State Bank of India

STATE BANK

OF

INDIAMASTERS OF BUSINESS ADMINISTRATION

(2011-2013)

Submitted to: Submitted by:

Mrs. Navjot Kaur Rubinder Kaur

MBA – II(Sec

C)

Roll No. 6294

SCHOOL OF MANAGEMENT STUDIES

P U N J A B I U N I V E R S I T Y P A T I A L A

State Bank of India

S t a t e   B a n k   o f   I n d i a i s   the   la rges t   s ta teowned  banking  and   f inanc ia l   se r -v icecompany   in   Ind ia ,  by  a lmos t  every  parameter   -   revenues ,  p rof i t s , as -se t s ,  marke t capitalization, etc. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government of India nationalized the Imper ia l Bank of Ind ia in 1955 , wi th the Reserve Bank of Ind ia t ak ing a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India.SBI prov ides a range of banking produc ts th rough i t s vas t ne twork of b ranches in India and overseas, including products aimed at NRIs. The State Bank Group, with over 16,000 branches, has the largest banking branch network in  India. With an asset base of $352 billion and $285 billion in deposits, it is a regional banking behemoth. It has a marke t share among Ind ian commerc ia l banks of about 20% in depos i t s and advances, and SBI accounts for almost one-fifth of the nation's loans.S B I   h a s   t r i e d   t o   r e -d u c e   o v e r s t a f f i n g   b y   c o m p u t e r i z i n g   o p e r a t i o n s   a n d   " g o l d e n hand-shake" schemes tha t l ed to a f l igh t o f i t s bes t and br igh tes t managers . Thesem a n a e r s   t o o k   t h e   r e t i r e m e n t   a l l o w a n c e s   a n d   t h e n   w e n t   o n   t o   b e c o m e  s e n i o r   managers in new private sector banks. The State bank of India is the 10th most reputed company in the world according to Forbes. State Bank of India is the largest of the Big Four Banks of India, along with ICICI Bank, Punjab National Bank and Canara Bank its main competitors

History 

The roots of the State Bank of India rest in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806.The Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay( incorpora ted on 15 Apr i l 1840) and the Bank of Madras ( incorpo -ra ted on 1 Ju ly 1843). All three Presidency banks were incorporated as joint stock companies, and were the result of  the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27January 1921, and the reorganized banking entity took as its name Imperial Bank of India. The Imperial Bank of India continued to remain a joint stock com-pany. Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of Ind ia , which i s Ind ia ' s cen t ra l bank , acqui red a cont ro l l ing in te res t in the Imper ia l Bank of India. On 30 April 1955 the Imperial Bank of India became the State Bank of India. The Govt. of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conf l ic t o f in te res t because the RBI i s the coun -t ry ' s banking regulatory authority.

In 1959 the Government passed the S ta te Bank of Ind ia (Subs id ia ry Banks) Act , enabling the State Bank of India to take over eight former State-associated banks asits subsidiaries. On 13 September 2008, State Bank of Saurashtra, one of its Associate Banks, merged with State Bank of India.SBI has acquired local banks in rescues. For in -stance, in 1985, it acquired Bank of  Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, State Bank of Travancore, already had an extensive net-work in Kerala.

