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Banker to India

India's most influential woman in business, Arundhati Bhattacharya, talks about the challenges of running the country's largest bank.

'As Singapore's prime minister pointed out, anybody who's not paranoid doesn't survive. And I want to survive, so I am paranoid about anything that might come my way.' - Mrs Bhattacharya on her concerns over payment banks.

WHETHER on Wall Street or the City of London, or Tokyo, Hong Kong or Singapore, the banking industry is a man's world; when it comes to C-level positions at least, men dominate and women are vastly under-represented, if represented at all.

But not in India.

The head of the country's largest private sector bank, ICICI Bank, is a woman. There are also female CEOs at the Bank of India, Punjab National Bank, Axis Bank, HSBC, JP Morgan and Bank of America.

And then there's Arundhati Bhattacharya, the chairman and CEO of the State Bank of India.

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This is the biggest bank in the country by some distance and by every measure - assets, deposits, profits, branches, customers and employees. It is the only Indian bank in the Fortune 500 (No 260 in 2015). Many of its 16,377 domestic branches extend deep into rural India. It has 191 overseas offices spread across 36 countries, including Singapore. It also has five associate banks and 22 non-banking subsidiaries covering fund management, insurance, cards and payments, factoring, pension funds and custodial services. SBI, as it is called, is far more than a bank; it is the closest thing India has to a financial hypermart.

A venerable institution that is arguably India's best known brand (its slogan is "the banker to every Indian") its origins go back to 1806, when it started as the Bank of Calcutta. After several mergers over more than a century, it was formally constituted as the State Bank of India in 1955.

Fifty-nine year old Mrs Bhattacharya joined the bank at the entry-level position of a probationary officer in 1977 and worked her way up the ranks to the top. Along the way, she has held just about every important position in the institution. Whether it's forex, treasury, merchant banking, investment banking, human resources, branch management or launching new businesses, she has been there done that. She chairs the board of not only the bank but several of its subsidiaries as well. She is India's most powerful woman in business and most influential banker.

Down-to-earth, communicative and candid - Mrs Bhattacharya is known to be one of India's more outspoken members of her normally tight-lipped profession - she wears her position lightly. She jokes that when she discovered that Forbes magazine had rated her the 30th most powerful woman in the world (in 2015), she texted her husband to say : "Can you believe it? They rate me as being more powerful than the queen of England." She recalls with a laugh her husband's reply: "You will retire in three years' time, but the Queen will retain her power all her life."

War on non-performing assets

Mrs Bhattacharya took over the chairmanship of SBI at a difficult time for the bank, in 2013. The bank's gross non-performing assets (NPAs) were at their peak, hitting 4.75 per cent of total loans at the end of that year. This was not unique to SBI; almost every public sector bank (and private sector banks too) faced the same problem, the result of an economic slowdown, stalled projects and some especially stressed sectors in the areas of capital goods and infrastructure.

One of Mrs Bhattacharya's first moves was to declare war on NPAs. But her tactics to deal with the problem took the form of surgical strikes - customised approaches to different banking segments. What SBI has done is an object lesson in how a large public sector bank operates in India.

"We segment the stressed areas into various verticals, because what would work with small-value agricultural advances will obviously not work with large corporate projects," she explains.

To bring down agricultural NPAs, the bank introduced more personalised service, delivered by people who live in villages or close to villages, equipped with hand-held electronic machines. "The advantage is that these people are part of the community so they can easily interact with borrowers. People don't have to go to a bank branch."

The bank also changed its products. For example, tractor loans had high NPAs, because repayments were made only when the crop came in. "But that meant if it's an annual crop like sugar cane, you're not getting in touch with the borrower throughout the year. So when you come back to collect, he may have accumulated other debts, other pressing commitments, so your loan doesn't get serviced. And actually, a tractor is used around the year. So we restructured the product and made it into an EMI (equal monthly instalment) product, so every month the borrower is paying something. Now we're refining that product even more to make it a variable EMI. So at the end of the cropping period, there'll be a bigger payment and during the year, there'll be smaller payments."

In the personal loan segment too, the key to reducing NPAs lay in more follow-up. "It's got to be like a credit card loan," she says. "If a loan isn't paid by a particular date, the next day you're in contact with the borrower asking them what's gone wrong."

