State Bank of India (SBI) has secured an in-principal approval from the Reserve Bank of India (RBI) to set up an operations support subsidiary.

The public sector banking giant aims to bring down the cost-to-income ratio through its new proposed arm, whose pilot will be launched in a few regions before it is launched across the country.

The proposed subsidiary is expected to enhance SBI’s operational efficiencies and profitability over time.

“We are setting up an operations support subsidiary. It is intended to address the concern relating to the cost-to-income ratio. We have already got the in-principle approval from RBI and soon we will be launching it in a pilot mode,” SBI chairman Dinesh Kumar Khara was quoted by the Hindu BusinessLine as saying.

Speaking to the publication, Khara noted that the new subsidiary will allow SBI to deploy its high-cost manpower for more productive services.

In the financial year 2022, SBI’s cost-to-income ratio stood at 53.3%, whereas the cost-to-income ratio of the top three private lenders is between 35% and 40%.

“Routine jobs can be done by the subsidiary. We are finalising the structure, but it will be more technology and some people. Technology supporting people on ground,” Khara said.

SBI chairman noted that the core functions such as the loan sanctioning process will remain with the bank because the RBI does not permit the outsourcing of core functions.

The proposed subsidiary would focus on providing services to agriculture, micro, small and medium enterprises (MSMEs), other micro-loans, and data entry operations, among others.

In March 2022, SBI announced plans to upgrade its banking application as it prepares to launch a digital bank.