International Presence

 The bank has 131 overseas offices spread over 32 countries as on 31st Dec 2009. It has branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney , and Tokyo. I t has o f f shore banking un i t s in the Bahamas , Bahra in , and Singapore, and representative offices in Bhutan and Cape Town SBI opera tes   severa l   fo re ign   sub-s id ia r ies  o r  a f f i l i a tes .   In  1990 i t   es tab l i shed  an offshore bank, State Bank of India (Mauritius).In 1982, the bank established a subsidiary, State Bank of India (Califor -nia), which n o w h a s e i g h t b r a n c h e s - s e v e n b r a n c h e s i n t h e s t a t e o f C a l i f o r n i a a n d o n e i n W a s h i n g t o n   D C   t h a t   i t   o p e n e d   o n   2 3   N o v e m -b e r   2 0 0 9 .   T h e   s e v e n   b r a n c h e s   i n California are located in Los Angeles, Arte-sia, San Jose, Canoga Park, Fresno, SanDiego and Bakersfield.The Canadian subsidiary, State Bank of India (Canada) too dates to 1982. It has seven branches, four in the greater Toronto area and three in British Columbia. I n N i g e r i a S B I o p e r a t e s a s I N M B B a n k . T h i s b a n k b e g a n i n 1 9 8 1 a s t h e I n d o N i g e r i a n   M e r c h a n t   B a n k   a n d   r e -c e i v e d   p e r m i s s i o n i n   2 0 0 2   t o   c o m m e n c e     r e t a i l banking. It now has five branches in Nigeria. In Nepa l , SBI owns 50% of Nepa l SBI Bank , which has branches th roughout the country. In Moscow SBI owns 60% of Commercial Bank of India, with Canara Bank owning the rest. In Indonesia it owns 76% of PT Bank Indo Monex. S ta te Bank of Ind ia a l ready has a b ranch in Shangha i and p lans to open one up in Tianjin

Associate Banks

SBI has five associate banks that with SBI constitute the State Bank Group. All use the same logo of a blue keyhole and all the associates use the "State Bank of" name followed by the regional headquarters' name. Originally, the then seven banks that became the associate banks belonged to princely states until the government nationalized them between October, 1959 and May, 1960. In tune with the first Five Year Plan, empha -sizing the development of rural India, the government integrated these banks into State Bank of India to expand its rural outreach. There has been a p roposa l to merge a l l the assoc ia te banks in to SBI to c rea te a "mega bank" and streamline operations. The first step towards unification occurred on 13 August 2008 when State Bank of Saurashtra merged with State Bank of India, reducing the number of state banks from s e v e n t o s i x . T h e n o n 1 9 J u n e 2 0 0 9 t h e S B I b o a r d a p p r o v e d

t h e m e r g e r o f i t s subsidiary, State Bank of Indore, with itself. SBI holds 98.3% in the bank, and the balance 1.77% is owned by individuals, who held the shares prior to its takeover by the government. The acquisition of State Bank of Indore added 470 branches to SBI's existing network of 12,448 and over 21,000 ATMs. Also, following the acquisition, SBI's total assets will inch very close to the Rs 10-lakh crore mark. To-tal assets of SBI and the State Bank of Indore stood at  Rs 998,119 crore as on March 2009. The process of merging of State Bank of Indore was completed by April 2010.The subsidiaries of SBI are:

•State Bank of Indore•State Bank of Bikaner & Jaipur •State Bank of Hyderabad•State Bank of Mysore•State Bank of Patiala•State Bank of Travancore

Non-Banking SubsidiariesApart from its five associate banks, SBI also has the following non-banking subsidiaries:

SBI Capital Markets Ltd SBI Funds Management Pvt Ltd SBI Factors & Commercial Services Pvt Ltd SBI Cards & Payments Services Pvt. Ltd. (SBICPSL) SBI DFHI Ltd SBI Life Insurance Co. Ltd. SBI General Insurance

In March 2001, SBI (with 74% of the total capital), joined with BNP Paribas (with 26% of the remaining capital), to form a joint venture life insurance company named SBI Life Insurance company Ltd. Nowadays, SBI Life Insurance Co. Ltd ranks among the top and most trusted Life Insurance Companies in India and also abroad. In 2004, SBI DFHI Ltd. (DISCOUNT AND FI-NANCE HOUSE OF INDIA) was founded with its headquarters in MUMBAI, MAHARASH-TRA. SBIDFHI Ltd. is a primary dealer that trades in Fixed income securities (treasury bills, state development loans, government securities, non SLR bonds, corporate bonds) and Short Term Money Market instruments (certificates of deposit, commercial papers, inter-corporate de-posits, call and money notice deposits). It is an institution formed by RBI to support the book building process in primary auctions of Government securities and to provide necessary depth and liquidity to the secondary market in Government securities.

