MANAGEMENT CONTROL SYSTEM

A management control system (MCS) is a system which gathers and uses information
to evaluate the performance of different organizational resources like human, physical,
financial and also the organization as a whole in light of the organizational strategies
pursued.

Management control system influences the behavior of organizational resources to

implement organizational strategies. Management control system might be formal or
informal.

STATE BANK OF INDIA

The origin of State Bank of India set its roots in year 1806 when Bank of Calcutta was
established. In 1921, the Bank of Calcutta and two other presidency banks (Bank of
Madras and Bank of Bombay) were amalgamated to form the Imperial Bank of India.
In 1955, in controlling interest the Imperial Bank of India was acquired by the Reserve
Bank of India and State Bank of India came into existence by an act of parliament, as a
successor to the Imperial Bank of India. Today, State Bank of India has spread its arms
around the world and has a network of branches spanning all time zones. SBI provides
a range of banking products through its vast network of branches in India and overseas,
including products aimed at non-resident Indians. It also has around 130 branches
overseas. It is one of the largest financial institutions in the world. It has a market share
of about 20% among Indian commercial banks in deposits and loans.

CONTROL SYSTEM IN SBI

RISK MANAGEMENT STRUCTURE: An independent Risk Governance Structure
is in place for Integrated Risk Management covering Credit, Market, Operational and
Group Risks. This framework visualizes empowerment of Business Units at the
operating level, with technology being the key driver, enabling identification and
management of risk at the place of origination.

CREDIT RISK MANAGEMENT: Credit Risk Management process encompasses

identification, assessment, measurement, monitoring and control of the Credit
Exposures. Well-defined basic risk measures such as CRA (Credit Risk Assessment)
models, Industry Exposure norms, Counter-party Exposure limits, Substantial Exposure
limits, etc., have been put in place.

MARKET RISK MANAGEMENT: Market Risk Management is governed by the

Board approved policies for investment, Private Equity & Venture Capital, trading in
Bonds, Equities, Foreign Exchange and Derivatives. Exposure, Stop Loss, Modified
Duration, Present Value and Value at Risk limits have been prescribed. These limits,
along with other Management Action Triggers, are tracked daily and necessary action
initiated, as required, to keep Market Risk within approved limits.

OPERATIONAL RISK MANAGEMENT: The Bank manages operational risks by

having in place and maintaining a comprehensive system of internal controls and
policies. The main objectives of the Bank’s Operational Risk Management are to
continuously review systems and control mechanisms, create awareness of operational
risk throughout the Bank, assign risk ownership, alignment of risk management
activities with business strategy and ensuring compliance with regulatory requirements.

GROUP RISK MANAGEMENT: The State Bank Group is recognized as a major

Financial Conglomerate and as a systemically important financial intermediary, with
significant presence in various financial markets.

ASSET LIABILITY MANAGEMENT: The Asset Liability Management Committee

(ALCO) of the Bank is entrusted with the evolvement of appropriate systems and
procedures in order to identify and analyze balance sheet risks and setting of benchmark
parameters for efficient management of these risks.

INTERNAL CONTROL: The Bank has in-built internal control systems with well-
defined responsibilities at each level. The Bank carries out mainly two streams of
audits-inspection & Audit and Management Audit covering different facets of Internal
Audit requirement. Apart from these, Credit Audit is conducted for units with large
credit limits and Concurrent Audit is carried out at branches having large deposits,
advances and other risk exposures and selected BPR Outfits.
BENEFITS OF THE CONTROL PROCESSESS ADOPTED BY SBI

The following are the merits of the various management control systems adopted by
SBI:

1. Improved Coordination and Control between Various Departments.

2. Future-Oriented

3. Clear Management Roles and Responsibilities

4. Reward and Recognition to employees

5. Risk Management

LEAKAGES OF THE CONTROL PROCESSESS ADOPTED BY SBI

1. Delays in Decision Making Process.

2. No Involvement of employees in the Decision Making Process.

3. Lack of Room for Change and Innovation

4. Too many rules and regulations

5. Centralized structure leading to bureaucracy