We now have world-class technology, processes, complete range of products and modern HR practices. How can anybody compete with us?
After a brief stint as a lecturer in Business Administration at the Allahabad University, Arun Kumar Purwar opted to become a banker. He soon realised that he had found his calling in banking. At one time, a job at the State Bank of India (SBI) was the most coveted one in the country. The SBI chairman presides over a mammoth, 200-year old organisation that dominates the banking industry with its 13,847 branches and over 5,500 ATMs. AK Purwar, 61, decided it was not enough. He chose to take on the challenge of turning this banking behemoth nimble-footed and tech-savvy through an aggressive computerisation programme. He also chose to match his private sector rivals in capturing every business opportunity from funding small and medium enterprises (SMEs) to micro credit and rural financing. Then, SBI’s sheer size provided intimidating competition, which was bolstered by a high-profile advertising campaign. SBI implemented the Core Banking Solution during his tenure. The fruits of this, in terms of a significant jump in credit card issuance and benefits from cross selling products of associate entities, became evident only after he retired
ML: Let us start at the very beginning. What made you choose banking as a career? Did you always aspire to be the chairman and plan your career accordingly? Purwar: I completed my graduation and post-graduation from Allahabad University in 1966 from the commerce stream and began to prepare for the IAS (Indian Administrative Service) examinations. Various people persuaded me to appear for the entrance tests for Indian Oil, RBI, SBI etc. I got through several of them. When I was selected by SBI, I went to my head of the department, Dr DN Asthana (Purwar was then teaching at the Allahabad University), and told him that I liked teaching and was not interested in banking. But he literally pushed me out of the university saying that banking would suit me. I joined the bank in 1968 and was assigned to the accounts department. I worked for one and half months but it was a total disaster. I felt like resigning from the bank even though my colleagues said it was a wonderful job. I was then given a second branch; but it was only at my third branch posting that I began to develop a little liking for my work. I then forgot about an IAS career and my senior colleagues pushed me to appear for departmental examinations. I appeared for the CAIIB (Certified Associate of Indian Institute of Bankers); it is a tough examination and I stood third in the country. I worked very hard because I believe in doing my best in what I take up and to see that it is completed.
ML: While you were in the first two branches, didn’t you feel like leaving? What held you back? Purwar: I felt like leaving many times. The first branch was a disaster; I became slightly relaxed in the second and only in the third did I feel that this was the job I wanted. I was put in the credit department and it was interesting to deal with small-scale industries, visit their factories and see to their requirements. I felt I could play an important role in society. Moreover, in the third branch, my own educational background became useful and, since I started taking interest in my work, the respect that I commanded from my colleagues and bosses radically improved; they started depending on me and gave me more work.
ML: At that point, did you see yourself becoming chairman of the bank? Purwar: I never thought I would become chairman in the first 10 years. But, in the last 20 years, people in the organisation believed in me and gave me several important assignments. In 1990-91, I was particularly chosen to handle branch computerisation of the eastern part of India and the brief to me was that if we have to computerise eastern India, we have to make a breakthrough in Kolkata. The bank union had signed an agreement but was not allowing us to computerise operations. I went to Kolkata, but there were several issues and for four to five months, we were not allowed to move an inch. So I took the top union leader with me for an Andaman & Nicobar tour. It took me six days to persuade him. Finally, he said he would not support me, but he would not oppose me either. I would have to find my own way. I took on one branch at a time. It was an extremely difficult task initially. In the first branch, the union leader said “computerisation will take place over my dead body”. I said, I am not interested in your dead body, but you will have to allow the work to be done. It was extremely difficult… extremely difficult, but we persisted. By the time I was ready to leave (Kolkata), whenever I visited a branch, the union secretary of that branch would seek a formal appointment and request me to computerise his branch.
ML: What was the positive impact they saw through computerisation? Did the work become easier? Purwar: Yes. Work became very easy, everything was fed into the computers -- interest application, book balancing, cash balancing, tallying ledgers, etc. -- all this was taken over by machines and the staff had only to interact with their customers and do their work. I spent exactly 14 months there. By the time I left, the Bengal circle had become number one in terms of computerisation. Then I was told to pack my bags and go to Tokyo. I spent three and a half years there.
ML: In public sector banks, it is often said that promotions are based on the number of years in service and people complain that performance does not get due recognition. Obviously this doesn’t happen with the achievers. How were you able to demonstrate leadership qualities? Purwar: I would say it was during my stint as DGM (Deputy General Manager) Zonal Office, North East, in Guwahati (Assam). It was in 1989 and it was a very trying time. The entire North East was on the boil. And there were three factions -- Assamese, Bengalis and tribals. As DGM, it was my job to show that I was neutral, and I was with all of them. I did that job for two years; but when I took over, one incident allowed me to prove myself. One day, our staff was not allowed to open a branch and was very badly beaten up. I managed to convey that unless we were given adequate protection, the branch would not function and we would simply close down. The union had planned a protest strike, but they realised that I had done everything they could possibly have demanded. We got the security we wanted and the branch opened. From that day, whatever I said in the office became the law.
