File photo of outgoing SBI Chairman Arundhati Bhattacharya at the World Economic Forum in Davos, Switzerland (Photographer: Vishal Patel/BloombergQuint) 

Arundhati Bhattacharya: The Iron Lady Of Indian Banking

It was early November. The government had just declared that 86 percent of the currency in the Indian economy was going to be invalidated overnight. The announcement was as much a surprise to bankers as it was to the rest of the country. Information on how such a mammoth currency exchange program would be executed was hard to come by. How much valid currency do banks have in stock? When will ATMs start functioning again? Are debit card networks failing as digital transactions surge?

The questions were many. Those willing to answer them candidly were few.

In the midst of all the chaos, Arundhati Bhattacharya, who stepped down as chairman of State Bank of India this week, became the go-to person. She informed when she could. She calmed where possible. She cautioned when needed. All this in the midst of managing the currency exchange operation across the bank’s 17,000 branches and 43,000 ATMs.

People wait in line outside a State Bank of India (SBI) branch in Delhi (Photographer: Anindito Mukherjee/Bloomberg)
People wait in line outside a State Bank of India (SBI) branch in Delhi (Photographer: Anindito Mukherjee/Bloomberg)

Whether by design or default, over her four-year tenure Bhattacharya became the face not just of SBI but of Indian banking. From taking on powerful promoters in an attempt to clean-up bank balancesheets; to negotiating with employee unions to ensure an ambitious merger with associate banks went through in record time; and even telling the government that public sector banks need to be allowed to function independently.

It’s the power of her tenacity, said Anshula Kant, chief financial official of SBI when asked how Bhattacharya managed a host of complex tasks, seemingly, with ease. “She will keep at it till its done. She does it in a nice way so things get done without too much throwing around of weight. But she doesn’t forget,” Kant said in a phone conversation, while adding that her time working with Bhattacharya had been one of the most “intense” periods of her career.

Bhattacharya declined a request for an interview on her tenure citing a shortage of time.

Leading The Bad Loan Clean-Up

Bhattacharya took over as chairman of SBI in October 2013. At the time, the bad loan problem lurking in the depths of bank balancesheets was an open secret. Lenders, though, were still burying their heads in the sand. In 2015, Raghuram Rajan, then governor of the Reserve Bank of India, decided to conduct a sector wide asset quality review to understand how deep the problem of under-reporting of bad loans really was. The results were not encouraging.

Starting the December 2015 ended quarters, banks were asked to start classifying stressed assets appropriately. All banks, including SBI, faced the heat.

The country’s largest bank saw its gross non performing assets rise from 4.15 percent of total loans in the September 2015 quarter to 7.23 percent in the December 2016 quarter. Post a merger with associate banks, this ratio rose further and now stands at just under 10 percent. To be sure, SBI is in a far healthier position when compared to other government-owned banks. Its post-merger gross NPA ratio is the third lowest among government-owned banks, after Vijaya Bank and Indian Bank. But it’s worse off than most private peers.

Recognition was the relatively easy part. Then came resolution. Of loan accounts that belonged to some of the most powerful industrialists in the country. In many of the toughest cases, SBI and Bhattacharya had to take the lead in resolution negotiations.

She has dealt with bad loan situations with firmness and clarity, said Abizer Diwanji, Partner and National Leader - Financial & Restructuring Services at EY India. Diwanji, who has been part of many of these conversations on restructuring tough accounts, said that Bhattacharya comes to the negotiating table with practical solutions but she doesn’t compromise on what she thinks is best. “Her approach was very clear - resolution should be done in a manner that the company is left only with the sustainable debt,” said Diwanji.

In the process, wasn’t there pressure from powerful promoters? Of course there was, said Diwanji while adding that it’s tough to put pressure on someone who is acting out of “courage of conviction”.

As she closed her tenure with a press briefing, Bhattacharya was asked whether defaulting promoters will be a happy lot now that she is leaving. No, said Bhattacharya while adding that the process of cleaning up the balancesheet will continue as before. She did, however, offer some hope that the end to the bad loan mess may be near.

