McKinsey Quarterly

How the State Bank of India is learning from crisis

How should a leader approach a challenge as unprecedented, volatile, and globally disruptive as the COVID-19 pandemic? As a learning experience. That’s the attitude of Rajnish Kumar, chairman of the State Bank of India (SBI). The veteran banker, who joined SBI in an entry-level role four decades ago, is now tasked with leading India’s largest financial institution through an uncertainty that no organization had anticipated.

Nonetheless, some of the digital initiatives SBI had undertaken before the crisis are helping to meet the moment. In 2017, for example, SBI launched YONO (“you only need one”), a mobile app that offers services for banking, investments, and trading, as well as a platform for online shopping. And, with 24 million accounts, it’s also the world’s largest digital bank. The institution began to rethink the operational side as well, reconsidering what a bank should be in the digital age. That includes service virtualization and remote work—plus a lot of deep reflection on India’s needs in the decades to come.

Taking the long view, as well as embracing and reappraising digital and what it can and should be, is a challenging leap for any legacy organization, and SBI faces an especially rich stew of challenges. With more than 22,000 branches, some 448 million customers, and a market share within India of about 23 percent, the partly state-owned, partly publicly traded bank has the dual mandate of serving all Indians—including those who have grown up with the notion of a bank as a brick-and-mortar institution—as well as its shareholders.

Recently, on a videoconference with McKinsey’s Akash Lal and Joydeep Sengupta, Kumar took time to discuss his “CEO moment,” including how he is dealing with the crisis and reimagining SBI for the future. In addition to helping maintain the stability of India’s banking system and strengthening the bank’s own digital capabilities, Kumar is dealing with issues of personal leadership that will resonate with many global leaders, including how to avoid “los[ing] your cool in such circumstances” and living the idea that “whatever we learn through this process, it must not go to waste.”

The Quarterly: How are you doing in all of . . . this?

Rajnish Kumar: You know, we had tested for disruptions in a simulated environment. But this—this is testing in a real environment. No business or organization had anticipated that it would have to deal with the situation brought about by COVID-19. And, of course, it’s not confined to one country; it’s in all countries and economies. No question, we are in an unprecedented situation. I have spent almost 40 years now in the banking system. We are used to having disruptions, and there have always been localized disruptions. But nothing of this scale or effect.

Fortunately, we had been investing in our technology and digital capabilities and had been looking to build on that. So we have been able to keep our operations up and running, and there’s been no disruption of service as far as transactions go.

The Quarterly: How has that looked behind the scenes? What kinds of operational changes have you been making?

Rajnish Kumar: We have a work-from-home policy, but it was not tested in a big way, so this has been a good learning period. We also have a unique practice where in cities like Mumbai or Delhi—places where commuting is a major issue—we have residential real estate so our people can live close to the office or to global IT centers. But, of course, during the pandemic, they can’t come in. So for certain back-office or IT functions, we’ve procured laptops that have secure access to our full banking office.

Over the long term, this raises exciting questions. How do we create the flexibility between an office or a workplace and build the capability to work from anywhere? This could perhaps bring huge productivity gains. How can we use this [crisis] to reimagine how we work?

The Quarterly: What does it mean to reimagine SBI’s operations in a post-COVID-19 world?

Rajnish Kumar: It starts with understanding which functions have to be done at the branch or at a physical office. We have to look at each and every office, floor by floor, each and every position, each and every role, and each and every person. Can I convert and have satellite offices? Why can’t you do the job from anywhere else?

And how do we do that without impacting efficiency or diluting any control or policy functions? Whatever our approach, it has to be absolutely secure, because of the sensitivity around the data of the bank. There cannot be even a little bit of laxity in that. The current model is that you live at a place, and you work at a place. And in that process, you may have to travel 20 kilometers, you may have to travel 40 kilometers. Or, if you are lucky, you may not have to travel much.

This concept will undergo a change, but when it does, what will be the impact on individual human behavior? Not everybody would like to work from home. It may look like a very exciting idea, but when you sit at home for one month, you may realize it is not such an exciting idea. [Laughs.] So the flexibility around workplaces, and what the compensation structure should be, have to be thought through. We’re in a much better position now because our learnings are based on a real situation.

The Quarterly: What does all this mean for your customers as you look ahead?

