State Bank of India (SBI), the country’s largest lender by assets, will have one of its trusted hands to lead the show at a time when the banking industry is facing an unprecedented crisis. According to a notification from the Banks Board Bureau (BBB), the name of Dinesh Kumar Khara, who is one of the MDs of the bank, has been recommended as the next Chairman of SBI.
As reported by Moneycontrol on August 18, current SBI chief Rajnish Kumar will not get an extension. His term is coming to an end on October 7. Along with Khara, three other MDs of the bank, Arijit Basu, CS Shetty and Ashwani Bhatia were interviewed on August 28 for the chairman post. Khara was supposed to retire in August 2021. If his name is finalised, Khara will get a three-year extension in the bank that is routine during the selection of new SBI chiefs.
Joined SBI as a probationary officer in 1984, Khara is a seasoned banker. He has experience across all verticals of banking such as retail Credit, SME and Corporate Credit, deposit mobilisation, international banking operations and branch management.
Within SBI circles, Khara is known as a general banking specialist. He also had a foreign stint during his three-decade-long career in SBI at the bank’s Chicago office and was associated with the overseas acquisition of Indian Ocean International Bank Mauritius during his stint in overseas expansion wing.
Khara’s colleagues remember him as an amiable officer who has grown through the ranks of SBI. “The first thing you would notice is the amiable attitude even in the midst of deadlines. At a time when the whole banking industry is in a crisis, this is a safe bet,” said an SBI insider requesting not to be named.
Over the last three decades, Khara has handled departments like associates and subsidiaries, global banking in SBI, Corporate Accounts Group and International Banking Group.
Khara holds a Masters in Business Administration from FMS New Delhi and is a post-graduate in Commerce. He is also a Certified Associate of Indian Institute of Bankers (CAIIB). Prior to being appointed as SBI MD, Khara was the MD and CEO of SBI Funds Management Pvt. Ltd.
Challenges ahead
Khara’s ascension to the chairman post comes at a time when the banking industry is facing an unprecedented challenge. The onset of COVID-19 has put the banking industry on the back foot; there is a likely build-up of huge asset quality pressure across verticals.
SBI isn’t immune to the COVID crisis.
The pain has not been felt by the banking sector so far on account of the six months moratorium given for all term loans by the Reserve Bank of India. Post the moratorium period, the RBI has offered a one-time restructuring for COVID-linked stressed loans. However, banks will have to set aside significant provisions for such loans. SBI may have a sizeable chunk of loans that could go under recast.
Warning signals
On Tuesday, global rating agency, Moody’s downgraded SBI’s standalone profile to ba2 to from ba1 reflecting Moody's view that the bank's asset quality and profitability will deteriorate. The resultant weakening in internal capital generation will reverse improvements in the bank's financial metrics achieved over the past two years” Moody’s said. Of course, SBI may not have any immediate implications on account of the downgrade in its standalone profile. The bank’s overall rating has been affirmed by Moody’s in line with the sovereign rating. However, the downgrade is a strong message to the lender that all is not well for the bank. For the new chief, managing asset quality will be the primary challenge.
Weakening asset quality
As on June 30, SBI has made a total provision of Rs 3,000 crore to cover COVID losses. Asset quality has improved. Gross non-performing asset (NPA) ratio at 5.44 percent is lower than 6.15 percent in the preceding quarter. But the continuation of moratorium till August end makes current NPA numbers somewhat irrelevant.
One will have to wait and watch to see how the moratorium loan book is performing post-August 31. According to the SBI chairman, 9.5 percent of the book is now under moratorium and over 90 percent of customers have paid two or more instalments since March. From September onwards, Kumar hopes corporate accounts will start repaying normally. The bank has set aside as COVID provisions on Rs 1,041 crore of home and home-related loans and less than Rs 400 crore each in personal and SME loans.
The problem is the uncertain environment ahead. No one in the banking system, including the regulator, knows exactly how deep the bad loan problem is. That’s precisely what Moody’s has pointed out in its rating action.
Finmin-bank relation
Khara’s other challenge will be finding the right equation in his relation with the central government, which is the majority owner in the bank. SBI chairman’s job is tougher than other PSB chiefs since the lender commands a leadership position in the banking sector. SBI’s moves set trends in the banking sector. Hence SBI chief’s comments and actions will be watched closely by the government. During Rajnish’s term, there had been a few occasions when the SBI chief came under heavy criticism by the finance ministry.
Against this backdrop, Khara will have to hit the ground running and prepare his plan of action. Being an insider, Khara knows SBI culture well and has the backing of an experienced team.