The small business segment called for a different strategy. "Typically in small businesses, people have already taken loans from friends and relatives. They don't have deep pockets and are not able to withstand extended working capital cycles. So there, you need to do individual hand-holding to understand whether they can weather the cycle or they can't. If they can't, you pull the plug. If they can, you try to get them to bring in a little more collateral and more equity.

"As for mid-corporates, they have large operations, but usually they are monoline operations; they are not diversified. They also don't have access to a lot of money. So again our main effort is to try and put them in touch with private equity players who might be able to bring in funds as well as better governance. You also try to identify whether they have assets that can be sold and bring in more equity."

SBI's strategy to recover NPAs from large companies has focused on getting them to shed non-core businesses and assets, bring in new partners and consolidate. "A lot of that is still to happen," says Mrs Bhattacharya. She explains that the process has been slow because in the last two years, company valuations have been depressed. "But now, they're looking more reasonable. Owners' expectations have also come down. So overall, we're moving towards our goal. The message we've sent is very clear, which is that if you have taken money, you need to give it back, and we won't rest until we get it back." NPAs are now down to below 5 per cent as at the end of last year.

But there are externally generated risks as well. One is what might happen to the banks's customers with big US dollar debts - especially after the US Federal Reserve hikes interest rates and the US dollar strengthens, thus making repayments more expensive in rupee terms. "I don't see too much of a risk there," says Mrs Bhattacharya. "We've been insisting that our borrowers hedge their dollar borrowings. Also, as per Reserve Bank of India guidelines, whenever a company has an exposed forex position, which would have an impact of more than 15 per cent on its earnings before interest, taxes, depreciation, and amortisation (Ebitda), we are required to make provisions for such companies. That makes it more expensive for those borrowers to borrow from us."

She adds that longer-term borrowers can hedge three years forward on a rolling basis. Also, many of them have US dollar-denominated earnings, so they would be less affected. "So, in the last few years, a lot of preparatory work has been done to ensure there isn't too much difficulty in the event of a US rate hike," she says.


Concerned about the impaired assets of its public sector banks, the Indian government in July decided to recapitalise them to the tune of 700 billion rupees (S$15 billion) over four years. SBI is to be the biggest recipient, getting 55 billion rupees in the first year. Some observers have suggested that the recapitalisation effort will not be adequate, at least for some banks. What is Mrs Bhattacharya's view? "If the bank's credit book grows at 14 per cent, it would be adequate," she says, referring to the growth of loans disbursed. "But if it's going to grow at 18 per cent, then no. At a growth of 14-15 per cent, our profits, plus what the government is giving, plus what we raise from the market will be enough. And we can go to the market - the government today owns almost 59 per cent of our equity, so we can dilute down to 52 per cent." (The Indian government plans to retain a minimum 52 per cent stake in public sector banks)

At the moment, SBI's credit book is growing at single digits - which makes its capital position safe, but Mrs Bhattacharya acknowledges that the growth is slow. "Normally, we grow at GDP plus inflation, plus a little more for market share," she explains. "This year, there's little inflation. GDP is growing at 7-7.5 per cent. So that's the rate at which our credit book is growing."

There are two drivers of credit growth for India's banks - working capital and term loans. With inflation running low, working capital needs have not increased much. And with few new projects launched during the last two years of the previous government, term loans didn't grow either.

But things are changing, she says. "Projects are falling into place. They still need to see financial closure, get equity and many are awaiting final approvals - all that takes time. But by the last quarter of 2015 or early next year, we will begin to see more growth."

New competition

If growth is one challenge for India's public sector banks, competition is another. Apart from having to contend with private sector banks, foreign banks and finance companies - many of which have greater freedom of operation - they now also face the prospect of having to compete with a new category of institutions. In August 2015, to help bring more of India's population into the banking system, the country's central bank, the Reserve Bank of India (RBI), gave "in principle" approval to 11 entities to establish so-called "payment banks".

These entities - many of them backed by large corporates - will be allowed to take small deposits (of up to 100,000 rupees or just over S$2,000), provide payment and remittance services, and distribute third-party financial products. But unlike regular banks, they won't be allowed to lend or issue credit cards, although they may provide debit cards and online and mobile banking facilities.

Initially Mrs Bhattacharya had voiced concerns about this new potential competition. She says: "As Singapore's prime minister pointed out, anybody who's not paranoid doesn't survive. And I want to survive, so I am paranoid about anything that might come my way.

