UNIVERSITY OF MUMBAI PROJECTION

"STATE BANK OF INDIA"

BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER V 2012-2013

SUBMMITED BY GANESH BHIMAJI DANGE T.Y.B.COM.BANKING & INSURANCE ROLL NO.09

PROJECT GUIDE PROF. Mrs. JAYASHREE SEN

MANISHA EDUCATION TURST'S

SMT. JANAKIBAI RAMA SALVI

DEGREE COLLEGE OF ARTS, COMMERCE & SCIENCE MANISHA NAGAR, KALWA (W), THANE.

DECLERATION
I, Mr. GANESH BHIMAJI DANGE. Of S.J.R.S Degree College of Arts, Commerce & Science of B.COM. B&I ( Semester V ) have completed the project on Exam Bank for the year 2012-2013. The information submitted is true and original to the best of my knowledge.

Date :Place:-

Signature of the Student

ACKNOWLEDGEMENT
Success always strikes the door of the people who work hard with dedication plus the blessing of the elders and gentle part of the friends and colleagues. The success not due to any single person, but due to the combined efforts of ta group of dedication and aspirant individuals. Several special people have contributed significantly in the course. i wish to publicity recognize and thank them. Before I get presentation of this dissertation entitled "STATE BANK OF INDIA". I find it as my obligation to express my sincere gratitude to many a specialist in this field without whose assistance and guide, I would ever have succeeded in making this venture e reality. First of all i thank goes almighty, for this kind blessing for the successful completion of this project work. I express my since thanks to the facilities, Prof. Mrs. Jayashree Sen, for encouragement and help given during this project work.

Yours sincerely, GANESH BHIMAJI DANGE

INDEX
Chapter No. Particulars Page No.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

INTRODUCTION HISTORY OF SBI ASSOCIATES BANK OF SBI GROWTH OF SBI INTERNATIONAL PRESENCE OF SBI SBI-FINANCIAL HIGHLIGHTS BALANCE SHEET OF SBI LIQUIDITY OF SBI STOCK KEY AREAS OF OPERATIONS SBI CHARGING AHEAD CASE STUDY CHALLENGES FOR THE BANK FUNCTIONS OF SBI CONCLUSION BIBLIOGRAPHY

INTRODUCTION
State Bank of India (SBI)
State Bank of India (SBI) is the largest banking and financial services company in India by revenue, assets and market capitalization. It is a state-owned corporation with its headquarters in Mumbai, Maharashtra. As of March 2012, it had assets of US$360 billion and 14,119 branches, including 173 foreign offices in 37 countries across the globe. Including the branches that belong to its associate banks, SBI has 21,500 branches. 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. Bank of Madras merged into the other two presidencies banks Bank of Calcutta and Bank of Bombay to form the Imperial Bank of India, which in turn became the State Bank of India. The Government of India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of India taking 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 has been ranked 285th in the Fortune Global 500 rankings of the world's biggest corporations for the year 2012. SBI provides a range of banking products through its vast network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). The State Bank Group has the largest banking branch network in India. SBI has 14 local head offices situated at Chandigarh (Punjab & Haryana), Delhi, Lucknow (Uttar Pradesh), Patna (Bihar), Kolkata (West Bengal), Guwahati (North East

Circle), Bhubaneswar (Orissa), Hyderabad (Andhra Pradesh), Chennai (Tamil Nadu), Trivandrum (Kerala), Bengaluru (Karnataka), Mumbai (Maharashtra), Bhopal (Madhya Pradesh) & Ahmedabad (Gujarat) and 57 Zonal Offices that are located at important cities throughout the country. SBI is a regional banking behemoth and is one of the largest financial institutions in the world. It has a market share among Indian commercial banks of about 20% in deposits and loans. The State Bank of India is the 29th most reputed company in the world according to Forbes. Also, SBI is the only bank featured in the coveted "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010. The State Bank of India is the largest of the Big Four banks of India, along with ICICI Bank, Punjab National Bank and HDFC Bank its main competitors.

What is the meaning of the sbi bank symbol?

State Bank of India logo is in the shape of a key hole. This symbolizes the banks security. Further the round shape of the logo symbolizes that the bank is the largest bank of India with its branches spread all over the country. THE MEANING OF LOGO OF STATE BANK OF INDIA IS THAT IN SUCH A BIG EARTH (WORLD), WE SERVE EVEN A SMALL MAN ALSO (denoted by a narrow line).

HISTORY OF STATE BANK OF INDIA

The roots of the State Bank of India rest in the first decade of 19thcentury, 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 (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July1843). 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 1861with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on27 January 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 company. Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India, which is India's central bank , acquired a controlling interest in the Imperial Bank of India. On 30 April 1955the Imperial Bank of India became the State Bank of India. The Govt. India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority.

Offices of the Bank of Bengal In 1959 the Government passed the State Bank of India (Subsidiary Banks) Act, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries. On Sept 13, 2008,State Bank of Saurashtra, one of its Associate Banks, merged with State Bank of India. SBI has acquired local banks in rescues. For instance, 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 network in Kerala.

