Challa Srinivasalu Setty, who takes over as chairman of State Bank of India on August 28, is known among colleagues and peers for his sharp eye for detail, goal-oriented approach, and kind demeanour.
Known as CS Setty in the banking fraternity, another standout trait is his hands-on approach with every borrower he has dealt with. Colleagues describe him as a banker who is truly ‘feet on the street’.
“You will never find him in his cabin for too long. He’s always on the floor with his managers and their one downs taking stock of the job and giving us instant feedback,” said a former State Bank of India official who was part of Setty’s team.
As Setty occupies the Chairman’s office on the 18th floor of SBI’s headquarters, overlooking the Arabian Ocean, the question on everyone’s mind is: what’s next? Setty’s answer is clear: micro, small, and medium enterprises (MSMEs).
“MSMEs fall short on technology, market linkages and governance. If we can work with them to improve on these three aspects, the ecosystem can become a lot more robust,” said Setty when asked how he plans to increase their relevance in the financing arena and, more particularly, for SBI. To enable better underwriting and meeting of credit demand, SBI is gradually moving away from balance sheet-based lending for MSMEs to data-based or cash flow-based assessment. “Likewise, we are also moving from collateral-based lending to guarantee-based lending,” Setty added.
Setty’s focus on MSMEs may seem surprising, given the sector’s rather low profile and smaller loan volumes. However, his commitment to small businesses is somewhat personal and rooted in his upbringing.
Hailing from Pothulapadu, a village now in Telangana, Setty witnessed firsthand the struggles of small businesses and the importance of credit. He learnt the importance of timely loan repayments from his father, who owned a small shop in a nearby village.
Growing up in such a set-up taught him to appreciate the MSME ecosystem from his early days at SBI.
Setty’s ascent to the top of SBI began in 1988 when he joined the bank as a probationary officer after completing his bachelor’s in agriculture. As he prepares to take the helm, Setty attributes his success to the institution, citing it as the driving force behind his rise.
“There is an absolute level playing field. The educational background of the employee could be anything, but once in SBI, the person becomes a banker,” he asserts with pride. “I would protect this DNA of SBI and ensure that everyone gets a fair opportunity.”
In the early part of his career, Setty was an MSME field officer. “The bank has to work with the borrowers, and borrowers shouldn’t come to the bank at the last minute”. This is another change that Setty has chalked out to engage more efficiently with small business borrowers. “We need to create a system to facilitate this”.
His next stop was international operations, where he worked with 29 regulators in a span of 10 years.
Setty’s spotlight moment, though, was his stint as deputy managing director of Stressed Assets Resolution Group (SARG), a position he held till 2020. From FY18 – FY20, SBI was on a war footing to reduce the mountain of bad loans under the chairmanship of Rajnish Kumar. Credited as critical hand in combatting these large legacy loans of the bank, SBI’s bad loans reduced from Rs 2,23,427 lakh crore to Rs 1,49,092 lakh crore during this period. The slippage ratio or share of loans, which turned bad, declined from 4.85 percent to 2.4 percent from FY18 – FY20. With a gross NPA of Rs 84,226 crore and slippage ratio of 0.84 percent as of June quarter, the narrative for SBI has changed from tackling bad loans to ensuring profitable growth.
While bad loan recovery rates in the country are in the mid-teens and among the weakest globally, SBI recoveries from its advances under collection accounts and non-performing loans, as per the FY24 annual report, stood at 34 percent. This is one of the best among public sector banks. Sources internally say SBI’s decent show on recoveries has to do with some of the processes laid down about 7-8 years ago. Setty recalls that as deputy managing director of SARG, his biggest challenge was addressing stress in an innovative manner.
“The key principle was aligning provisions to recoveries and not going by only the IRAC norms,” he explains. IRAC, or income recognition and asset classification norms, is related to the treatment of bad loans and how they should be provided for by banks. “We did this ahead of ECL,” he adds. Expected credit loss is a new provisioning norm likely to be introduced by the Reserve Bank of India in FY26, and these norms are said to be more stringent in recognizing loan losses.
Setty’s objective while handling bad loans was that the bank shouldn’t be caught unaware of any exposure, and it should be well guarded to handle the situation. “We don’t want any surprises,” he said with a smile, emphasizing that it remains his motto to date.
Apart from sharpening the focus on MSMEs, will the value unlocking of SBI’s subsidiaries, including the ongoing stake sale at Yes Bank, be his immediate focus? He quietly smiled again, in a true SBI banker style. While this should be known soon, the question on investors’ minds is whether the bank’s financial performance remains robust like it did in the last four years.
Under predecessor Dinesh Khara, SBI posted Rs 17,035 crore net profit in the June quarter, surpassing that of HDFC Bank, India’s largest private bank. Setty’s challenge is clear: to build on the momentum and take SBI to greater heights.