ML: Tell us about your Tokyo assignment. It was a difficult time in 1991 with the balance of payments crisis, wasn’t it? Purwar: Yes, but Tokyo was also very interesting. It gave me international exposure and I got an opportunity to learn how to operate in the international market and how the big sharks are floating around waiting for anyone to commit a mistake and take advantage of it. That was the time when the famous Korean deal allowed the bank to make a cool $20 million. My boss was very happy. He said “after what you have done, you are entitled to choose any part of the world you want to go to”. In fact, he told me, if you were in the private sector, you would have been given a bonus of at least a million dollars.
ML: What was the Korean deal? Purwar: At that time, Korea was going through a big cash crunch. They were selling all their assets to take care of the cash crunch. They were holding Indian financial paper. We purchased nearly $400 million of ONGC and Shipping Corporation paper at a 5.5% discount and made a cool $20 million upfront. After Tokyo, I came back to set up the insurance business. Afterwards, I was posted to Mumbai, the biggest business circle of the bank. I did a lot of work in Mumbai and introduced seven-day banking and ‘8 to 8 banking’. That was in 1998-99 and SBI was the first bank to introduce it.
ML: When you were CGM (Chief General Manager in Mumbai), had you started planning -- at least in your mind -- your agenda as chairman of SBI? Purwar: Actually, by then it was fairly clear, even to me that one day I may become the chairman. But before that, I took over as managing director of State Bank of Patiala and it became my laboratory for testing my ideas. There again, I gave a lot of importance to computerisation. The bank had no business operating in a non-computerised environment, but here too there were union issues. However, the rank and file was in favour of computerisation and supported it in a big way. Business process re-engineering was another focus area. You know, this is a 200-year old institution and all the processes are time tested. To make any change is very time consuming and has to be carefully done. I introduced a whole range of new products and State Bank of Patiala became the number one bank of the group. Profits had doubled and business had grown considerably.
ML: What were the goals when you came here as chairman? After all, the whole business environment had changed and new private banks were providing tough competition. Purwar: I was very clear that we must first convert this institution into a world-class one. How do we go about it? We must first upgrade our technology and make it comparable to world standards. We must change our business processes which are outdated. We must introduce a whole new range of products and services in different segments. Having worked in developed economies, I knew that 50% of the assets of the banking system are retail. My big focus was on people and HR (human resources) processes. A year and a half after I took over, we computerised all our branches. As regards business processes, we engaged McKinsey & Co. and went after the introduction of world-class processes and best practices. We centralised credit processes in 83 cities and are now able to compete with the best in any part of the country. We upgraded and computerised the entire currency administration, upgraded the pension administration system, introduced core banking in 2,700 branches and are centralising back-end processing in 300 cities. The scale of work required is enormous. By way of comparison, ICICI Bank and HDFC Bank have just 500-600 branches in 150-200 cities, while we have 13,847 branches. In terms of systems and technology, we have the same as they have -- in fact, we have the latest because we are more recent. We have the largest network of ATMs. The second largest ATM network is 1,800 while we have 5,500-plus. We need to modernise HR practices and offer performance-based incentives -- only now, the government has permitted us to give our staff performance incentives.
So, we now have world-class technology, systems and processes, global best practices and a whole range of products in retail, agriculture, SME, corporate segment and modern HR practices. How can anyone compete with us? Let me give you an example of how the power of technology works. Suppose a company has a factory in Patna. Since our bank is on the core banking platform, I can collect all his cheques/funds in the entire country and give credit to the account, on-line, real-time basis. Can any of the other banks do it across the country? The advantage of this for a unit is that instead of having its funds management department in Mumbai, which is expensive, they can shift this entire task to the factory and keep only one or two persons in Mumbai to make investment decisions. The savings to any company or businesses will be huge.
ML: How do you communicate this change to your own people and to the customers? One way is through your advertising campaign, but what about your staff? Purwar: Our relationship with our customers is the most important thing. When these new banks came up, our customers came to us and said they would shift their collection accounts, since we could not give them the same technology as the other banks. Some even started borrowing from those banks. We said OK, do it. Now, we are telling all our customers that you have to come back and you have to have your collection accounts with SBI. This is happening all over SBI. If you ask me what is my biggest challenge today, I would say it is my people and how I treat them, re-skill and re-tool them. First, to enable them to handle the changed working conditions from manual banking, to computerised banking, to a core banking environment. I have to see that we are not stuck to old procedures and practices and I can tell you, the acceptability of this change in the institution has been huge. In fact, I often feel that even if I merely attempt something, they will think it is right. This puts a huge responsibility on me.