Other SBI Service PointsSBI has 27,000+ ATMs (25,000th ATM was inaugurated by the then Chairman of State Bank Shri O.P. Bhatt on 31 March 2011, the day of his retirement); and SBI group (including associate

banks) has about 45,000 ATMs. SBI has become the first bank to install an ATM at Drass in the Jammu & Kashmir Kargil region. This was the Bank's 27,032nd ATM on 27 July 2012.

Logo and Slogan

The logo of the State Bank of India is a blue circle with a small cut in the bottom that depicts perfection and the small man the common man - being the center of the bank's business.

Slogans: "PURE BANKING, NOTHING ELSE", "WITH YOU - ALL THE WAY", "A BANK OF THE COMMON MAN", "THE BANKER TO EVERY INDIAN", "THE NA-TION BANKS ON US".

Strategic Evolution of SBI

Strategy can be defined as the periodic changes a business must introduce to its structure andoperations in order to ensure continuity in the face of environmental changes. The strategicevolution of a business can thus be understood in terms of major social institutions suchas the State, the market, community or civil society and their interrelationships that mayhave a bearing on its working and thereby the achievement of the principle objectives of itsestablishment. Historians recognize moments of profound change when the balance ofpower or influence shifts between these institutions. The SBI is a dynamic organization and hasbeen continuously changing its form to adapt to its environment. Here, its three key environmen-tal factors:• Ownership and governance• Business processes• Structures and systems

Mission Statement:To retain the banks position as the premier Indian financial services. It also aims to be a group withworld class standards and significant global business commitments to excellence incustomer, shareholder and employee satisfaction so as to play a leading role in expanding anddiversifying financial services while continuing emphasis on its development banking role.

Vision:To be a premier Indian financial services group with global perspective, world class standardof the efficiency and professionalism and also its core institutional values, To retain its position inthe country as a pioneer in developing countries, It also aims to maximize its shareholders valuethrough high sustained earnings per share, To become an institution with a culture of mutual care andcommitment. It also focuses on a pleasant working environment to have continuous learningopportunities.

Values:• Excellence in customer service• Profit orientation• Belonging and commitment to bank• Fairness in all dealings and relations• Risk taking and innovations• Team playing• Learning and renewal• Integrity• Transparency and discipline in policies and systems

Key Areas of Operations

The business operations of SBI can be broadly classif ied into the key in come generating areas such as National Banking, International Banking, Corporate Banking, & Treasury operations.

Generic strategies adopted by State Bank of India:

· Institution for advanced learning: to provide state of the art training in financial products to middle level and senior level executives· Internal consultant/change agent: to act as a catalyst for change in attitudes and orientation of banking staff and to provide expertise and consultative support· Feedback supplier: to capture and structure feedback from trainees and from the market· Think tank: to provide expert and inform suggestions, model business strategies, analysis of market developments from a banker perspective· Research and development role: to carry out research on contemporary subjects that are relevant to the banks short term and medium term and operational needs and policy for mulation· Overlapping staff training centers: to validate and closely monitor the staff training centers in seven circles attached to the academy.

Centralization and DecentralizationIt has a well defined system for decision making process. The financial decisions are taken at various levels by different officials depending upon their positions and also through committee approach. The centralized credit processing cells are being formed at certain centers for sanction of personal segment loans and under SBI segments. Its branches source the applications and for-ward them to the respective credit processing sale for their consideration.Regarding the sanction of loan each officer of the bank considers the loan proposal sand takes adecision in terms of scheme of delegation of powers, on merits of proposal. If the bankneeds to purchase any kind of equipment like computers or software branch managers are re-quired to take permission from high authority. So in term of decision making centralization is high and low decentralization wherein the managers have some powers to take decision but at a limited base.

