (although no more on the wall): Fences have to be torn down, say hello to globalisation. "The concept of globalisation was born here; for the first time, market forces and non-market forces were integrated. Suddenly East Germany stood exposed and was forced to compete," reminisces Radhakrishnan.

Last fortnight, as the SBI brass formally bade farewell to their former MD, Radhakrishan was still weighing his options, just one of which is to proceed to Hyderabad and to take up a teaching role. Before that, the specialist in behavourial sciences, after 38 years at this 47-year-old bank-its first avatar was Bank of Calcutta, way back in 1806-has plenty to look back on. Not all would be pleasant-he narrowly missed out in the race for chairmanship of SBI in 2000 as he had only 20 months of service left (instead of the mandatory 24). Yet, what Radhakrishan can comfortably bask in is in initiating, in his own words, "a massive change management project at SBI, the biggest in the world."

Radhakrishnan's experience in the East Bloc has in many ways been relevant to SBI. Like the former East Germany, SBI too stands exposed and vulnerable to global competition.

JANKI BALLABH, Chairman, SBI

Y. RADHAKRISHNAN, FORMER MD, SBI

As barriers are brought down, and private and foreign banks surely but steadily nibble away at the behemoth's business, change is the only way forward for this giant group that has a staggering 13,000 branches (including its seven associate banks), 51 foreign offices in 31 countries, 100 million accounts and that handles 25 million transactions a day. And, yes, as SBI officials love to point out, 40 per cent of the country's economy passes through the bank.

The eagerness to transform SBI from a lumbering giant to an elephant that dances is evident right from the very top. As Chairman Janki Ballabh puts it: "SBI should not only be the most profitable Indian bank in terms of size but should be right there at the high end of the banking services to match the quality of services provided by foreign and private banks," he declares. "Our size and structure has been a problem in the past but we are now ready to put that behind us and by end of 2002 will emerge as one of the most technology-savvy banks in the country."

The Technology Imperative

To be sure, it's around technology that much of the change at SBI revolves. The objective: profitability, efficiency and, most important, a much-needed customer focus. The bank is pumping in Rs 500 crore over three years to integrate its delivery points (automatic teller machines, call centres, and tele-centres, branches) with the product channels (deposits, mutual funds, and insurance products), which will involve networking roughly a third of its branches that account for 80 per cent of the bank's business. Back-offices will be centralised, the branches that matter will no longer function as islands, and there will be a free flow of information, which will place SBI in a better position to decide on allocation of revenues.

Sounds simple, but implementing such a complex exercise across thousands of branches, associate banks, subsidiaries and foreign offices, isn't exactly a walk in the park. S. Ramadorai, the Chief Executive Officer of Tata Consultancy Services (TCS), which is implementing a Rs 150-crore centralised core banking system for SBI, stresses that the project is as much about technology as about people. "We are doing this project as an exercise in change management and not just technology deployment. So the mindset of the people and the focus of the organisation to relate to its customers will also need to undergo change. The whole face of the organisation and the people who run it are going to undergo a transformation."

The change on the people front may take some more time, but progress has been made on the entire project (TCS is implementing one part of it), since the conceptual framework was drawn out along with KPMG Consulting in April 1999. 60 per cent of the ATMs (roughly 1,020), 150 Internet banking outlets, and 1,500 branches have been networked in Phase I, a centralised accounting system has been created, and the back offices have been integrated into a shared operations centre.

As in the case of most technological changes, the tangible benefits aren't too easy to put a finger on, not at least immediately. But let's look at the benefit of integrating the product and delivery channels via a simple example. Suppose a transaction takes place at the teller (the delivery point), perhaps a deposit (which is the product), the bank's total deposits come down.

Without the integration of the two channels, SBI won't know that immediately. Once the two are networked, the bank is in a position to immediately take a view on the asset-liability position, and then take a quick decision on the interest that needs to be charged. "One can immediately convey changes in policy without delays, leading to a more customer-friendly, customer-focused and market-related entity," explains Radhakrishnan.

A more direct benefit of the technology initiative is visible on the ATM front. For instance, a manual transaction at the branch level costs 76 paise. At the ATM, the cost per transaction comes down by 50 paise, to just 26 paise. Now consider that SBI receives some 60,000 ATM hits per day, and you don't have to be a genius to figure out the huge cost saving. With Internet banking too, costs are much lower, at 22 paise per transaction.

"One can convey changes in policy without any delays, leading to a more customer-friendly, customer-focused, and market-related entity''

Clearly, SBI-and hopefully other public sector banks-has realised that technology is the only way ahead. "There are plenty of agile private and foreign banks that may have a much smaller branch network (than the PSUs), but the difference is that they are significantly technology-leveraged. This has allowed them to grab chunks of share in urban segments, and in areas like high net worth banking, where the PSUs aren't really present," says Atul Pradhan, Managing Director (Consulting), KPMG Consulting.

