SBI’s New Chairman Could Be This Man Of Few Words
The Banks Board Bureau has recommended Dinesh Kumar Khara for the position of chairman at State Bank of India, it said in a release on Friday. If his appointment is approved by the government, Khara will take over after Rajnish Kumar’s term ends on Oct. 7.
Khara currently serves as a managing director at India’s largest bank, in charge of its subsidiaries and global banking businesses. The bureau put the name of Challa Sreenivasulu Setty, who is the managing director for retail and digital banking at SBI, in the reserve list for the chairman’s position.
The BBB can make recommendations for top positions in public sector banks but the approval for such an appointment comes from the government. It is not uncommon for the government to ignore the bureau’s recommendations and pick a chairman of its choice.
At a time when the Indian banking system is staring another bout of asset quality pain amid the Covid-19 pandemic, a change in leadership at the country’s largest lender will be closely watched. While an SBI insider will keep any disruption in policies to a minimum, Khara may bring his own touch to the lender’s approach to crucial issues such as management of stressed assets and capital raising.
An email sent to Khara on Saturday went unanswered. His phone was not available.
A Career State Banker
After joining SBI in 1984 as a probationary officer, Khara built his career across the retail, corporate, small business units of the bank. In his current role, he manages SBI’s treasury and international banking businesses under the global banking unit. He also oversees the bank’s vast network of subsidiaries, ranging from asset management to insurance and payments.
Prior to taking over as managing director, Khara was CEO of SBI Mutual Fund, which became India’s largest asset management company under his leadership. Earlier, in 2005, Khara had a role to play in the acquisition of 51% stake in Mauritius-based Indian Ocean International Bank, which was later renamed as SBI Mauritius.
Khara’s most notable contribution to the bank has been in his management of the bank’s subsidiaries.
Khara, along with then chairman Arundhati Bhattacharya, was front and centre when SBI’s five associate banks were merged with the parent bank. The merger put SBI in the league of the top 50 banks in the world.
According to a former colleague, who spoke on the condition of anonymity, Khara is a problem solver, who does not rely on band-aid solutions. A man of few words and decisive action, Khara believes in pulling long working hours and closing issues rather than dragging them out for too long, this official said.
Another of Khara’s successes has been in extracting value out of the non-banking subsidiaries of the bank. He oversaw the listing of SBI Life Insurance Co. in September 2017 and SBI Cards & Payment Services Pvt. in March 2020. This not only helped the bank raise capital organically, it also pushed up the sum-of-parts valuation of State Bank of India.
SBI Life Insurance had a market capitalisation of over Rs 85,000 crore as of Friday’s market close, while SBI Cards commands a valuation of nearly Rs 79,000 crore. In the April-June quarter, SBI sold 2.1% stake in its life insurance business through an offer for sale, which fetched an additional income of Rs 1,522 crore.
Among the remaining large subsidiaries is SBI General Insurance Co. and SBI Mutual Fund. While former MD & CEO of the mutual fund unit, Ashwani Bhatia, had indicated in an interview in November 2019 that the company may look at listing in 15-18 months. Bhatia has since left the mutual fund business and joined the parent bank as managing director for its stressed assets division.
In a transaction with Premji Invest and Warburg Pincus in 2019, the Insurance Australia Group had sold 26% stake in SBI General Insurance for Rs 3,400 crore, valuing the business at Rs 13,000 crore.
Timing divestment requires strong planning and preparation, which he manages well, said Sunil Srivastava former deputy managing director, SBI, speaking about Khara. He is a hard worker who can handle major responsibilities for the bank, Srivastava added.
Well Placed But Challenges Ahead
Khara’s biggest challenge, if he takes over as chairman, will be in navigating the current economic cycle.
The RBI in its financial stability report had noted that the Indian banking system could see gross non-performing assets rise to a 20-year highs by March 2021. The current chairman has suggested that the bank is well placed to manage any incremental stress but it may still see a rise in non-performing assets from the current level of 5.4%.
Even so, SBI, as always, will need to lead the way in large corporate restructurings which will soon kick-off under the one-time window permitted by the RBI.
In a report released on Aug. 28, research firm Macquarie factored in 270 basis points increase the bank’s credit cost over three financial years, as the rate of addition of bad loans is likely to be slower. According to Macquarie analysts, unlike the last cycle where large corporate accounts turned sour, in the current cycle SBI may see smaller loans become non-performing.
Bad loan problems aside, one of SBI’s key challenges is also to ensure that the bank is valued appropriately. As the largest lender in the system, the bank is better placed than all of its public sector peers to withstand any volatility in the banking system. Despite that, the bank’s stock continues to be undervalued.
In an interview with BloombergQuint in June, Chairman Rajnish Kumar noted that SBI continued to be heavily undervalued, even if you remove the subsidiaries from the mix.
“It’s the investors who determine what the market valuation of the bank is,” Kumar said. “We can only say that the bank is on very strong footing. We’ll continue to deliver on our performance and let the investors decide the value.”
Macquarie Research raised its target price for the SBI stock by 12% to Rs 270 per share, owing to better valuation of subsidiaries.
“SBI remains a deep value play with core P/BV at 0.3x FY22E. For a sustainable ROE of around 10-11%, we believe the current valuations are very cheap,” Macquarie analysts said in the report.