5 major challenges before Dinesh Khara, the new SBI Chairman

Dinesh Kumar Khara, the new Chairman of State Bank of India, has a tough task ahead as the banking sector is going through a major crisis due to the Covid-19 pandemic. Gross non-performing asset (NPA) ratio of 5.44 per cent was lower than 6.15 per cent in the March quarter.
This 1984 probationary officer faces both external challenges in the banking sector and internal hurdles within the bank.
Here are five big challenges that Khara will have to confront in the days ahead

Story: Anand Adhikari

Navigating in a challenging economic environment

Khara is taking over at a time when the overall economy is expected to shrink for the first time in the last four decades. The pandemic, which is still raging,has impacted households, businesses and the economy severely. The next three years are going to be very challenging as the economy recovers from the shock of COVID-19. The bank's biggest clients, the corporate sector, are already on liquidity management cutting cost and also defeating capex. The retail demand, too, will take time as people have postponed discretionary purchases. While the agricultural sector offers some hope, the lending has to be done carefully because of high NPAs in the sector.

Build competitive advantage in a fast-changing banking landscape

The competition is expected to increase in the banking sector with consolidation of PSBs and scaling up of private banks like HDFC Bank and ICICI Bank. Five years ago, the SBI had a big lead in terms of total assets as other banks were too small and the PSB space was fragmented.
But the banking landscape has changed big time in the last three years. The  HDFC Bank has emerged as the second largest bank in terms of total assets. In 2019-20, the private sector bank has grown its balance sheet by 23 per cent to Rs 15 lakh crore whereas SBI grew its balance sheet by only 8 per cent to Rs 39 lakh crore.

Managing loan restructuring

The bank had a 23 per cent of its loan book under six-month moratorium that ended in August this year. These stressed loans estimated to be Rs 5.50 lakh crore will now approach the bank for a two-year loan restructuring exercise under the  RBI's COVID relief. The new chairman has to oversee the restructuring exercise and also make provisions for any losses in future.

The margins in the banking industry are under pressure because of high competition, new banking models and the spread of
digital banking . The bank is also enjoying the fruits of digitisation. In 2019-20, the bank has managed to reduce its cost to income ratio from 55.70 per cent to 52.46 per cent. Currently, most efficient banks have a cost to income ratio in the range of 40 to 45 per cent. SBI though has legacy issues, the bank has recently announced  a VRS (voluntary retirement scheme) for optimising its cost. The bank's digital push through YONO is already doing very well. Yono has 40 plus products across insurance and investments and lifestyle and shopping options from 80 plus merchants.

Growth of subsidiaries

While SBI's valuation of Rs 1.70 lakh crore is too low as compared to its asset size of Rs 39 lakh crore , the bank's subsidiaries are doing well. Khara has a blockbuster YONO (You Only Need One) digital banking app ready for monetisation in the coming years. There are already plans to hike it off as a subsidiary and unlock the value in the market. His predecessor Rajnish Kumar recently said the Yono is a profitable platform and has a valuation of $40 billion. Some of the SBI subsidiaries are gradually hitting the centre stage with high valuations. SBI Cards has recently come out with a successful IPO.