ASSOCIATE BANKS OF STATE BANK OF INDIA

There are six associate banks that fall under SBI, and together these six banks 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, 1959and May, 1960. In tune with the first Five Year Plan, emphasizing the development of rural India, the government integrated these banks into State Bank of India to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a "mega bank" and streamline operations. The first step along these lines occurred on 13 August 2008 when State Bank of Saurashtra merged with State Bank of India, which reduced the number of state banks from seven to six. Furthermore on 19th June 2009 the SBI board approved the merger of its 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 will help SBI add 470 branches to its existing network of 11,448. Also, following the acquisition, SBIs total assets will inch very close to the Rs 10-lakhcrore mark. Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on March 2009.

GROWTH OF STATE BANK OF INDIA

State Bank of India has often acted as guarantor to the Indian Government, most notably during Chandra Shekhar 's tenure as Prime Minister of India. With 11,448 branches and a further 6500+ associate bank branches, the SBI has extensive coverage. State Bank of India has electronically networked all of its branches under Core Banking System (CBS). The bank has one of the largest ATM networks in the region. More than 8500 ATMs across India. The State Bank of India has had steady growth over its history, though it was marred by the Harshad Mehta scam in 1992. In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings

INTERNATIONAL PRESANCE OF SBI

The bank has 92 branches, agencies or offices in 32 countries. 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. It has offshore banking units in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town. SBI operates several foreign subsidiaries or affiliates. In 1990 it established an offshore bank, State Bank of India (Mauritius). It has two subsidiaries in North America, State Bank of India (California), and State Bank of India (Canada). In 1982, the bank established its California subsidiary, named State Bank of India (California), which now has eight branches - seven branches in the state of California and one in Washington DC which was recently opened on 23rd November, 2009. The seven branches in the state of California are located in Los Angeles, Artesia, San Jose, Canoga Park, Fresno, SanDiego and Bakersfield. The Canadian subsidiary too dates to 1982and has seven branches, four in the greater Toronto area, and three in British Columbia. In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the IndoNigerian Merchant Bank and received permission in 2002 to commence retail

banking. It now has five branches in Nigeria. In Nepal SBI owns 50% of Nepal SBI Bank, which has branches throughout 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. State Bank of India already has a branch in Shanghai and plans to open one up in Tianjin.

STATE BANK OF INDIA -FINANCIAL HIGHLIGHTS-2005-2011

Rs. in Billion FY200 5 FY200 6 FY200 7 FY200 8 FY200 9 FY201 0 FY201 1

Deposits

3670.48

3800.46

4355.21

5374.05

7420.73

8041.16

9339.33

Advances

2023.74

2618.01

3373.36

4168.95

5425.03

6319.14

7567.19

Investments

1970.98

1625.34

1491.49

1895.01

2759.54

2957.85

2956.01

Total Assets

4598.83

4940.29

5665.65

7215.26

9644.32

10534.13

12237.36

Interest Income

324.28

359.80

394.91

489.50

637.88

709.94

813.94

Interest Expenses

184.83

203.90

234.37

319.29

429.15

473.22

488.68

Net Interest
139.45 155.89 160.54 170.21 208.73 236.71 325.26

Income

Non-Interest
71.20 74.35 57.69 86.95 126.91 149.68 158.25

Income

Total Operating
210.65 230.24 218.23 257.16 335.64 386.40 483.61

Income

Staff Expense

69.07

81.23

79.33

77.86

97.47

127.55

144.80

Overhead
31.67 36.02 38.91 48.23 59.01 75.64 85.35

Expenses

Total Operating
100.74 117.25 118.24 126.09 156.49 203.18 230.15

Expenses

Operating Profit

109.91

112.99

100.00

131.07

179.15

183.20

253.36

Total Provisions

66.86

68.93

54.59

63.78

87.94

91.55

170.71

Net Profit

43.05

44.07

45.41

67.29

91.21

91.66

82.65

STATE BANK OF INDIA

KEY FINANCIAL INDICATORS (%) ROA ROE EPS(Rs.) BVS(Rs.) Dividend Payout Ratio Cost/Income Ratio Capital Adequacy Ratio (Basel I) (Basel II) Cost of Deposits Yield on Advances Yield on Resources Deployed Net Interest Margin Gross NPA Ratio Net NPA Ratio Provision Coverage (Excl AUCA) Including AUCA 56.98 59.23 59.23 64.95 5.96 2.65 57 3.61 1.88 49 2.92 1.56 47 3.04 1.78 42.17 2.86 1.79 38.42 3.05 1.72 44.36 3.28 1.63 51.25 3.39 3.40 3.31 3.07 2.93 2.66 3.32 7.94 7.10 6.88 6.92 7.10 6.52 7.02 5.11 7.68 4.77 7.78 4.79 8.67 5.59 9.90 6.30 10.15 5.80 9.66 5.26 9.56 12.45 11.88 12.34 13.54 12.97 14.25 12.00 13.39 10.69 11.98 47.83 58.70 54.18 49.03 46.62 52.59 47.60 0.99 18.10 81.79 450 15.29 0.89 15.47 83.73 525 16.72 0.84 14.24 86.29 606 16.22 1.01 17.82 126.62 598 20.18 1.04 15.07 143.77 953 20.19 0.88 14.84 144.37 973 20.78 0.71 12.84 130.16 1014 23.05 FY2005 FY2006 FY2007 FY 2008 FY 2009 FY 2010 FY2011

