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Amity Business School, Noida

State Bank of India

Business strategy analysis

Amity Business School, Noida

Submitted By: - Submitted To: -

Vineet Goel Dr. Himani Sharma

MBA(G) Amity Business School

C-60 Noida

Defining 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.”
Amity Business School, Noida
Amity Business School, Noida

Strategic Evolution of SBI

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, its three key environmental


• Ownership and governance

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• Business processes

• Structures and systems

Mission statement:
To retain the banks position as the premier Indian financial services. It also aims to be a group 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.

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


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• 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 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
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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.

Key Areas of Operations

The business operations of SBI can be broadly classif ied into the key in come generating areas such

as National Banking, International Banking, Corporate Banking, & Treasury operations

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Generic strategies adopted by State Bank of India:

• Institution for advanced learning: to provide state of the art training in financial

products to middle level and senior level executives

• Internal consultant/change agent: to act as a catalyst for change in attitudes and

orientation of banking staff and to provide expertise and consultative support

• Feedback supplier: to capture and structure feedback from trainees and from the market

• Think tank: to provide expert and inform suggestions, model business strategies,

analysis of market developments from a banker perspective

• Research and development role: to carry out research on contemporary subjects

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that are relevant to the banks short term and medium term and operational needs

and policy for mulation

• Overlapping staff training centers: to validate and closely monitor the staff

training centers in seven circles attached to the academy.

Centralization and 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 proposal sand 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.

The Restructuring
To overcome the intense competition from private and foreign banks, SBI planned a

major organizational restructuring exercise.

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The key aspects involved

. redesigning of branches,

. providing alternate channels;

. focus on a lean structure and

. Technological up gradation.

. A business process reengineering (BPR) team wasconstituted in June 2003 with McKinsey &

company as consultants. The BPR's basic goal was to create an operating architecture that would

facilitate service delivery of international standards.

The project objectives were defined as

. increasing customer satisfaction and convenience,

. freeing up time for branch manager and

. branch staff to focus on sales and marketing,

. enhancing SBI's competitiveness in the market,

. increasing the profitability through higher market share and improved process efficiency"

New Products and Services

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. This facility would be available at
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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.

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
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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

. 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

andincreased 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.

SBI`s Strategies in the current scenario

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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
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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
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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
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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

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SWOT analysis:


• 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


• 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

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• 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



• 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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• 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

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• 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


• 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

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• 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:

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1. Threat of competitors:

Top Performing Public Sector Banks

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
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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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