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State Bank of India

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Business strategy

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IBS Pune

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Contents
Definition of bank ............................................................................................................................ 3
Changing strategies of banks ........................................................................................................... 3
Strategic Evolution of SBI ................................................................................................................. 4
Shifting relationships in India - the state and the economy ............................................................ 5
Mission statement: .......................................................................................................................... 5
Vision: .............................................................................................................................................. 6
Values:.............................................................................................................................................. 6
Overview of various Avatars of SBI .................................................................................................. 6
Key Areas of Operations .................................................................................................................. 8
Awards and recognition ................................................................................................................... 9
Generic strategies adopted by State Bank of India: ........................................................................ 9
Centralization and Decentralization .............................................................................................. 10
The Restructuring........................................................................................................................... 11
New Products and Services ............................................................................................................ 11
Alliances and Tie-Ups ..................................................................................................................... 12
Auto.Finance .................................................................................................................................. 12
The Marketing Initiatives ............................................................................................................... 12
Looking Ahead-Result: ................................................................................................................... 13
SBI`s Strategies in the current scenario ......................................................................................... 15
SWOT analysis: ............................................................................................................................... 17
BCG theory: cash cow .................................................................................................................... 21
Conclusion: ..................................................................................................................................... 22
Bibliography ................................................................................................................................... 23
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Definition of bank

According to Oxford English Dictionary, Bank is, ―An establishment for custody of
money received from or on behalf of, its customers. Its essential duty is the payment of
the orders given on it by the customers, its profit mainly from the investment of money
left unused by them‖.
Banking Regulation Act, 1949 (Sec. 5(c)), has defined the banking company as,
―Banking Company means any company which transacts business of banking in India‖.
According to Section 5B, ―banking means the accepting of deposit of money from the
public for the purpose of leading or investment, which are repayable on demand or
otherwise and are withdraw able by cheque, draft, and order or otherwise.‖

Changing strategies of banks


1991 2015

Maintaining profitability Service quality


Credit Portfolio Management Maintaining profitability
Service Quality Market / customer focus
Regional Economy Operations/systems/technology
Cost Management / Expense Credit portfolio management
reduction Productivity improvement
Declining Earnings/ more Investment to stay competitive
failures
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Strategic Evolution of SBI


By Aditya Ahluwalia

Strategy can be defined as the periodic changes a business must introduce to its structure
and operations in order to ensure continuity in the face of environmental changes. The
strategic evolution of a business can thus be understood in terms of major social
institutions such as the State, the market, community or civil society and their
interrelationships that may have a bearing on its working and thereby the achievement of
the principle objectives of its establishment.
Historians recognize moments of profound change when the balance of power or
influence shifts between these institutions. The SBI is a dynamic organization and has
been continuously changing its form to adapt to its environment. Here, we have examined
its vicissitudinal nature with respect to three key environmental factors:

Ownership and governance


Business processes
Structures and systems

On the basis of the following, the evolution of the Indian economy can be divided in the
following phases (corresponding strategic turning points in SBI‘s evolution are
mentioned in bold):
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Shifting relationships in India - the state and the economy


By Nikita Gupta

Mission statement:
To retain the banks position as the premier Indian financial services. It also aims to be a
group with world class standards and significant global business commitments to
excellence in customer, shareholder and employee satisfaction so as to play a leading role
in expanding and diversifying financial services while continuing emphasis on its
development banking role.
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Vision:
To be a premier Indian financial services group with global perspective, world class
standard of the efficiency and professionalism and also its core institutional values, To
retain its position in the country as a pioneer in developing countries, It also aims to
maximize its shareholders value through high sustained earnings per share, To become an
institution with a culture of mutual care and commitment. It also focuses on a pleasant
working environment to have continuous learning opportunities.

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

Overview of various Avatars of SBI


With the view of adapting to the extra-institutional changes mentioned above and
maintaining continuity, SBI has continuously rechristened itself. Following is a list of
major strategic changes introduced at the bank. These have been dealt with in detail in
successive paragraphs.
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The State Bank of India is a govt. sector bank. The evolution of State Bank of India can
be traced back to the first decade of the 19th century. It began with the establishment of
the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank
of Bengal, three years later, on 2 January 1809. It was the first ever joint-stock bank of
the British India, established under the sponsorship of the Government of Bengal.
Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of
Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks
dominated the modern banking scenario in India, until when they were amalgamated to
form the Imperial Bank of India, on 27 January 1921.
In order to serve the economy as a whole and rural sector in particular, the All India
Rural Credit Survey Committee recommended the formation of a state-partnered and
state-sponsored bank. Hence the committee proposed the takeover of the Imperial Bank
of India, and integrating with it, the former state-owned or state-associate banks.
Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the
State Bank of India (SBI) was established on 1 July 1955. Later on, the State Bank of
India (Subsidiary Banks) Act was passed in 1959.
The State Bank of India emerged as a pace-setter, with its operations carried out by the
480 offices comprising branches, sub offices and three Local Head Offices, inherited
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from the Imperial Bank. Instead of serving as mere repositories of the community's
savings and lending to creditworthy parties, the State Bank of India catered to the needs
of the customers, by banking purposefully.