SUMMARY OF STATE BANK OF INDIAS BALANCE SHEET

(Rs. in billion) CAPITAL & LIABILITIES Capital Reserves & Surplus Deposits Borrowings Other Liabilities & Provisions Total ASSETS Cash & balances with Reserve Bank of India Balances with banks and money at call & short notice Investments 1970.98 Advances Fixed 2023.74 26.98 1625.34 2618.01 27.53 1491.49 3373.36 28.19 1895.01 4167.68 33.73 2759.54 5425.03 38.38 2957.85 6319.14 44.13 2956.01 7567.19 47.65 225.12 229.07 228.92 159.32 488.58 348.93 284.79 168.10 216.53 290.76 515.35 555.46 612.91 943.95 4598.83 4940.29 5665.65 7215.26 9644.32 10534.14 12237.36 3670.48 191.84 495.79 3800.46 306.41 556.98 4355.21 397.03 600.42 5374.04 517.27 833.62 7420.73 537.14 1106.97 8041.16 1030.12 803.37 9339.33 1195.69 1052.48 5.26 235.46 5.26 271.18 5.26 307.72 6.31 484.01 6.35 573.13 6.35 653.14 6.35 643.51 MARCH 2005 MARCH 2006 MARCH 2007 MARCH 2008 MARCH 2009 MARCH 2010 MARCH 2011

Assets Other Assets Total Contingent Liabilities Bills for Collection 167.77 205.93 233.68 189.47 438.70 479.22 599.05 4598.83 1593.97 4940.29 2288.51 5665.65 3065.90 7215.26 8107.96 9644.32 7237 10534.14 5484.46 12237.35 7304.85 183.91 223.81 252.92 444.17 377.33 351.13 437.78

1 State Bank of India January 2011

Investment Summary State Bank of India (SBI) has history of more than 200 years of existence. SBI is the largest commercial bank in india and accounts for approximately 18% of the total Indian banking business and the group account for 25% of the total Indian banking business.

Janarth-Aurangabad
Consolidated Balance Sheet for the year ending 31st March 2011
Pervious year 31/03/2010 Liabilities SCH Current year 31/03/2011 Previous year 31/03/2010 Assets SCH Current year 31/03/2011

8,592,386

Funds Earmarked Funds Loans

2,858,826

2,992,948

Fixed Assets Immovable Properties Movable Properties

VI

2,959,971

3,398,232 II III 7,421,974 895,525 6,164,361

3,317,196

9,998,319 895,525

Secured Loans Unsecured Loans

Investments

VII

6,664,361

65,445,962

Current Assets, Loans & Advances

VIII

62,494,268

35,239,150

Current Liabilities

IV

32,822,089 300,000 Capital contribution to JAP 300,000

24,445,190

Income & Expenditure A/c

32,508,984

1,159,070

Misc.Expenses ( New MSEB Connection)

1,071,601

300,000

Capital Contribution from Admin Total

300,000

79,470,570

76,807,397

79,470,570

Total

76,807,397

 The central bank, Reserve Bank of India (RBI) is the largest shareholder in the bank with 59.7% stake followed by overseas investors including GDRs with 19.78% shareholding as on September 06. RBIs stake in the bank is likely to be transferred to the Government of India (GOI). SBI has the largest distribution network in India spread across every nook and include 4,775 branches of its associated banks. The bank also has the largest network of 5,624 ATMs. Since the last ? Ve years the bank has showed continued growth in its core business. The total asset size of the bank reported a CAGR of 9.4% during the period FY01-FY06 and stood at Rs.4,938.69bn as of September 2006. In HIFY07, the bank reported net interest income (NII) of Rs.182.14bn, representing a growth of 2.74% over HIFY06 while the bank reported a net pro?t of Rs.19.8bn, registering a decline of 18.67% during the same period. Credit off take of the bank has been lower than the Indian banking industry during the past few years. The total credit book of the bank grew at a CAGR of 18.2% over the last? Ve years and stood at Rs.2,832.68bn at the end of September 2006. The industry growth during the same period was around 28%.

 The banks asset quality has improved over the pas few years. Gross NPL to gross loans stood at 3.57% as of Sep-end 2006 while net NPLs stood at 1.67%. The bank has provided for 54.06% of its NPLs as on Sep-end 2006, which is below the industry average of around 68%.

Reuters Code:

SBI.BO

Listing:
Bombay Stock Exchange National Stock Exchange London Stock Exchange Ahmedabad Stock Exchange Kolkata Stock Exchange Chennai Stock Exchange

Current Price:
Rs 1,955(Sep 23,2011)

State B
Total deposits of the bank grew at a CAGR of 9.4% over the last five year to reach Rs.3, 800.5bn, with low cost deposits registering an impressive CAGR of 15.4% during the same period. Contribution of low cost deposit during the period too has moved up sharply from 36.3% in FY01 TO OVER 47.6% in FY06. However, current and saving account (CASA) contribution in H1FY07 has declined to 43.65%, thereby significantly increasing cost of funds and hence margin contribution. On a sequential basis, margins of the bank declined by 8bps to 3.32% The capital adequacy ratio of the bank stood at 12.63% (Tier-I of 8.74% and Tier-II of 3.89%) at the end of HIFY07. To augment its CAR to provide a stable platform for further growth, the bank plans to raise up to Rs.100bn as subordinate debt during the next few months. The bank also has a cushion to raise further Rs.40bn in the form of Hybrid Tier 1 capital. SBI has been a net seller in the bond market and is using its excess investments to fund its loan growth. As on September 2006, investment book size of the bank stood at Rs.1, 470bn which declined from Rs.1.650bn as of March 2006. Of the total book size, Rs.1, 020bn is in Held to Maturity (HTM). Of the Available for sale (AFS) book, the duration of the portfolio

of less than two years has been maintained, with mark-to market cushion up to 8.12%.

