Research Paper on State Bank of India-Strategic Issues

Research Proposal on State Bank of India-Strategic Issues

Thesis on State Bank of India

Project Report on State Bank of India-Strategic Management Topic

State Bank of India (SBI), India's largest bank, also had an international presence with 158 offices across 32 countries contributing about 16% of its revenue. By March 2011, SBI had become the largest bank in India with a distribution network totaling 13,542 branches and 20,084 ATMs and having assets worth Rs.12,000 bn. Since mid-2006, under OP Bhatt, SBI had adopted an aggressive strategy to raise its market share to compete against the private banks in India. Though, by 2011, SBI had re-established its position as India's largest bank, there was a drop in profits and its leadership position in India was once again threatened. The challenge before Pratip Chaudhuri, who took up the reins of SBI in April 2011, was how to stem the rot and maintain its market leader position.

Indian Banking Scenario

 

In the pre-structural reform period of the Indian economy, till the 1990s, the banking sector was dominated by public sector banks occupying three-fourths of the total banking industry. Catering to the needs of planned development in a mixed economy framework and huge development expenditures, the public sector banks were weighed down with huge NPAs, falling revenues, lack of modern technology and a massive and highly unionized workforce. Financial sector reforms, dictated by the World Bank-IMF and set in motion in 1991, transformed the Indian banking industry from a regulated environment to a deregulated market economy7 (Refer Exhibit 1 for summary of financial sector reforms). The liberalization and globalization of the Indian economy opened the doors for private sector banks including foreign banks to make their appearance for the first time in India. Leveraging on fast emerging information technology, the private sector banks initiated a number of user-friendly services such as Internet Banking, Automatic Teller Machines (ATMs), debit cards, credit cards, mobile banking, phone banking, demat accounts and extension of business hours. The stateof- the-art technology not only helped to save on manpower costs but also helped them to provide better services, and so maximize customer satisfaction.

By the mid-1990s, the private banks grew in size through several mergers and acquisitions, to reap the benefits of economies of scale and expansion. They brought a new culture into the Indian banking industry. Instead of customers standing in queues at banks, the private banks started offering services to the customers at their doorsteps. They started disbursing customercentric tailor-made loans within a short time—a process that took over a month at public sector banks. Moreover, the processing fee at the private banks was lower. The ambience in the private banks looked more corporate and professional while the customers were treated
with courtesy, a practise that was lacking in the public sector banks. This resulted in a shift in the customer base to the private banks. Ultimately, the public sector banks lost their market share to private banks. The business practices of the private banks intensified the competitive climate in the Indian banking industry and forced the public sector banks such as SBI to realize the need to shed flab and reduce exorbitant NPAs and excessive government equity so as to retain their market share and look for new avenues of growth.

In the post-Independence era, the government’s plan to prioritize the rural sector and the need to respond to the emergent needs of economic regeneration of the rural areas led to the nationalization of IBI and the recreating of it into SBI in 1955. SBI’s immediate objective was to establish additional branches at district headquarters, to provide remittance and other facilities to co-operative and other banks, and to attempt to mobilize rural savings. SBI was also required to transact general banking business of every description including foreign exchange, merchant banking and mutual funds.

With the enactment of the SBI (Subsidiary Banks) Act in 1959, SBI took over the IBI and seven other banks belonging to the princely states which later became its associates—namely, State Bank of Saurashtra, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Indore, State Bank of Mysore, State Bank of Hyderabad and State Bank of Travancore—to form the State Bank Group. After 1959, SBI embarked on an expansion spree through a number of takeovers, mergers and amalgamations, which expanded its presence across India. It conducted its operations in synchronization with the plans of the Government of India and contributed to the development of the country by introducing many schemes for rural development, for creating self employment for unemployed youth, pension plans, NRI plans, etc. It formed subsidiaries and ventured into merchant banking, housing finance and institutional investor services and thereby helped in infrastructure and business development in the country. In effect, SBI was considered as a market and opinion leader by the industry.

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