Key Areas of Operations


The business operations of SBI can be broadly classified into the key income generating
areas
Such as National Banking, International Banking, Corporate Banking, & Treasury
operations.
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Awards and recognition

Generic strategies adopted by State Bank of India:


By Namita Bhairaviya

Institution for advanced learning: to provide state of the art training in financial
products to middle level and senior level executives.
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`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 formulation
Overlapping staff training centers: to validate and closely monitor the staff
training centers in seven circles attached to the academy.

Centralization and Decentralization


It 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 forward them to the respective credit processing sale for their
consideration.

Regarding the sanction of loan each officer of the bank considers the loan proposals
and takes a decision in terms of scheme of delegation of powers, on merits of
proposal. If the bank needs to purchase any kind of equipment like computers or
software branch managers are required 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.
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The Restructuring
To overcome the intense competition from private and foreign banks, SBI planned a major
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 was constituted 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,
 simplifying process for employees,
 enhancing SBI's competitiveness in the market,
 increasing the profitability through higher market share and improved process
efficiency

New Products and Services


By Saumya Gupta

Apart from restructuring, SBI launched several innovative, value-added products and
services to project a customer friendly image. It launched a special service for corporate
customers called 'telebanking and remote login' to support transactional requests.
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This facility would be available at 593 branches, and remote login at 269 branches. The
banks trade finance solutions, called EXIMBILLS, were intended to handle trade finance
transactions efficiently and enhance the range of services provided to corporate and
network branches.

In March 2004, SBI announced that it would introduce ‗anywhere banking‘ facility for its
customers over 9000 branches across India in the next two years. All the branches in
Mumbai would provide this facility by December 2004. SBI also launched different
customized loan programs to 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-Ups

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

Auto.Finance

Unlike other competitors that relied on reduced interest rates to get business, SBI
extended the tenure of car loans from five to seven years, thereby lowering the monthly
debt repayment burden of the loan seeker. SBI entered into a tie-up with Maruti, the
largest automobile manufacturer in India, to provide loans for purchase of Maruti cars
at the rate of 10.05 per cent and 11.25 per cent for three years and above three years
respectively. After the scheme was introduced, 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 Initiatives


SBI carried out various marketing initiatives to enhance its reach. They included
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 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 costs and increased customer loyalty.

SBI also introduced various other ways of reaching out to customers 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.

Looking Ahead-Result:
By Yogiraj Potnis

SBI's restructuring exercise and growth strategies resulted in an increase in profits for the
fiscal 2003-04. Net profits stood at Rs 36.81 bn for the fiscal ended 2003-04 as against Rs
31.05 bn the previous fiscal, an increase of 18.55 per cent. Operating profits stood at Rs
95.535 bn compared to Rs 77.754 bn in the fiscal 2002-03.

In spite of SBI's efforts to reduce workforce, staff costs rose by 13.3 per cent, mainly due
to additional contribution to pension fund and provision for leave encashment.

The net NPA level came down from 4.5 per cent in the fiscal 2002-03 to 3.5 per cent in
2003-04. SBI aimed at 2 per cent NPA by 2004-05

Till June 2004, Two thirds of their branches were in rural and semi-urban areas and it
was believed to be a profitable business,
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Among the factors that will help in realizing this full potential were access to institutional
credit to more farmers and appropriate quantity and quality of agriculture credit. Since
the Seventies, the decadal average growth rate of the volume of short-term institutional
credit to agriculture has stagnated at around 15 per cent, while the growth rate of the
volume of long-term credit has in fact declined from 20.2 per cent in the 1970s to11.9 per
cent in 1990s.

The government has anxiously examined the question of agriculture credit and related
issues in consultation with the Reserve Bank of India (RBI), National Bank for
Agriculture and Rural Development (Nabard) and commercial banks.

Among commercial banks, SBI with its vast network is well placed to fulfill the large
commitments of the new government to the farm sector. In the current financial year the
government targeted for a 30 per cent increase in the aggregate agricultural credit over
the previous year.

On interest rate, the rates would remain stable in the short-term. There could be a revision
in interest rates in the medium to long-term period. Further, any likely revision would
depend on external factors than domestic factors.

Elaborating on the importance of the right tie-ups and partnerships for the bank, ―there
are a few non-core business areas where SBI is and wherever we have partners, the global
majors are our partners. For instance, in insurance, Cardiff, and for cards, GE is our
partners. We are becoming a very major player in the Indian economy. For example SBI
Cards — we are the third largest card company and second fastest growing card company
after ICICI. This is the most profitable card company in the country and SBI is doing
very well.