SBI is the market leader in the Indian banking space. At the CMP, stock trades at 14.5 xs and 12.1 xs of its earnings for FY07E and FY08E respectively and 3.3 xs and 2.96x of its adjusted book value. We have valued SBI on a sum-of-the-parts methodology to capture the true value of the associate banks and non-banking businesses. SBI has seven associates banks and comprised a significant portion of the book value. Similarly, other businesses of the bank are growing significantly faster than the core banking business and will make an increasing part of the market value.

We initiate our coverage of SBI with a Hold rating and value the banks share at an intrinsic value of Rs.1, 209 based on the sum-of-the-parts valuation methodology. Though the bank is the proxy for Indian economic growth, the

State Bank of India Background

State bank of India is the largest and one of the oldest commercial bank in India, in existence for more than 200 years. The bank provides a full range of corporate, commercial and retail banking services in India. Indian central bank namely Reserve Bank of India (RBI) is the major share holder of the bank with 59.7% stake. The bank is capitalized to the extent of Rs.646bn with the public holding (other than promoters) at 40.3% SBI has the largest branch and ATM network spread across every corner of India. The bank has a branch network it also has a network of 73 overseas offices in 30 countries in all time zones, correspondent relationship with 520 International banks in 123 countries. In recent past, SBI has acquired banks in Mauritius, Kenya and Indonesia. The bank had total staff strength of 198,774 as on 31st march 2006. Of this, 29.51% are officers, 45.19% clerical staff and the remaining 25.30% were sub-staff. The bank is listed on the Bombay Stock Exchange, National Stock Exchange, London Stock Exchange, Ahmadabad Stock Exchange, Kolkata Stock Exchange and Chennai Stock Exchange while its GDRs are listed on the London Stock Exchange. SBI group account for around 25% of the total business of the banking industry while it account for 35% of the total foreign exchange in India. With this type of strong base, SBI has displayed a continued performance in the last few years in scaling up its efficiency levels. Net Interest Income of the bank has witnessed a CAGR of 13.3% during the last five years. During the same period, net interest margin (NIM) of the bank has gone up from as low as 2.9% in FY02 to 3.40% in FY06 and currently is at 3.32%.

Management
The bank has 14 directors on the board and is responsible for the management of the banks business. The board in addition to monitoring corporate performance also carries out functions such as approving the business plan, reviewing and approving the annual budgets and borrowing limits and fixing exposure limits. Mr. O.P. Bhatt is the Chairman of the bank. The five-year term of Mr. Bhatt will expire in March 2011. Prior to this appointment, Mr. Bhatt was Managing Director at State Bank of Travancore. Mr. Bhatt has more than 30 years of experience in the Indian banking industry and is seen as futuristic leader in his approach towards technology and customer service. Mr. Bhatt has had the best of foreign exposure in SBI. We believe that the appointment of Mr. Bhatt would be a key to SBIs future growth momentum. Mr. T S Bhattacharya is the managing Director of the bank and known for his vast experience in the banking industry. Recently, the senior

management of the bank has been broadened considerably. The positions of CFO and the head of treasury have been segregated, and new business banking has been appointed. The managements thrust on growth of the bank in terms of network and size would also ensure encouraging prospects in time to come.

Shareholding & liquidity

Reserve Bank of India is the largest shareholder in the bank with 59.7% stake followed by overseas investors including GDRs with 19.78% stake as on September 06. Indian financial institutions held 12.3% while Indian public held just 8.2% of the stock. RBI is the monetary authority and having majority shareholding reflects conflict of interest. Now the government is rectifying the above error by transferring RBIs holding to itself. Post this, SBI will have further headroom its CAR and Tier I ratio. As of Sep 2006, SBI has 526.3mn shares outstanding and going by the actual trading volume, the stocks liquidity seems to have decreased in the past two years. In the first half of FY2007, 93mn shares exchanged hands. The daily share turnover during the year 2006 was 0.22% down from 0.39% witnessed in 2005. But the sentiment in the stock market improved in the first six months of the current fiscal with the bank clocking further gains. As of January 12, 2007 banks market capitalization stood at Rs.643.6bn.

