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State Bank of India Strategy Analysis
State Bank of India Strategy Analysis
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.
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
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Overview 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.
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 Januar
y 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)
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 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.
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 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.
Auto.Finance
Unlike other competitors that relied on reduced interestrates 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 therate 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...
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 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).
Amity Business School, Noida
• 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 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
Amity Business School, Noida
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 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.
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)
Modernization: SBI lags with respect to private players in terms of modernization 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.
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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 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.
Amity Business School, Noida
1. Threat of competitors:
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.
Bibliography
www.google.com
www.scribd.com
www.wikepedia.org
www.sbi.co.in