Pratip Chaudhuri’s Farewell Message

On 30th of September 2013, Mr. Pratip Chaudhuri retired after a long and distinguished career with the State Bank of India, in the process having reached the top-most position of the Bank as Chairman, a position which he served for the last two and a half years of his career. On the eve of his demitting office he gave a farewell message to his soon to be ex-collegues, a copy of which was forwarded to me by a friend working with SBI. 

The first issue I would like to address is as to the reasons why Mr. Chaudhuri’s farewell message has or should have any interest for either me or for you dear reader or for that matter any member of the general populace. First, speaking for myself, I started my banking career with SBI and though I spent only about 11 years in that organisation (of my total working career of 28 years), I retain strong emotional attachments and some of my best and closest friends still work for SBI. Second, as an unrepentant pseudo secularist reactionary capitalist pig owning all of 149 equity shares of SBI, I have a direct interest in the financial wellbeing and progress of the Bank. Third, with more than 60% of the shareholding in the Bank owned by the Government of India ostensibly held on behalf of 1.1 billion Indians, my fellow Indians also have a large stake in the Bank and would have an interest in its growth. 

But the most important reason for all citizens to be concerned about progress of the Bank and its efficient management is that, as India’s largest bank with a market share of close to 16%, it has a large bearing on the working of the bank centric financial markets of the country. This is because most of the PSU banks look up to SBI for guidance and direction and therefore, directly and indirectly, influences close to 80% of the country’s banking system. SBI has also been a source for trained banking manpower to most foreign and new generation private sector banks in the country and the culture it exports through this means is expected to continue to have large affects on Indian financial markets. 

The Committee on Financial Sector Reforms (2007 – the Raghuram Rajan Committee) has very aptly stated that reform in the financial sector is both a moral and an economic imperative as it can generate millions of well paying jobs and have an enormous multiplier effect on inclusion and economic growth and can add between a percentage point and two to the economic growth rate. The Economist in one its articles (12^th April 2008) has also commented that inefficiencies in India’s financial system leave the country’s savers with too little reward for their thrift, its poorer borrowers with too few alternatives to the moneylender and its incumbent firms with too much protection from upstarts, who cannot raise money to compete. Therefore improvements in SBI’s functioning, with its large influence on Indian financial system, has a crucial and direct link on the social and economic well being of the country. As such, I hope the importance of SBI’s performance cannot be overstressed, and should have much interest for all of us.

I therefore read Mr. Chaudhuri’s message with more than a little interest, but I was somewhat disappointed. The entire message is not just badly drafted but also rambles on without much focus, specially on issues which should matter. The monograph starts by stressing the importance of data for assessing SBI’s performance. However, the impression I gathered is that data presented seeks to hide more than to reveal. For example, in giving details of quarter-wise growth in Deposits and Credit (page 2), to stress the growth in business under his stewardship, the figures compares SBI’s position vis a vis only the nationalised banks, instead of with the banking industry as a whole, which would have given a clearer picture as to how well SBI has been faring.

Similarly, in discussing the quality of growth, Mr. Chaudhuri mentions that “the endeavour has been to grow only on the basis of customer deposits, largely retail and relatively low cost”, without presenting data on what has been the level of CASA deposits compared to total deposits of the Bank over the previous few quarters, or in comparison to the Indian banking industry.

In listing steps taken to ensure quality of credit, the most important requirement for a bank, viz improvements in appraisal and monitoring is conspicuous by its absence. It is a well established and accepted fact that due to the presence of the free rider problem in financial markets, the only way banks can make money in the lending business is by lending to non-tradable perceived lower quality borrowers. Moreover, such lending is what canalizes societal savings for productive purposes to enable the economy to grow and create employment and society to prosper. Lending by covering credit risks under various insurance options, or lending to AAA borrowers, or lending against liquid security like gold does not really benefit the economy or society and is also reflects poor business sense. It also does not cover SBI’s management in glory.

