The Khara Years: How SBIs Age Of Renaissance Is Unfolding

Dinesh Kumar Khara is set to retire as chairman of India's largest lender State Bank of India this Wednesday, completing his four-year term. CS Setty, who currently acts as one of the four managing directors of the bank, is set to take over as the 27th chairman of State Bank of India immediately after.

The soft-spoken Khara will leave behind a lender at the peak of its performance. Not only has SBI's profitability grown, the quality of its loan book has also improved significantly. The lender scores much better on employee-level efficiency now than it has ever done before, too.

Khara's tenure has seen SBI consolidate its leadership position further, even as competition from private sector peers has risen sharply. The lender still boasts of its large corporate book and the largest deposit franchise in the ecosystem.

NDTV Profit decodes what Khara's four year-tenure meant for SBI.

Bumper Profitability

Over the past four years, the bank earned a profit after tax of Rs 1.63 lakh crore. Prior to Khara's tenure, the bank's annual profit in FY20, was Rs 14,448 crore. In the first quarter of FY25 alone, SBI clocked a net profit of Rs 17,037 crore, indicating over a four fold rise.

During the same period, its operating profit rose by 46%, climbing from Rs 18,061 crore to Rs 26,449 crore. Correspondingly, the bank's return on assets has significantly improved, rising from 0.42% in Apr-Jun 2020 to 1.1% in Apr-Jun 2024.

The lender is expected to cross Rs 1 lakh crore in net profit this fiscal. The improvement on profitability is not limited at the aggregate bank level. Employees too are stepping up.

The business per employee has risen from Rs 24 crore in FY20 to Rs 38 crore now, a significant increase over the last four years. Profit per employee too has ballooned from Rs 5.79 lakh to Rs 30 lakh, rising over five times. The bank had about 2.3 lakh employees, as of June 30.

Driving Digital Transformation

One of Khara's pet projects has been to develop SBI's digital banking platform You Only Need One or YONO. Launched in 2019, YONO is an integrated digital banking platform offered by bank to enable users to access a variety of financial and other services. These services include flight, train, bus and taxi bookings, online shopping, or medical bill payments.

In 2023, Khara said that YONO was evolving into a digital bank within the bank.

The platform has 7.76 crore registered customers, with 1.34 crore new registrations in FY24 alone. Average daily logins have crossed 1.28 crore. As of June 30, the average daily registrations on YONO reached 38,000, where 63% of new savings accounts were opened through the platform.

The bank aims to achieve 10% year-on-year increase in YONO registrations this year. YONO Lite, the retail focused version of the platform alone has 2.5 crore registered users.

Over 80,000 loans have been disbursed through the platform. The bank has disbursed Rs 725 crore worth unsecured personal loans and Rs 245 crore worth home top-up loans through it.

Additionally, YONO Global, tailored for NRI customers, is now available in 12 countries, with over 2 lakh overseas customers onboarded.

In January, Khara announced that the bank was in talks with other companies for the upgraded YONO 2.0, where services from other providers could be provided on the upgraded platform. While SBI had planned to release YONO 2.0 in July, further updates are awaited.

Growth

Nearly 40% of the bank's current loan book was built in the last four years under Khara's leadership. The bank's advances have increased from Rs 23.86 lakh crore in Q1 FY21 to Rs 38.12 lakh crore in Q1 FY25.

In terms of deposits, nearly 30% of the outstanding book was built in the last four years. Deposits have grown by 43.35%, during this period, to Rs 49.01 lakh crore.

In the midst of the Covid-19 pandemic, the RBI temporarily eased requirements for banks to give out gold loans. In August 2020, the regulator raised the maximum loan to value ratio for gold loans extended by banks to 90% from 75%. This applied to gold pledged by households, entrepreneurs and small businesses.

This gave banks a competitive edge over non-bank finance companies which controlled a large part of the gold loan business. SBI was one of the largest beneficiaries of this change, as it saw its gold loan book rise sharply.

In addition to its personal gold loan success, the bank continues be a leader in the agri gold loan segment, by achieving a portfolio value of nearly Rs 1 lakh crore by FY24.

During FY21, the bank introduced personal gold loans for SBI’s home Loan customers by way of a product named “Realty Gold Loan” for meeting margin requirements, project cost escalation and registration charges.

Pristine Asset Quality

While SBI's asset quality issues had more or less resolved before Khara took over, there has been further improvement over the last four years.

Net non-performing asset ratio improved to 0.57% as of June 30, from 1.56% as of September 2020. Gross NPA too has fallen to 2.21%, compared to 5.28% in the same period.

Stock Performance

Over the past four years, SBI has delivered an impressive return of nearly 280%, while ICICI Bank has gained approximately 200%. Both banks have significantly outperformed the Nifty Bank index, which rose by 115% during the same period. In contrast, HDFC Bank, the largest private lender, has underperformed the Nifty Bank index, delivering a return of only around 46%.

On the market capitalisation front, SBI has added Rs 5.36 lakh crore, which rose to Rs 7.28 lakh crore during Khara's tenure. ICICI Bank has added Rs 5.57 lakh crore to its market cap which rose to Rs 8.27 lakh crore, while HDFC Bank saw its market cap nearly double to Rs 12.38 lakh crore in the same period.

To be sure, HDFC Bank concluded the merger of Housing Development Finance Corporation with itself in July 2023, which added to its overall value.

On the valuation front, SBI is currently trading at 1.6 times its one-year forward price-to-book ratio. Whereas HDFC bank and ICICI Bank are trading at 2.5 times and 2.75 times respectively.