Table 2: Liquidity of SBIs stock

Mar-2004 Volume of shares traded (000) Shares turnoverDaily Averages (%) Value traded (Rs.mn) No. of transactions Market capitalization (Rs.mn) 84,530 176,718 243,443 375,765 264,155 243,817 244,999 79,550 0.39% 0.34% 0.22% 0.14% 502,840 Mar-2005 457,731 Mar-2006 295,303 Mar-2007 92,528

3,832,948

4,223,574

3,168,107

1,570,410

Key Areas of operations

The business operation of SBI can be broadly classified into the key income generating areas such as National Banking, International Banking, Corporate Banking & Treasury operations. The functioning of some of the key divisions is enumerated below:

a) Corporate banking
The corporate banking segment of the bank has total business of around Rs.1, 193bn. SBI has created various strategic Business Units (SBU) in order to streamline its operation. These SBUs are as follows:

a.1) Corporate

Accounts

This SBU is important for the bank as its loan port folio constituted about 27.05% of the banks commercial and institutional non-food credit and 12.85% of the total domestic credit port folio as on 31st March 2006.

Some of the products under corporate accounts SBU are as follows:

SBI-FAST, which is the cash management product offered by this SBU, had a turnover of Rs.4, 705.75bn as of 31st March 2006. This product is now a comprehensive cash management solution, offering payments in addition to collection. Vendor financing activity is being integrated with core banking through the internet platform. This is identified as a focus are to capture the credit port folio vendors.

SBI: Charging Ahead

SBI dominates the Indian banking sector with a market share of around 20% in terms of total banking sector deposits. The increasing focus on upgrading the technology back-bone of the bank will enable it to leverage its reach better, Improve service levels, provide new delivery platforms, and improve operating efficiency to counter the threat of competition effectively. Once the core banking solution (CBS) is fully implemented, it will cover over 10,000 branches and ATMs of the State Bank group, and emerge as the strongest technology enabled distribution network in India. The increasing integration of SBI with its associate banks (associates) and subsidiaries will further strengthen its dominant position in the banking sector and position it as the countrys largest universal bank.

Resource-raising capabilities
SBIs funding profile is strong, underpinned by its strong retail deposit base. The bank is facing increasing competition in its metropolitan and urban franchise. SBIs strong franchise gives it access to a steady source of stable retail funds, which constitute around 59% of the total recourses as on March 31, 2005 (56% as at March 31, 2004). Saving deposits have shown a strong three-year growth of 19%. Thus, despites a reduction in the proportion of current account deposits, low-cost deposits have continued to constitute over 40% of total deposits as at March 31, 2005. The banks cost of deposits (excluding IMD) has significantly reduced to 4.70% for the 2004-05 (refers to financial year from April 1 to March 31), compared with 5.48%

in 2003-04. The banks liquidity position is very strong due to healthy accretion to deposits, large limits in the call market, and significant surplus SLR investment. SBI will maintain its strong funding profile and a low cost resource position in view of its strong retail base and wide geographical reach.

Management strategies
In retail finance, the bank has leveraged its corporate relationships, pursued business growth selectively, and has not completed based on interest rate. The bank has taken initiatives like on-line tax returns filing and faster transfer of funds to protect its dominant position in the government business. The bank also has a clear technology strategy that will enable it to compete with the new generation private sector banks in customer service and operational efficiency.

Business description
SBI along with its associate banks offer a wide range of banking products and services across its different client markets. The bank has entered the market of term lending to corporate and infrastructure financing, traditionally the domain of the financial institutions. It has increased its thrust in retail assets in the last two years, and has built a strong market position in housing loans. SBI, through its non-banking subsidiaries, offers a host of financial services, viz., merchant banking, fund management, factoring, primary dealership, broking, investment banking and credit cards. SBI has commenced its life insurance business by setting up a subsidiary, SBI Life Insurance Company Limited, which is a joint venture with Cardiff S.A., one of the largest insurance companies in france. SBI currently holds 74% equity in the joint venture.

Industry prospects
To leverage benefits such as access to low cost resources and the facility to provide a large gamut of services, a number of finance companies such as Kotak Mahindra Finance Limited and HDFC Limited have promoted banks. Simultaneously, yet another emerging trend is that of foreign banks promoting NBFCs to benefits from regulatory flexibility available to such entities in areas like absence of statutory liquidity ratio and cash reserve ratio requirements, priority sector requirements, and corporate exposure limits.

Case Study: State Bank of India, World's Largest Centralized Core Processing Implementation
TowerGroup Take-Aways
The State Bank of India (SBI), the largest and oldest bank in India, had computerized its branches in the 1990s, but it was losing market share to privatesector banks that had implemented more modern centralized core processing systems. To remain competitive with its private-sector counterparts, in 2002, SBI began the largest implementation of a centralized core system ever undertaken in the banking industry. The State Bank of India selected Tata Consultancy Services to customize the software, implement the new core system, and provide ongoing operational support for its centralized information technology. Although SBI initially planned to convert only 3,300 of its branches, it was so successful that it expanded the project to include all of the more than 14,600 SBI and affiliate bank branches. The State Bank of India has achieved its goal of offering its full range of products and services to all its branches and customers, spreading economic growth to rural areas and providing financial inclusion for all of India's citizens.