Similarly, the comment (Page 5) on handling the growing NPA levels of the Bank that “if nothing works, initiate the recovery process” reflects poor judgment. There is no attempt to analyse or introspect as to the underlying reasons for NPAs or how the Bank can keep it under control. In the banking business the only way NPAs can be prevented is to stop lending. So there can be no well functioning bank without NPAs.  Having said that, developing skills and processes to handle credit risk is the key to successful banking, both, in terms of generating returns for shareholders, and for promoting economic growth by helping capital formation. 

The most important omission of hard data is the absence of details as to how the level of NPAs have behaved in the recent past. Data on quarterly levels of Gross and Net NPAs vis a vis total Loans & Advances, along with quantum of provisions vis a vis Gross NPAs would have gone a long way of clearly showing how well the bank has been doing in its core function of handling credit risk in making loans and advances. 

It is the data on Business per Employee / Business per Officer (Page 7 – 8) which is the most depressing. These particulars show that productivity is much lower in SBI vis a vis nationalised banks, inspite of higher perks (higher limits for leased accommodation, 2 mobile phones, higher furniture entitlements etc.). As such, inspite of higher total emoluments, employee productivity is much lower in SBI, both for officers as well as clerks. 

The low staff productivity at SBI has been a long pending issue and is better appreciated if we look at some of the operating particulars published by RBI in “Profile of Banks 2012-13”:

	Business Per Eployee Rs.Millions	Profit Per Employee Rs. Millions	Wages as % of Total Expenses
All Banks Aggregate	121.33	0.83	13.02%
Nationalised Banks	142.23	0.65	11.81%
Foreign Banks	217.33	4.56	18.22%
SBI & its Associates	101.97	0.60	16.20%
New Private Sector Banks	93.03	1.18	11.40%
State Bank of India	94.39	0.65	17.57%

As can be seen from the above, SBI has one of the lowest levels of Business per Employee and Profit per Employee, compared to all categories of banks. This is coupled by the fact that Wages as % of Total Expenses is much higher for SBI as compared to the industry norms, the nationalised banks, the new private sector banks, or even compared to its associate banks. Only foreign banks operating in India have a larger component of expenses as wages. But then foreign banks have a business per employee of 2.3 times and profits of 7 times that of SBI! 

Since staff at SBI are not paid much more than their peers in nationalised or new private sector banks (by any stretch of imagination) and are paid much, much less than foreign banks operating in India for comparable knowledge, skills and position, the above statistics indicate that for some reason employee productivity in SBI is very low. The reasons could be poor morale, low understanding and use of technology, inefficient organization of work, lack of organisational focus etc. Ultimately, it boils down to only one thing – poor management!

Mr. Chaudhuri does not spare any time of effort in seeking or spelling out reasons for this phenomenon, and unless the reasons are sought, no answers can be found, and consequently no rectification can take place! He does list out some initiatives for offering low and high powered incentives to the staff. But are such incentives sufficient to weld SBI’s 2.28 lakh members into one coherent team? Do they give a sense of unity or direction to its employees, or does it provide the essential energy pill which will bring out their latent talents and creativity? Does it help in clarifying and building consensus in terms of SBI’s role and responsibilities in the minds of all the stakeholders, firmly and upfront?  My take on all of these is a capital NO, and without primary and sustained focus of top management to improve provide clear simple and clear vision to the organisation and its employees there can be no succour! 

Tinkering with hesitant steps in HR practices is no solution. HR follows organizational vision, and if that itself is muddled, HR practices will flounder despite good intentions, the presence of which may even be suspect to many. In any case, an organization needs to have clarity in terms of where it wants to go before deciding on how to get there. Rhetorical proclamations of growth, social equity etc only helps to obfuscate the main issues. 

PS: I do not know Pratip Chaudhuri ,have never met him, and hold nothing for or against him. I have used his farewell message as a point of departure to try and bring out the urgency of reforming the management of SBI.