On technological up gradation, all the 13,650 branches of the bank were fully
computerized, also they increased fully integrated ATM network from 4,000 in 2004 to
6000 today across the country. SBI in its own quiet manner is trying to provide world-
class services.
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SBI`s Strategies in the current scenario


By Neha Jha

SBI have set up capacity in places where they are not very strong. Its time for them to
follow overall 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
transparent insurance 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 cutting edge technology and innovative new banking models, to
expand its Rural Banking base, looking at 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 borrowings 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
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8500 of its own 10000 branches and another 5100 branches of its Associate Banks
already networked, today it offers the largest banking network to the Indian
customer. The Bank is also in the process of providing complete payment solution
to its clientele with its over 8500 ATMs, and other electronic channels such as
Internet banking, debit cards, mobile banking, etc.
Country‘s largest lender, State Bank of India (SBI) has prepared a blueprint to go
retail in its international operations. Such strategy would help the bank to
promote its lead in syndication of loans in the overseas market, at a cheaper
cost.The bank‘s overseas operations have been instructed to thrust more on
promoting retail banking locally, SBI is assessing that by opening more branches
across foreign locations and promoting retail services by mobilising 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 upgraded as 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 State
Bank of India (California).
In response to signals from the central bank, SBI have progressively reduced
their PLR from 13.75% 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 at 10%, 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
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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
returns based on the highest NAV recorded by the fund in the first seven years.

SWOT analysis:
By Gurleen Kaur Sethi

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 2008 Forbes Global 2000. With an asset base of $126 billion and its reach,
it is a regional banking behemoth.
 Wide Distribution Network: Excellent penetration in the country with more than
10000 core branches 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 the relationship with existing customer‘s Bank has umbrella of products to
offer their customers, if once customer has relationship with the bank. Some
Products, which SBI Bank is offering are: Retail Banking Business Banking
Merchant Establishment Services (EDC Machine) Personal loans & Car loans
Insurance Housing Loans
 Government Owned: Government owns 60% stake in SBI. This gives SBI an
edge over private banks in terms of customer security.
 Low Transition Costs-SBI offers very low transition costs which attracts small
customers.
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 Continued effort to increase low cost deposit would ensure improvement in NIMs
and hence earnings.

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).
 Modernisation: SBI lags with respect to private players in terms of modernisation
of its processes, infrastructure, centralisation, 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 retail 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.
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 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 activities. This can be repeated in the future.
 Stiff competition, especially in the retail segment, could impact retail growth of
SBI and
Hence slowdown 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.

Porters five forces theory:

1. Threat of competitors:

Top Performing Public Sector Banks


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a. Andhra Bank
b. Allahabad Bank
c. Punjab National Bank
d. Dena Bank
e. Vijaya Bank

Top Performing Private Sector Banks


a. HDFC Bank
b. ICICI Bank
c. AXIS Bank
d. Kotak Mahindra Bank
e. Centurion Bank of Punjab

Top Performing Foreign Banks


a. Citibank
b. Standard Chartered
c. HSBC Bank
d. ABN AMRO Bank
e. American Express

2. Threat of new entrants: there have been many new entrants in banking sector
like yes bank
3. Threat of substitutes: investors as a substitute can always invest into the capital
markets instead of depositing in their capital in the bank.
4. Buying power of suppliers: changing policies and guidelines of RBI, interest
rates, CRR and SLR maintained by the banks as per RBI norms.
5. Buying power of customers: changing scenarios, increasing and decreasing
disposable incomes, other attractive options available to customers.
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BCG theory: cash cow


There is a lot of growth potential for the banking industry because of increasing
disposable income of customers, increasing working class, more volatility in other
markets also increasing importance 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.
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Conclusion:
Banking sector in India has gone through a metamorphosis change in its concept
perception and outlook quantitative expansion with quality has been a phenomenon in the
operations of the banking system bank being a service selling show has to meet the need
of the customers which vary from place to place, time to time and purpose to purpose and
also at the same time it has to sustain the tough competition coming from all the four
ends.

An increase in the income and saving of the urban population has raised hopes for
banking institutions to fill up the gaps by catering to the need of the potential customers
and also penetrate into new target markets like rural sectors through its innovative
financial products like micro finance and SBI is doing the same and this has been proved
by so many awards it has achieved in the recent past, A few of them being most preferred
bank as declared by CNBC in Aug 2007.

State bank of India earlier known as Imperial Bank has proved its existence through
introducing various innovative schemes and that also are considered as competitive in
present market.

In this span of time, they have also come up with new strategies so as to compete in this
fiercely competitive market where every next day a new scheme is introduced so as to
grab the market share.

It follows a centralized system, so as to bring synchronization in the decision making


process which helps the organization to create better strategies so as to focus on the
overall functioning and growth prospects of the bank.

At the same time it can be concluded that they need to focus on the human resources in
order to achieve the maximum market share.
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Bibliography

 www.google.com
 www.scribd.com
 Emkay, a research paper of July 2008
 www.sbi.co.in