Report Coverage
The implementation of the Tata Consultancy Services (TCS) BaNCS Core Banking at the State Bank of India (SBI) and its affiliate banks represents the largest centralized core system implementaion ever undertaken. The overall effort included the conversion of approximately 140 million accounts held at 14,600 domestic branches of SBI and its affiliate banks. This TowerGroup Research Note is a case study that overviews the history of the State Bank of India and details the effort to modernize the bank's core processing systems. It also identifies the drivers to modernization, the critical success factors, and the conversion methodology. For a broader overview of the Indian core systems market, see TowerGroup Research Note V47:13R, Looking for State-of-the-Art Core Banking? Try India.

Background
The State Bank of India is the oldest and largest bank in India, with more than $250 billion (USD) in assets. It is the second-largest bank in the world in number of branches; it opened its 10,000th branch in 2008. The bank has 84 international branches located in 32 countries and approximately 8,500 ATMs. Additionally, SBI has controlling or complete interest in a number of affiliate banks, resulting in the availability of banking services at more than 14,600 branches and nearly 10,000 ATMs.

SBI traces its heritage to the 1806 formation of the Bank of Calcutta. The bank was renamed the Bank of Bengal in 1809 and operated as one of the three premier "presidency" banks (the presidency banks had the exclusive rights to manage and

circulate currency and were provided capital to establish branch networks). In 1921, the government consolidated the three presidency banks into the Imperial Bank of India. The Imperial Bank of India continued until 1955, when India's The State Bank of India (SBI), the largest and oldest bank in India, had computerized its branches in the 1990s, but it was losing market share to privatesector banks that had implemented more modern centralized core processing systems. To remain competitive with its private-sector counterparts, in 2002, SBI began the largest implementation of a centralized core system ever undertaken in the banking industry. The State Bank of India selected Tata Consultancy Services to customize the software, implement the new core system, and provide ongoing operational support for its centralized

Information Technology.
Although SBI initially planned to convert only 3,300 of its branches, it was so successful that it expanded the project to include all of the more than 14,600 SBI and affiliate bank branches. The State Bank of India has achieved its goal of offering its full range of products and services to all its branches and customers, spreading economic growth to rural areas and providing financial inclusion for all of India's citizens.

Central bank, the Reserve Bank of India, acquired the majority interest in the bank and changed its name to the State Bank of India (SBI). In 1959, the Indian government passed the State Bank of India Act, resulting in the acquisition (majority shareholding) of eight state-affiliated banks and the creation of the State Bank of India Group (SBI Group). The SBI itself is now majority owned by the Indian government, which purchased the shares held by the Reserve Bank of India. The State Bank of India and its affiliate banks are profiled in Exhibit 1.

Unlike private-sector banks, SBI has a dual role of earning a profit and expanding banking services to the population throughout India. Therefore, the bank built an extensive branch network in India that included many branches in low-income rural areas that were unprofitable to the bank. Nonetheless, the branches in these rural areas bought banking services to tens of millions of Indians who otherwise would have lacked access to financial services. This tradition of "banking

inclusion" recently led India's Finance Minister P. Chidambaram to comment, "The State Bank of India is owned by the people of India."

A lack of reliable communications and power (particularly in rural areas) hindered the implementation of computerization at Indian banks throughout the 1970s and 1980s. During this period, account information was typically maintained at the local branches with either semi automated or manual ledger card processing. During the 1990s, the Indian economy began a period of rapid growth as the country's low labor costs, intellectual capital, and improving telecommunications technology allowed India to offer its commercial services on a global basis.

This growth was also aided by the government's decision to allow the creation of private-sector banks (they had been nationalized in the 1960s). The private-sector banks, such as ICICI Bank and HDFC Bank, altered the banking landscape in India. They implemented modern centralized core banking systems and electronic delivery channels that allowed them to introduce new products and provide greater convenience to customers. As a result, the private-sector banks attracted middleand upper-class customers at the expense of the public-sector banks. Additionally, foreign banks such as Standard Chartered Bank and Citigroup used their advanced automation capabilities to gain market share in the corporate and high-net-worth markets.

State Bank of India Core Systems Modernization

SBI had undertaken a massive computerization effort in the 1990s to automate all of its branches, implementing a highly customized version of Kindle Banking Systems' Bank master core banking system (now owned by Misys). However, because of the bank's historic use of local processing and the lack of reliable telecommunications in some areas, it deployed a distributed system with operations located at each branch. Although the computerization improved the efficiency and accuracy of the branches, the local implementation restricted customers' use to their local branches and inhibited the introduction of new banking products and centralization of operations functions. The local implementation prevented the bank from easily gaining a single view of corporate accounts, and management lacked readily available information needed for decision making and strategic planning.

The advantages in products and efficiency of the private-sector banks became increasing evident in the late 1990s as SBI (and India's other public-sector banks) lost existing customers and could not attract the rapidly growing middle market in India. In fact, this technology-savvy market segment viewed the public-sector banks as technology laggards that could not meet their banking needs. As a result, the Indian government sought to have the public-sector banks modernize their core banking systems. In response to the competitive threats and entreaties from the government, SBI engaged KPMG Peat Marwick (KPMG) in 2000 to develop a technology strategy and a modernization road map for the bank.