The RestructuringTo overcome the intense competition from private and foreign banks, SBI planned amajor organizational restructuring exercise. The key aspects involved

. redesigning of branches,

. providing alternate channels;

. focus on a lean structure and

. Technological up gradation.

. A business process reengineering (BPR) team wasconstituted in June 2003 with McKinsey & company as consultants. The BPR's basic goal was to create an operating architecture that would facilitate service delivery of international standards.The project objectives were defined as. increasing customer satisfaction and convenience,. freeing up time for branch manager and. branch staff to focus on sales and marketing,. enhancing SBI's competitiveness in the market,. increasing the profitability through higher market share and improved process efficiency"

New Products and ServicesApart from restructuring, SBI launched several innovative, value-added products and servicesto project a customer friendly image. It launched a special service for corporate customers called'telebanking and remote login' to support transactional requests. This facility would be available at 593 branches, and remote login at 269 branches. The banks trade finance solutions, calledEXIMBILLS, were intended to handle trade finance transactions efficiently and enhance therange of services provided to corporate and network branches.In March 2004, SBI announced that it would introduce ‘anywhere banking’ facility for its cus-tomers over 9000 branches across India in the next two years. All the branches in Mumbai wouldprovide this facility by December 2004. SBI also launched different customized loan programsto cater to various sections of society depending on income levels and repayment capabilities.Interest rates and repayment periods were tailor-made to suit the customer groups.

Alliances and Tie-UpsTo boost its business, SBI entered into several alliances and tie-ups with automobile, insurance,mutual fund, project finance and medical equipment companies.

Auto FinanceUnlike other competitors that relied on reduced interest rates to get business, SBI extendedthe tenure of car loans from five to seven years, thereby lowering the monthly debt repaymentburden of the loan seeker. SBI entered into a tie-up with Maruti, the largest automobilemanufacturer in India, to provide loans for purchase of Maruti cars at the rate of 10.05 per centand 11.25 per cent for three years and above three years respectively. After the scheme wasintroduced, SBI emerged as the largest financier for Maruti cars in India and the number of Maruti vehicles financed grew by 17 per cent in the fiscal 2003-04 over fiscal 2002-03...

The Marketing InitiativesSBI carried out various marketing initiatives to enhance its reach. They included. segregating and targeting existing high value customers,. cross sales of other products,. Setting up call centers and outbound sales force to secure new customers.. Plans were also made to utilize database marketing to pursue large and medium sized

corporate, government and trade finance customers.. Database marketing was expected to draw increased revenue from cross selling, lower costsand increased customer loyalty. SBI also introduced various other ways of reaching out to cus-tomers like extension of hours of work(SBI increased daily working hours by two hours and Sunday banking was introduced) and . Aggressive marketing through print and television media.

SBI`s Strategies In The Current ScenarioSBI have set up capacity in places where they are not very strong. Its time for them to followoverall SBI philosophy of planning new branches, given the huge untapped potential.Besides, this is also the best time to benefit from their past expansion, since there is a lot of trust in SBI. Brand SBI is very strong, while people may be generally cautious about some other brands. They can not only tap the potential better but can also provide a safe and transparentinsurance alternative to the public. The bank is entering into many new businesses with strategic tie ups – Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc – each one of these initiatives having a huge potential for growth.

Some of the strategies to cope with the current scenario are listed below:• It is the part of SBI`s philosophy to open new branches .The Bank is forging ahead with cuttingedge technology and innovative new banking models, to expand its Rural Banking base, lookingat the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years. SBI is planning to hire 11,000 employees in the current fiscal. It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s growing mid / large Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial bor-rowings in the country. It is the only Indian bank to feature in the Fortune 500 list. The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the largest banking net-work to the Indian customer. The Bank is also in the process of providing complete payment so-lution to its clientele with its over 8500 ATMs, and other electronic channels such asInternet banking, debit cards, mobile banking, etc.• Country’s largest lender, State Bank of India (SBI) has prepared a blueprint to go retail in itsinternational operations. Such strategy would help the bank to promote its lead in syndicationof loans in the overseas market, at a cheaper cost. The bank’s overseas operations have beeninstructed to thrust more on promoting retail banking locally, SBI is assessing that by opening more branches across foreign locations and promoting retail services by mobilizing deposits at interest rates as low as 3-3.5%, the bank will be able to increase its operating margins by 250-300 basis points in overseas markets where syndication opportunities arise often.SBI is expected to open seven new branches over next eight months in the United Kingdom where it operates six branches currently. Also, SBI’s Washington office is expected to get upgradedas a full-fledged branch by December 2009 and plans are afoot to open more branches across North America under the control of California State chartered subsidiary of StateBank of India (California).

