SBI’s new Chairman Challa Sreenivasulu Setty will have to tackle loan growth, CASA, and AI challenges over next three years

For more than 20 years, successive chairmen of the State Bank of India (SBI) have consolidated the lender’s standing as the country’s largest bank. From O.P. Bhatt, who made the elephant dance, to Arundhati Bhattacharya, the first woman to lead the bank, the bank has maintained its top position despite private sector competition. Now, the baton passes to Challa Sreenivasulu Setty, who joined the bank in 1988 as a probationary officer. Setty will replace the current Chairman, Dinesh Kumar Khara, who retires on August 28.  

Setty, who was promoted to the SBI board as a Managing Director in January 2020, has his task cut out. Building loan portfolios in emerging sectors, expanding the Yono 2.0 app to attract tech-savvy customers, harnessing the power of AI and data analytics for seamless customer onboarding and fraud detection, addressing climate risk in the balance sheet, managing the challenges of current account and savings account (CASA), and unlocking value in non-bank subsidiaries are some key challenges.

The bank, with assets of Rs 61.79 lakh crore at the end of FY24, has already identified opportunities in sunrise sectors under the government’s production-linked incentive (PLI) scheme. Companies are investing in renewables, green hydrogen, electric cars, lithium batteries, etc. With a 20% share in the lending market, SBI has always been at the forefront of new economic sectors. However, Setty has to provide leadership in assessing risk and return to take the bank to newer heights.

The expansion of SBI’s digital offering, Yono 2.0, will require Setty’s attention. With a user base of over 74 million, it offers pre-approved personal loans and instant auto loans. 

With climate risk becoming a critical concern for policymakers and regulators, the bank has started mobilising green term deposits to finance these initiatives. This is an area that necessitates his close attention. The falling CASA ratio is another such challenge. As depositors seek better returns from equity investments, the banking industry is confronted with a declining CASA ratio. SBI holds 23% market share in deposits and has a CASA ratio of 41%.

“SBI has fared better in this cycle, but continuing the same would call for heavy investment in the phygital infrastructure. That said, the bank’s otherwise higher operating expenditure remains a key drag on the return on assets (ROA), and thus the new Chairman will have a challenge on hand to manage a healthy ROA, despite these cost challenges,” says Anand Dama, Head BFSI at Emkay Global Financial Services. 

Vaibhav Vidwani, Research Analyst at brokerage firm Bonanza Portfolio, says the declining CASA  ratio is impacting SBI’s cost of funds, putting pressure on net interest margins (NIMs) and net profitability.
“The improvement in asset quality was seen across all segments, barring the personal segment, which saw a marginal uptick in gross NPAs, which acted as a risk for banks as it also impacted credit costs adversely,” Vidwani says. He adds that if the retail segment affects asset quality in the upcoming quarters, it could increase credit costs for banks and put pressure on profitability.

Finally, the listings of SBI Payment Services Ltd and SBI General Insurance Company Ltd are also lined up. While the incumbent Chairman Khara has been able to manage with a lower capital buffer, Dama of Emkay says the new Chairman will have to decide whether to raise capital from the market after exploring potential options to generate one-off gains, including the sale of its stake in YES Bank. Clearly, Setty has a lot on his plate for the next three years. 

@anandadhikari