For many public sector units, implementation of the Reserve Bank diktat that 70 per cent of the business should be computerised has been more in letter than in spirit. Computerisation for them has meant mere transfer of manual ledgers onto electronic ones; it hasn't meant saying goodbye to branch banking; a public sector bank's client is still a stranger outside his branch, which is not true with the private banks. Then, the nationalised banks have been unable to take advantage of the benefits of cross-selling products (mutual funds, home loans, insurance etc). "All this calls for technology, and bankers in the public sector have to become flexible enough to implement it," adds KPMG's Pradhan.

To SBI's credit, it has shown ample signs that it is willing to shake off its inherent inflexibility. One sure-fire indicator of that was the implementation the bank's retirement scheme that reduced the workforce by 20,000 (that many of the "good" people also opted for the scheme is another matter). And such radical changes are the need of the day.

Coping With Competition

Today SBI may still be ahead of other Indian banks in terms of total advances-double those of nearest competitor ICICI Bank (post-merger)-but the worry is that when it comes to yields they're one of the lowest, with HDFC Bank, ICICI Bank and Corporation Bank all ahead of SBI.

Similarly, SBI has been improving the quality of its assets, with net non-performing assets coming down from 6.41 per cent of its total advances in 2000 to 5.63 per cent of its total advances last year. But in comparison with the private banks, that level still remains high.

It's here that SBI's technology drive-if properly implemented-could help turn things around. The networking and integration will ensure that NPAs can be managed and monitored more effectively, thereby increasing profitability, and inter-branch reconciliation will reduce, thereby reducing outstandings (it's already reached 99.98 per cent against earlier dismal levels of 22-23 per cent).

"We are ready to put our problems behind us and by end of 2002 will emerge as one of the most tech -savvy banks in the country''

What's more, time to market for new products will reduce, and staff productivity will increase. Most importantly, as the branch barrier breaks down, the customer will get a single view of the management, be it making a deposit or taking a housing loan or opting for an insurance product.

To be sure, it's on the retail front that technology could help SBI give the established players a frenetic run for their money. Here it's clearly the image of the bank being a slow-moving and paperwork-obsessed behemoth that's going against it. But T.S. Bhattacharya, Chief General Manager (Personal Banking), is quick to point out that customer perception is turning in favour of SBI. "There are many second-level cities like Allahabad and Lucknow, where SBI is a point of first preference," he says.

That propensity is reflected in the numbers. For the year ended March 2002, SBI's personal segment (which includes home loans, auto loans, personal loans and educational loans) grew by 32.66 per cent to 17,705 crore, thereby accounting for just over 15 per cent of the bank's total advances. Housing loans accounted for Rs 8,199 crore, a 67 per cent growth over the previous year, making SBI the fastest growing player in the housing finance market.

It's not just the fastest, but the most cost-efficient player, too. According to a recent JP Morgan study, the cost of funds is lowest for SBI, at 7.6 per cent, as against 9.2 per cent for HDFC, 8-9 per cent for ICICI Bank and 7.8 per cent for Corporation Bank. Where HDFC and ICICI score, though is in terms of yield, which works out to 12.43 percent as against SBI's 11.75 per cent.

Arun Sarin, Deputy General Manager (Personal Banking), SBI, expects the personal segment to account for close to 20 per cent of total advances by March 2003, which would translate into an increase of Rs 7,000 crore. Housing will account for Rs 4,500 crore of that increase. By 2004-05, the target for the personal segment is Rs 25,000 crore.

But even as SBI turns on the heat in home loans, it has to begin making its presence felt in other segments, like auto loans, where it doesn't figure amongst the top five. Here Bhattacharya is trying to make a mark by becoming the preferred financier for manufacturers. He's got one such deal going with Telco. And in areas like personal loans and consumer loans, SBI prefers to be cautious rather than aggressive, given the higher risk profile of such customers.

The retail gambit doubtless stands to benefit tremendously from the branch networking. But the crucial Rs 500 crore question is: Can SBI pull it of? Analysts point out that there's already been some delay in the implementation, given that the framework was outlined over three years ago.

What's more, the frequent changes in top management make the vital the task of ensuring the much-needed continuity in implementation and motivation difficult. Two-year terms for chairmen and managing directors is hardly good enough, since scarcely do the top brass find their feet when they're already beginning to contemplate life after retirement.

What makes matters worse is that the government takes its own time to announce successors. For instance, Radhakrishnan's last day in office was June 30, but there's no replacement yet. SBI officials indicate that A.K. Batra, Deputy Managing Director (International Banking), will fill the void. The other Managing Director, S. Govindrajan, retires on July 31, and the Chairman will hang up his boots on October 31.

Mercifully for SBI, continuity of some sort will be ensured at the technology initiative. Ashok Kini, formerly Chief General Manager (Information Technology), who has been promoted to Deputy Managing Director, will take on that baton from Radhakrishan. But then as Ramadorai of TCS stresses, at the end of day it's all about changing people's mindsets. And as long as chairmen and managing directors keep strolling in and out of the bank's Corporate Centre every couple of years, that exercise will continue to be the most daunting of SBI's challenges.

additional reporting by Debojyoti Chatterjee