• In response to signals from the central bank, SBI have progressively reduced their PLR from13.75% to 12.25% during the past few months in stages, and further softening in interest rates cannot be ruled out. SBI is introducing loan products at sub-PLR rates - in home loans at 8%, auto loans at10%, special products for SMEs and... agriculture sector at 8%, but it may not be possible for them to reduce the interest rate beyond a certain point• SBI is working on infrastructure sector projects, which has seen a growth of 26% in the current year. For the year 2008 the Rs 10,000 crores was sanctioned for the infrastructure projects while in the current year from April 08 to February 09 the amount sanctioned for the infrastructure project is Rs 13,000 crores, out of which project worth Rs 8000 crore is in pipeline. Despite of various viability issues the growth in this sector for SBI is been intact• With market-linked products finding fewer takers, insurance companies are launching more“guaranteed” products to lure investors. The latest to join the bandwagon is SBI Life insurance with SBI Smart ULIP, a product that guarantees.

SWOT Analysis:Strengths:· Brand name: SBI Bank has earned a reputation in the market over the period of time(Being the oldest bank in India tracing history back to 1806)· Market Leader: SBI is ranked at 380 in 2008 Fortune Global 500 list, and ranked 219 in 2008Forbes Global 2000. With an asset base of $126 billion and its reach, it is a regional bankingbehemoth· Wide Distribution Network: Excellent penetration in the country with more than 10000 corebranches and more than 5100 branches of associate banks (subsidiaries)· Diversified Portfolio: SBI Bank has all the products under its belt, which help it to extend therelationship with existing customer’s Bank has umbrella of products to offer their customers, ifonce customer has relationship with the bank. Some Products, which SBI Bank is offering are:Retail Banking Business Banking Merchant Establishment Services (EDC Machine) Personalloans & Car loans Insurance Housing Loans.· Government Owned: Government owns 60% stake in SBI. This gives SBI an edge over pri-vate banks in terms of customer security· Low Transition Costs-SBI offers very low transition costs which attracts small customers.· Continued effort to increase low cost deposit would ensure improvement in NIMs and henceearnings.Weaknesses:· The existing hierarchical management structure of the bank, although strength in some respects, is a barrier to change· Though SBI cards are the 2nd largest player in the credit card industry, it has the highest non performing assets ( NPAs) in the industry, which stand out to be at 16.28 % (Dec 2007)· Modernization: SBI lags with respect to private players in terms of modernization of its processes, infrastructure, centralization, etc.· SBI is currently operating at a lowest CAR(8%). Insufficient capital may restrict the growth prospects of the bank going forward· Delay in technology up gradation could result in loss of market shares.· Management indicated a likely pension shortfall on account of AS-15 to be close to Rs50bn· Contribution of retail credit to total bank credit stood at 26%. Significant thrust on growing re-tail book poses higher credit risk to the bank.Opportunities:· Merger of associate banks with SBI: Merger of all the associate banks (like SBH, SBM, etc) into SBI will create a mega bank which streamlines operations and unlocks value· Planning to add 2000 branches and 3000 ATMs in 2008-2009. This will further increase its reach· Increasing trade and business relations and a large number of expatriate populations offers a great opportunity to expand on foreign soil· Global expansion: SBI already has expanded globally and start its operations internationally in 32 countries like Australia, Bangladesh, etc.... and has more plans of expansion in other global markets· Growing retail & SMEs thrust would lead to higher business growth· Micro Finance: there is a lot of growth opportunity in the area of micro finance· Strong economic growth would generate higher demand for funds pursuant to Higher· Corporate demand for credit on account of capacity expansion