Rajnish Kumar: Even before the pandemic, 90 percent of customer transactions were happening away from our physical branches—and, even though [the pandemic] has proved the robustness of our platform, we still have to build on our digital capabilities to serve customers better.

Of course, we have many customers, including many senior citizens, who are not tech savvy and still prefer to visit a branch; it is an outing for them to come to a branch and talk to people. We also have a segment of customers who are underprivileged—and, again, not as tech savvy—who depend on us. So for people who want to come to the branches, we say, “Let them come!” We will, of course, serve them.

But there is a growing, largely urban middle class who are very familiar with technology and very comfortable with their smartphones. And more and more, people don’t want or need to travel for transactions, particularly banking transactions, but others as well—investments, shopping. That’s why we built out YONO.

In addition to banking transactions, YONO enables people to take loans, manage investments, and buy insurance. And there’s also online shopping, which is a big attraction—and a cool product. And many more functionalities are coming; we are in the process of building a B2B platform for YONO business, and development is a continuous process. We complete one thing and think, “What more can we do for the customer?” Our philosophy has been that whatever you imagine in terms of your daily needs, whatever you need to do, you should be able to do on one single platform.

Particularly during the crisis, YONO has come in handy. During the lockdown, we’ve had 30,000 new users a day joining our existing users, often because they can’t visit their branch.

The Quarterly: Let’s change gears and talk about you as a leader for a moment. How do you approach the challenge of leading a large institution through uncertainty of this scale and scope?

Rajnish Kumar: I firmly believe that you need to be convinced of whatever you’re doing. That’s the starting point. Don’t do anything in a half-hearted manner. Once your personal commitment is established, it is crucial that people believe; whatever you do as a leader, you have to have credibility. If I say something and it applies to others but not me, I lose credibility. It’s important to remain connected to the ground and be accessible. Personal credibility and personal commitment matter a lot at the CEO level, and also from the top-management team, whose buy-in you need. Whatever we do, we always have to be aligned with the core values of the organization. We must resist the temptation to do things in a short-term manner or align goals with our own instincts.

And whatever we do, ultimately, it has to benefit the people affected—whether they’re staff members or customers. If you do something that only benefits the organization, it’ll be a much harder push. The chances of success are much higher when everyone benefits.

The Quarterly: As a state-owned bank, how do you balance social responsibility with your duty to shareholders?

Rajnish Kumar: On the social-policy side, SBI is helping with the stability of the financial system and revival of economic growth. Action has to be coordinated between the bank, the government, and the various regulators. The quality of the government’s response depends on how honestly the feedback is reaching the government from the ground. As the CEO of SBI, I’m connected to the ground: what’s happening in the economy, to the individuals, to businesses. Based on what we’re observing, we make recommendations that help the government shape its response. If we say [to the government], “Look, we see a genuine problem here,” it adds more credibility. Our large size—and that we’re 57 percent owned by the government—also adds to our credibility.

Regarding our duty to shareholders, there are certain interventions in the area of social banking that we have to do as a government-owned bank. And there’s a financial cost to that, which is reflected in our earnings. There’s no such obligation on the private sector. So when measured purely by returns to shareholders, there is a fairly huge difference. But I always say there are certain inherent advantages to public ownership, especially public confidence around keeping their money with the bank. Ultimately, shareholders will still look at the expected return on their equity. But performance shouldn’t be solely measured by the returns to shareholders. Corporations should be measured by what they’re doing for society as a whole. When that happens, the true worth of organizations would be more. Then again, I may say that, but investors in the stock market—they’re not going to like it. [Laughs.]

The Quarterly: Looking back, do you think that we will view this crisis as a speed bump or as an inflection point?

Rajnish Kumar: Oh, it will be a true inflection point. The world is not going to be the same as it was pre-COVID-19. There are a lot of questions around global supply chains. There are a lot of questions about new leaders, or whether a new world order will emerge. I think that this pandemic, in terms of implications, will be as big an event as World War II. We had a period where globalization was a panacea for everything. I don’t believe that thinking will remain. More self-reliance may become the norm, and the way we interact with people, the way we live our life, will shift as well.

Could that conclusion change? Yes; with human nature, sometimes memory is very short. But I have my doubts that it will be business as usual. I think that big changes are inevitable after this pandemic. And whatever we learn through this process—it must not go to waste.

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