In 2002, bank management approved the KPMG-recommended strategy for a new IT environment that included the implementation of a new centralized core banking system. This effort would encompass the largest 3,300 branches of the bank that were located in city and suburban areas. The State Bank of India's objectives for its project to modernize core systems included: The delivery of new product capabilities to all customers, including those in rural areas The unification of processes across the bank to realize operational efficiencies and improve

customer service Provision of a single customer view of all accounts The ability to merge the affiliate banks into SBI Support for all SBI existing products Reduced customer wait times in branches

Challenges for the bank

The bank faced several extraordinary challenges in implementing a centralized core processing system. These challenges included finding a new core system that could process approximately 75 million accounts daily- a number greater than any bank in the world was processing on a centralized basis. Moreover, the bank lacked experience in implementing centralized system, and its large employee base took great pride in executing complex transactions on local in branch systems. This practice led some people to doubt that the employees would effectively use the new. System another challenge was meeting SBIs unique product requirements that would require the bank to make extensive modifications to a new core banking system. The products include gold deposits (by weight), saving accounts with overdraft privileges, and an extraordinary number of passbook savings accounts.

Vendor consortium selection

Recognizing the need for large-scale centralized systems expertise, SBI sought proposals from a number of vendor consortiums that were headed by the leading systems integrators. From these proposals, the bank narrowed down the potential solutions to vendor consortiums led by IBM and TCS. The TCS group included Hewlett-Packard, Australia-based Financial Network Service. Although SBI favored the real-time processing architecture of FNSs BANCS system over that of the IBM consortiums memo post/batch update architecture, the bank had several concern about the TCS consortium proposal. They included the small size and relatively weak financial strength of FNS (TCS would eventually purchase FNS in 2005) and the ability of the UNIX-based system to meet the scalability requirements of the bank. Therefore, it was agreed that TCS would be responsible for the required systems modifications and ongoing software maintenance for SBI. Additionally, scalability tests were performed at HPs lab in Germany to verify that the system was capable of meeting the banks scalability requirements. These tests demonstrated the capability of TCS BANCS to support the processing requirements of 75 million accounts and 19 million daily transactions.

Tata Consultancy Services and TCS BaNCs

Tata Consultancy Services, headquartered in Mumbai, India, is one of the worlds largest technology companies with particular expertise in systems integration and business process outsourcing. The company has more than 130,000 employees located in 42 countries and achieved revenues of $5.7 billion in fiscal 2008. Although TCS has long been a leader in core systems integration services for banks, after it purchased FNS in 2005, the company also became a leading global provider of core banking software for large banks. The BaNCS system is based on service-oriented architecture (SOA) and is platform and database independent. In addition to SBI, TCS BaNCS clients include the Bank of China (installation in process), China Trust, Bank Negara Indonesia, Indias Bank Maharashtra, National Commercial Bank (Saudi Arabia), and Koram Bank (Korea). TCS has also expanded its US footprint with the opening of its largest resource delivery center in North America (near Cincinnati, Ohio) that can house 20,000 personnel. The company is seeking to license and implement the BaNCS system in North America and recently completed a major part of an effort to ensure that the BaNCS system meets US regulatory and compliance requirements.

Initial SBI Core Systems Modernization project

The contract for the initial project was completed in May 2002; 3,300 branches were to be converted by mid-2007. TCS immediately began a six-month gap analysis effort to determine the required software changes to the BaNCS system. The changes included installing required interfaces with more than 50 other systems as well as making enhancements to support the banks product requirements. These product requirements were separated by customer segment to allow the vendor and bank to begin conversions before all the needed changes that would allow branches with high-net-worth individuals and then corporate account to be converted as soon as possible. Before the first conversion in August 2003, TCS and HP created the data processing environment for SBI. The primary data center was established on the outskirts of Mumbai and a backup center was established approximately 1,000 miles to the east in Chennai. The centers were equipped with HP superdome severs and XP storage systems in a failover configuration utilizing HPs UNIX operating platform. Initial Conversion Project The conversion effort began in August 2003, when SBI converted three pilot branches was followed by the conversion of 350 retail branches with high-networth customers between August 2003 and September 2004. At this point, the bank intentionally halted the conversions to analyzed, categorized and prioritized these problems by type of resolutions (e.g., software, procedural, training) and severity. TCS managed software revisions for the critical software changes while the branch personnel manage the needed training and procedural changes. After the software and procedural changes were implemented, SBI converted an additional 800 branches between December 2004 and March 2005. Unlike in the previous conversions, this group of branches included predominantly commercially oriented

offices. The conversion efforts then refocused on retail branches until November 2005, when the bank paused again to resolve problems that came up during this second group of conversions. After the second round of changes, the system and processes were functioning smoothly, and management believed the branch conversion could be accelerated. An assembly line approach was then employed in April 2006 to speed the branch conversion process. Branch personal were responsible for data scrubbing and cleaning of their customer information on the existing system. Branches were notified three months prior to their conversion date to begin mock, or test, conversions using a specially created test version of the BaNCS system.

Branches performed several test conversions to ensure the actual conversion went smoothly. As the new core banking system was rolled out across the SBI branches nationwide, a special process was introduced in the nightly batch window to add the new branches. The process increased batch processing time approximately 20 minutes and typically included adding branches in groups of 50. This additional process, of course, was unnecessary upon completion of the rollout and has since been removed from the nightly batch window. TCS and local area branch managers oversaw the conversion, and the banks circle (regional) heads formally reported the status to the chairmans office. By employing the assembly line approach for branch conversion, SBI was able to convert 1,200 branches in April and May 2006, completing the initial 3,300

branches conversion two months ahead of the original schedule. The milestones for the initial core systems implementation.