Threats:· Advent of MNC banks: Large numbers of MNC banks are mushrooming in the Indian market due to the friendly policies adopted by the government. This can increase the level of competition and prove a potential threat for the market share of SBI bank· Consumer expectations have increased many folds in last few years and the bank has not been responsive enough to meet them on time· Private banks have started venturing into the rural and semi-urban sector, which used to be the bastion of the State Bank and other PSU banks· Employee Strike: There was an employee strike in the year 2006 which disrupted SBI’s active ties. This can be repeated in the future· Stiff competition, especially in the retail segment, could impact retail growth of SBI and Hence Slow down in earnings growth· Slow down in domestic economy would pose a concern over credit off-take thereby Impacting earnings growth· The changing interest rates and the changing policies of RBI.

Porter’s Five Forces Analysis

1. Competitive Rivalry: HighTop Performing Public Sector Banks a. Andhra Bankb. Allahabad Bankc. Punjab National BankTop Performing Private Sector Banksa. HDFC Bankb. ICICI Bankc. AXIS BankTop Performing Foreign Banksa. Citibankb. Standard Charteredc. HSBC BankThe banking industry is highly competitive. The financial services industry has beenaround for hundreds of years and just about everyone who needs banking servicesalready has them. Because of this, banks must attempt to lure clients away fromcompetitor banks. They do this by offering lower financing, preferred rates andinvestment services. The banking sector is in a race to see who can offer both the bestand fastest services.2. Buyer Power: HighWith the emergence of larger number of players in the Banking Industry, the switchingcost of the buyer has gone done significantly. The onus is now on the effectiveness andspeed with which the services are provided to the customers. Financial institutions - byoffering better exchange rates, more services, and exposure to foreign capital markets -work extremely hard to get high-margin corporate clients. Options in the Auto FinanceSector also give the customers more power to decide upon the kind of financing.Introduction of specialized products for Women and Students etc also show that thebuyer power is high in this Industry.3. Supplier Power: LowThe suppliers of capital do not pose a big threat, but the threat of suppliers takingaway the human resource. If a talented individual is working in a smaller regionalbank, there is the chance that person will be enticed away by bigger banks,investment firms, etc.4. Threat of New Entrants: LowStarting a bank in a country like India is not as easy as any other industry, but if anew bank is started that is mainly targeted on Niche Segments might pose a threatto SBI. The new entrants from a different country are always discouraged to takepart in the financial and banking sector by regulatory reforms limiting foreignpresence. Threat from other non banking financial services could also pose a threatespecially equity investment, insurance etc. Entrant of a larger player can cause adrastic effect on the not so strong name in banking or the bank with low income butwould not cause any significant affect on SBI.

5. Threat from Substitutes: LowAs you can probably imagine, there are plenty of substitutes in the banking industry.Banks offer a suite of services over and above taking deposits and lending money,but whether it is insurance, mutual funds or fixed income securities, chances arethere is a non-banking financial services company that can offer similar services. Onthe lending side of the business, banks are seeing competition rise fromunconventional companies. Sony, General Motors and Microsoft all offer preferredfinancing to customers who buy big ticket items. But these substitutes do not affectSBI due to its huge brand name and presence in the market.

BCG Theory: Cash CowThere is a lot of growth potential for the banking industry because of increasing disposable in-come of customers, increasing working class, more volatility in other markets also increasing im-portance of savings and in this banking industry SBI has shown a growth rate of 13% with a 21 % increase in PAT standing to 62.1 cr in the FY 2008-09. Hence it can be concluded that SBI stands at cash cow in BCG matrix.