ML: Micro-finance and rural lending are also your main areas of interest; will you tell us about these? Purwar: There are a couple of areas we have focused on. For example, I come from a village and I have seen things at very close quarters. This was one of the jobs I gave to McKinsey -- how do we improve our lending to agriculture. We created an agri-business unit in Mumbai and a part of the job was micro-finance, which has been my personal passion. Agriculture lending has grown by 40%. The finance minister had demanded that we must double it in three years. SBI has done it in two years. In micro-finance, our market share was very negligible. Today, we have a market share of 41%. We are emerging as the most important micro-finance and agriculture lending institution in the country and, in almost all states, we are winning awards.
We are also working with NGOs (non government organisation) because our recoveries are much higher when we work through them, rather than through the existing mechanism where leakage is very high. In agriculture, we are now financing the entire value chain in areas like contract farming.
ML: Can you give us examples that you are very proud of? Purwar: In Baramati (Maharashtra), we have financed a dairy farm across the value chain. We financed the farmer, the dairy farm where the milk is collected and the place where the product is ultimately sold. We have financed farmers who supply sugarcane to Bajaj Hindustan in a very major way. Today, we have over 100 contract farming arrangements all over the country. Our total exposure to contract farming was Rs1,092 crore as at February 2006. One example is Jain Irrigation at Jalgaon (Maharashtra), where our arrangement is on for two and a half years and we finance farmers who supply vegetables.
ML: What are you doing in the SME sector? Purwar: We are financing schools and colleges. In all, we have financed more than 1,100 schools and colleges throughout the country lending over Rs400 crore to NIIT, Microsoft, Oracle and others. We shall be lending around Rs1,000 crore to educational institutions for computer education alone. In healthcare, we have also financed 28,000 doctors in the last three years for their equipment, clinics and nursing homes.
ML: How do you market these loans? Is it through normal branch network? Purwar: In the SME sector, we did an interesting thing about a year and a half ago. We started a mid-corporate business unit in Mumbai. All the big branches, where SME accounts were located, were centralised and put under this. In fact, 80% of the best accounts in the mid corporate segment are with us. It has become the biggest and the most profitable segment of the bank and covers units with a turnover of anywhere between Rs5 crore to Rs200 crore each.
ML: As a public sector bank you surely face political pressure; how do you deal with it? Purwar: I would not say that there is no political pressure. It will be very foolish on my part to say that; but the SBI chairman has always had a great degree of autonomy. There may be a few things here and there, but it is not significant. We still have the ability to say no… let’s leave it at that (laughs).
ML: SBI has always been seen as a banker to the nation; do you see any change in that status? Purwar: No way, with the kind of technology platform we have set up and the linkages we have, I do not foresee any other organisation being able to replicate it. You will see a branch of SBI in any part of the country, be it Kashmir, Kanyakumari, Andhra Pradesh or the wildest of wild places. Our focus on agriculture, SME and retail is making even the small branches profitable. And with centralisation of credit processes and greater accountability, the speed of decision-making -- especially in 83 cities -- has been expedited and credit quality has improved.
ML: As the chairman, what is the process by which you identify future Purwars? Purwar: It is a very complex process; you have to keep interacting with the DMDs, CGMs and GMs. I visit various banking circles, listen to their presentations and check their performance. In SBI, succession is always from within; very rarely have people come from outside. I know my second and third line of succession well; they are in place and have the requisite experience and also have three to four years of service left.
ML: Looking back at your career and your chairmanship, what are the three things that have given you maximum satisfaction? Purwar: The biggest satisfaction I got was in computerising the entire State Bank group. All the 13,847 branches were computerised at the rate of almost a 1,000 branches a month. Many banks don’t even have 1,000 branches; sometimes, we used camels and elephants to carry computers and equipment to remote branches. The second biggest source of satisfaction was the mid-corporate unit. This was absolutely against the advice of all my experts because it involved a complete break from the existing operational structure. My board was aghast when I proposed it; so we started with just a few branches in the Mumbai circle. Today, the board is the biggest supporter of this process.
Another thing I am proud of is the international banking side. During my time, we have acquired three banks overseas and expanded very significantly. We have 70 branches abroad and profits have grown from $20 million to $80 million. It was one area where my overseas experience was very useful. In Mauritius, our acquisition of a bank had a lot of support in that country and the neighbouring ones.
ML: What is your advice to youngsters about a career with a public sector bank? Purwar: Whatever you do, do it with passion, integrity and commitment.