SBI’s fourth quarter profits for 2008-09 have risen 46%, beating forecasts. There is a sense of d?j? vu here. Profits rose 52% and 40% in Q3 and Q2 respectively, beating forecasts on both occasions. For the year as a whole, profits rose by more than 35%. As always, various factors? some under management control and some external?have contributed to this. But these results are also, and in no small measure, the dividends of a conscious transformation that started in 2006, within days of current chairman OP Bhatt taking charge.
From one viewpoint, things were not too bad for SBI even back then. A growing economy and expanding banking sector kept revenues growing by a soothing 15% plus on an annual basis. Viewed differently, the competition was growing by leaps and bounds, SBI?s market share was rapidly eroding and it was clear that at that rate, SBI would cease to be India?s largest bank by 2010. Complacency and apathy had, over the years, started to demoralise its mammoth workforce. The best employees were joining the rivals after taking early retirement. Bhatt, a life-time State Banker, refused to accept this. The SBI he joined back in1972 stood for leadership and excellence. He would not let it slip without a fight.
That was far from the usual reaction at that time. The stacks were then, as today, loaded heavily against public sector banks in India. Government salary norms and administrative rules hamstring PSBs vis-?-vis their competitors. They lose out on hiring talent necessary in newer, more lucrative, fee-based services that large corporates demand. Branding issues deprive them of young and affluent customers. Union issues dog their efforts at reorganisation. It was almost unfair to expect SBI not to lose out to the private players.
Bhatt started with damage control, stopping the voluntary retirement programme and the roll-out of a problematic computerisation programme and by reallocating portfolios among the top brass. But to turn the tide, he needed a compelling strategy?a gameplan built on SBI?s strengths, enhanced operational efficiency and, most importantly, one that energised the staff. The overall approach that Bhatt and his top team finally decided upon was, therefore, three-pronged. It focused on business areas, business processes, and finally, the people at SBI.
The business mix selected built on SBI?s strengths as well as the emerging needs of the marketplace. The new agri and rural business group aimed to make SBI the undisputed leader in the space reaching out to at least one lakh un-banked people by end of 2008. Traditionally, this segment was viewed as the social responsibility drag on banking in India. SBI would now use it as a competitive edge. Treasury functions were consolidated and redefined as a profit centre within the treasury and markets group, with tie-ups with industry leaders to enter previously untouched segments in fund management. The new corporate strategy and new business group planned SBI?s entry into new and emerging business areas. Technology adoption was to be key at the bank?both in reaching customers as well as rationalising processes within the bank. International expansion would receive a major thrust.
But beyond all this, Bhatt and his team focused on the people at SBI. The biggest challenge was to get the message of change to the two lakh plus SBI staffers. Conclave after conclave took the message down to every branch manager at SBI. Here the real state of the bank was presented frankly as opposed to the usual ?feel-good? pep talk. Complacency was replaced by a sense of urgency and a desire for change. Ignoring warnings, Bhatt took union leaders into confidence. In the process, the culture of the bank changed. Communication, frank talk and criticism suddenly became okay.
The results came in fairly quickly. Even before the end of 2007, the steady erosion of SBI?s marketshare, Bhatt?s primary concern, was stopped and even turned back. In almost each area and by nearly every measure, SBI began to emerge at the top of the league of Indian banks. Recognition followed and Bhatt is now flooded with trophies from major national and international business forums.
No one knows it better than Bhatt that the game is still not over, and the nay-sayers will be back with vengeance the day SBI slips. But in many ways, the SBI saga so far is among the most inspiring turnaround stories in recent years anywhere in the world. In essence, it is a story of immaculate strategy formulation and implementation and a leader?s dogged determination and faith in his team. It shows people can be motivated, even on government salary, to work wonders that elude others. There is much more than the paycheck that can get people going.
The author teaches finance at the Indian School of Business, Hyderabad