As the rollout plans for State Bank of India were being finalized, the bank decided to extend the scope of the core banking implementation to include its (then) eight affiliate banks. TCS created a separate processing environment within the Mumbai data center used to support SBI. The conversion effort for each of the affiliate banks spanned 18 to 24 month; the first six months were used for planning, training and establishing the processing environment for the banks. The branch conversion overlapped among the banks, allowing all the affiliate banks to be converted in 30 months. The project was begun in July 2003 for the State Bank of Patiala and in 2004 for the other affiliate banks. All of the affiliate bank branches were converted to the BaNCS system by the end of 2005, as reflected n Exhibit2.

State Bank of India Full Branch Conversion

The success of the initial 3,300-branch conversion for SBI demonstrated that: TCS had the technical capabilities to support the banks IT initiative and scale of operations. Bank personnel had the skills to adopt new processes and support the conversions.

The Indian customer base would react to new technology by adopting new electronic services and demanding new, more sophisticated banking products. An assembly line approach could be used effectively to support large-scale branch conversions.

COMPANY BACKGROUND
Industry Name House Name Year Of Incorporation Refd. Office Address District State Pin Code Tel. No. Fax. No. Email : investor.complaints@sbi.co.in Auditors- B M Chatrath & Co. Name Address Datamatrics Financial Software & Services Ltd. Plot No.B5, MIDC, Part B Cross Lane, Marol, Andheri (E), State Bank Bhavan, Central Office, Mumbai Maharashtra 400021 022-22883888,22022678 022-22855348 Internet: http://www.sbi.co.in Finance Banks Public Sector SBI Group 1955

Mumbai-400093, Maharashtra Tel. No.:28213383 - 90

BOARD OF DRECTORS

Name Pratip Chaudhuri A Krishna Kumar Ashok Jhunjhunwala S Venkatachalam G D NaDaf Parthasarthy lyengar Subir Vithal Gokran Hemant G Contractor Diwakar Gupta Dileep C Choksi D Sundaram Rashpal Malhotra D K Mittal

Designation Chairman / Chair Person Managing Director Director Director Director Director Director Managing Director Managing Director Director Director Non Official Part Time Director Director

FUNCTIONS
The State Bank of India acts as an agent of the Reserve Bank of India and performs the following functions:

1) Borrows money:- The bank borrows money from the public by accepting deposits such as current account deposits, fixed deposits and savings deposits.

2) Lends money:- It lends money to merchants and manufacturers for short period. It also lends to farmers and co-operative institutions. It lends mostly on the security of easily realizable commodities like rice, wheat, cotton, oilseeds, cloth, gold and government securities. The bank can lend against agriculture bills up to a maximum period of fifteen months and incase of other bills up to a maximum period of six months.

3) Bankers Bank:- The State Bank of India acts as the bankers bank. In discharging this responsibility, the bank provides loans to commercial bank when required and also rediscount their bill. It also acts as the clearing house of the commercial bank. 4) Governments Bank:- The State Bank of India also acts as the agent of the Reserve Bank of India. As an agent, the State Bank of India maintains the treasuries of the State Government. The Bank also manages the debts floated by the State Governments.

5) Remittance:- The State Bank of India facilitates remittance of money from one place to another. It also helps in the transfer on the funds of the State and Central Government.

6) Function as Central Bank:- The State Bank of India performs the functions of a Central Bank.

7) Subsidiary functions:- The State Bank performs various subsidiary services also. It collects checks, drafts, bill of exchange, dividends interest, salaries and pensions on behalf of its customers. It purchases and sells securities in behalf of its customers. It receives valuables and documents for safe custody and maintains safe deposit vaults.

The Bank has become the First public sector bank to offer fixed-rate home loans.

The State Bank of India has tied up with State Bank of Mysore to launch cobranched credit cards as part its strategy to collaborate with associate banks to expand its cardholder base.

Central Depository Services (India) Ltd has signed an agreement with State Bank of India as its Depository participant.

State Bank of India and the Exim Bank of the US have signed a memorandum of Understanding, involving 0 million, to support the small and

Medium-sized Indian companies to purchase US goods and services. Mr. Suresh Kumar Mehra, Workmen Directors, ceased to be a member of the Central Board of the bank effect from October 1, due to his retirement at the close of the business on September 30.

BIBLIOGRAPHY SITES
www.rbi.org.in www.indiainfoline.com www.sbi.com www.wikipedia.com

CONSLUSION
SBIS achievement demonstrates that attention to critical factors is crucial in implementing new core systems. The banks senior management commitment business line involvement, project team staffing and empowerment, and extensive employee training were all key contributors to the success of the project. Management also recognized the need for a proven systems integrator that processed in-depth expertise in both business and technology. Core systems modernization has allowed the State Bank of India to centralize computer processing and operations functions, offer new banking products to all the citizens of India, reverse a trend of customer attrition, and consolidate its affiliate banks. Additionally, the bank can now future expand its product offerings and improve customer service.