"Now, that doesn't mean that I am not going to collaborate with them. In fact, we have taken a 30 per cent stake in Reliance's payment bank," she says, referring to a bank established by Reliance Industries, one of India's largest conglomerates.

So on balance, does she view payment banks as a threat or opportunity? "The jury is still out on that," she says. "We don't really know. We have to see how these people work and then we can decide. If you take the view that they are going to disintermediate the payments system, well, we also have a number of products that, over time, will disintermediate the payments system. We've got NFC (near-field cards), tap and pay. We have the electronic wallet, and we have a huge number of small-value customers. Every day, we open about 75,000 accounts. So the payment banks will have competition too - from us."

She concludes on a sanguine note. "It's true that they will bring in more innovation, technology and competition, and that should be good for everybody. The ones who would really benefit would be customers, and that's fine by us. Last time, when the private sector banks came in, that woke us up. We hopped, skipped and jumped to get our technology to where it is today. With another push, maybe we can up our game even more. So it should be okay."

India's private sector banks also need to worry about payment banks - not so much because the latter are a threat to their banking franchises, but because payment banks are siphoning off talent - mainly from the private sector. "The new banks want people who have a private sector background rather than a public sector background," says Mrs Bhattacharya. "So private sector banks are losing much more heavily than we are in terms of talent, and they will continue to bleed."

War for talent, public vs private

However, India's public sector banks also face stiff competition when it comes to talent. While entry-level salaries are comparable with private sector banks, the latter pay much more at senior levels, including via stock option plans.

The SBI chairman acknowledges the problem. "We generally don't get graduates from the top management colleges," she says. "We are working with the government to find a way of getting these people in - either by bringing them in at a higher scale or having differentiated pay scales." But that, she admits, is a challenge for the government-controlled institution.

And how constrained generally are India's public sector banks compared with their private peers, in terms of freedom of operation?

"There are several checks and balances to be mindful of when you're in the public sector," says Mrs Bhattacharya. "For instance, if I want some technology and I know it's available someplace, I can't just go and pick it up. I have to run a very long process to do a price discovery. For the resolution of stressed assets, if somebody comes and makes me an offer, I can't accept it without again doing a public discovery of how much I would get for those assets - I need to set up a committee and set a reserve price for the auction, and if it's not met, I have to call it off. And then set up a second committee and do a second auction. Only if that fails can I go for a bilateral deal. So we don't really have a level playing field, either in getting resources, or in areas such as resolution."

That is why private sector banks, which can accept bilateral deals for impaired assets more easily, tend to have lower NPAs than public sector banks. "Their speed of resolution is faster than ours," she says. "We deal in public funds, so we have to be answerable for every decision and for finding the best value. If you can't prove you have got the best value, you can be called to account.

"We are also subject to right to information," she adds, referring to an Indian law which permits citizens the right to access a wide range of information controlled by public bodies or companies. "Anybody can ask to know 'what was the process you ran? Why did you do x and not y?'"

Government anti-corruption agencies such as the Central Vigilance Commission can also query public sector banks.

Given the breadth of her duties - heading India's largest financial institution, sitting on 15 boards, dealing with regulators, government officials, a probing media and more - Mrs Bhattacharya says that managing time is her biggest professional challenge. Her leadership style is "quite consultative", she says. "But after all the consultations, I take a call."

"But I don't believe in making myself indispensable - there are times when you need to step out and your team should be seen as being able to manage, without people feeling that there is a gap. I'm a team player - both at work and at home."


Chairman and CEO,

State Bank of India (since Oct 7, 2013)

Born: Kolkata, India, March 18, 1956

Education: BA Lady Brabourne College, MA (English Literature), Jadavpur University, Kolkata

Joined State Bank of India in 1977

Positions held at State Bank of India include: Corporate Development Officer and Deputy Managing Director; Manager, New York Branch; Chief General Manager for new businesses; Managing Director and CEO, SBI Capital Markets; Chief Financial Officer and Managing Director

Other positions: Chairman of State Bank of Hyderabad; Chairman, SBI Global Factors Ltd; Chairman and Director, State Bank of Bikaner & Jaipur; Chairman and Director, State Bank of Mysore; Chairman and Director, State Bank of Travancore; Director, State Bank of Patiala; Director, Export-Import Bank of India

Ranked 30th most powerful woman in the world by Forbes magazine, 2015