New Delhi: Rajnish Kumar, 59, the senior most of the managing directors at State Bank of India (SBI), will become the 25th chairman of the country’s largest lender, succeeding Arundhati Bhattacharya, who is set to retire on 6 October.

The government on Wednesday announced his appointment for three years. Kumar currently is in charge of retail banking at SBI.

Kumar’s appointment comes at a time when SBI’s profitability is under strain because of ballooning bad loans and sluggish credit growth. At the end of June, the bank was weighed down by gross non-performing loans of Rs1.88 trillion. Gross bad loans account for almost one-tenth of its total advances. SBI is also the lead bank in a majority of the 40 cases referred for bankruptcy proceedings at the National Company Law Tribunal (NCLT).

“Asset quality is a challenge. So that will definitely receive priority," Kumar told CNBC TV-18 in an interview. “We are undergoing a major transformation in terms of adoption of new technology and digitisation. So these two things are on the top of my mind."

Kumar’s predecessor, Bhattacharya, who was the first woman chairperson of the 200-year-old state-owned bank, was instrumental in the merger of SBI’s associate banks and Bharatiya Mahila Bank with SBI. In her tenure, the bank saw the listing of its life insurance subsidiary, the first among public sector banks.

She also steered the bank through the demonetization process that resulted in a cash crunch, making currency available to customers across its 16,000 branches and automated teller machines (ATMs).

“NPA recovery especially in the case of big corporate loans and a smooth merger should be Kumar’s priorities. Investors got a shock from the associate banks’s losses," said Hemindra Hazari, an independent banking analyst. “Secondly, Kumar should be outspoken in defending the autonomy of public sector banks."

Kumar’s name was recommended for SBI’s top post by the Vinod Rai-led Bank Board Bureau after interviews with candidates took place in June.

Besides Kumar, other SBI managing directors including B. Sriram, Dinesh Kumar Khara and P.K. Gupta appeared for the interview. Sriram is in charge of corporate banking. Khara and Gupta look after associates and subsidiaries, and compliance and risk, respectively. “Kumar was the unanimous choice... However, it was a tough choice. But Kumar’s global experience, long stint in credit and practical wisdom gave him the edge," said a senior government official aware of the matter.

While the banking board bureau conducts interviews, the appointments committee of the cabinet takes the final call.

Kumar joined the bank as a probationary officer in 1980 and served in positions including head of SBI Capital Markets Ltd, the bank’s investment banking unit. In a career spanning three decades, Kumar has also held overseas assignment in Canada and UK. “Rajnish is an all rounder with experience in international, corporate and retail banking. During demonetization and Jan Dhan programme, Kumar’s execution ability was of the highest order," said O.P. Bhatt, former chairman, SBI.

Jan Dhan is a reference to the government’s financial inclusion programme.

“Asset quality continues to be an unfinished agenda for SBI. The new chairman faces a challenging task of resolving the NPA problem and HR (human resources) related issues pertaining to merger," said Alpesh Mehta, deputy head of reasearch at Motilal Oswal Securities Ltd.