A lot has been done in that [NPA recognition] already. Throughout my term, all of you have asked me if we are closer to the bottom and I have repeated that we are very close. But now I can truly say that we are definitely there. From here you should be able to see the good results.
Arundhati Bhattacharya, Outgoing Chairman, State Bank of India
(Source: Bloomberg)
(Source: Bloomberg)

Negotiating Through Mergers And Listings

The clean-up of bad loans ran alongside an ambitious plan to merge SBI’s five associate banks with the parent. The idea came from the government. It’s not clear whether Bhattacharya was in favour of the plan or not. The decision, once taken, left investors with trepidation on two counts – would the plan face opposition from unions and drag on like past merger attempts and would the parent bank’s financials suffer due to the merger.

On the former, Bhattacharya managed to allay all concerns. While employee unions did oppose the merger, the bank pushed ahead with the plan to consolidate. The merger was completed within a year of the plan being announced and starting April 1, the associate banks were folded in to the SBI. In each of these complex tasks, Bhattacharya delegates to a group of qualified staffers and then lets them do the job, said Kant. That’s why so much gets done, seemingly with ease, Kant added.

To be sure, the integration process is far from complete. Rationalisation of branches and employees is still underway and questions about whether the local connect that SBI’s associate banks had will be lost, remain.

The integration also brought with it a negative surprise for investors. Bad loans on the consolidated book are at Rs 1.8 lakh crore, nearly Rs 80,000 crore higher than the standalone SBI book. The gross NPA ratio is now at nearly 10 percent, meaning that investors in SBI may now have to wait longer before asset quality normalises.

“For a chairperson who was known to be articulate, there was no official explanation for the sudden huge losses in the associate banks at the time of the merger, nor any upfront transparency,” independent banking analyst Hemindra Hazari told BloombergQuint.

Bhattacharya’s negotiation skills, which perhaps helped push through a difficult merger, also came in handy as SBI tried to manage its portfolio of subsidiaries. During Bhattacharya’s tenure, SBI Cards saw a change in partner from GE Capital, which exited the venture and sold its 26 percent stake to global private equity fund Carlyle. SBI Life Insurance, now listed, also saw marquee global investors KKR and Temasek check in.

Sanjay Nayar, CEO of KKR India said that Bhattacharya negotiates with a clear purpose and knows how to get the best outcome for her institution. “...She is always equipped with detail and negotiates in a very unassuming but convincing manner,” Nayar said in an email comment.

Getting SBI Ready For The Future

A sign for mobile digital payment app State Bank Buddy, operated by State Bank of India (Photographer: Dhiraj Singh/Bloomberg)
A sign for mobile digital payment app State Bank Buddy, operated by State Bank of India (Photographer: Dhiraj Singh/Bloomberg)

Not all transitions and negotiations have been painless for Bhattacharya. While dealing with large promoters and investors, Bhattacharya has also had to fight off small but nimble fintech firms, which are nibbling away at the retail and payments business of large banks.

One such instance got ugly when SBI decided to block customers from using net banking to refill wallets like those offered by Paytm. “Add money to PayTM using SBI Internet banking has been disabled by bank. We recommend using State Bank Buddy mobile,” the bank declared in a tweet on December 24, 2016. Many saw this as an attempt by SBI to misuse its market leadership position.

Now that the controversy has passed, Vijay Shekhar Sharma, founder of Paytm says coming from the position they did, banks did what they had to do. “They have been fair,” Sharma told BloombergQuint over the phone. Sharma added that Bhattacharya understands technology well and is trying to ensure the bank is ready for the future.

SBI’s digital transformation, however, remains work in progress. In fact, as Bhattacharya steps down, she listed the digital agenda as unfinished business.

As far as unfinished business goes, there was something in our digital innovation which was really something different and we were supposed to come out with it in July. But as time went by, the scope of the project kept increasing. That is something like an unfinished agenda and we should  be able to bring it to you in the next one month.
Arundhati Bhattacharya, Outgoing Chairman, State Bank of India

She signed off from that final press conference by promising that many of the initiatives undertaken during her tenure, including the attempt to ensure that India’s largest bank doesn’t fall behind the times, will continue to hold the bank in good stead over the years.