S.No.

Topic

1 Overview of the Industry

2 Case Questions:
I. What were the reasons behind implementation of the transformation
efforts in State Bank of India?
II. What specific steps did the SBI undertake during the transformation
effort and what were the results of these steps?
III. What are the challenges facing Mr. Bhatt’s successor?

3 The Future

4 SWOT?????
What were the reasons behind implementation of transformation effort in State Bank of
India?

O.P Bhatt was appointed as the new chairman of State Bank of India in 2006 at which time SBI
was losing its market share to new domestic entrants like ICICI Bank and HDFC Bank as well as
foreign banks like Citibank and HSBC. It’s market share had dropped from 35% to 15% and it’s
ratings has dropped by 25 points in 2 years. The reasons were threefold, loss of customer
focus, inferior technology and employee apathy. There were multiple triggers to the reducing
popularity of SBI among the consumers:
● Reduced Focus on Profitability​: SBI underwent a rapid expansion phase from 1960s to
1990s growing from 500 branches to 8000. However, the focus on profitability was lost to
their “social obligations” mandated by the Government. They were directed to operate
with the goal of economic development, and ended up compromising business
prudence.
● Absence of Employee Goals, Vision and Commitment​: The employees had lost a sense
of belongingness. Despite their individual performance being satisfactory, they weren’t
aligned to a common set of objectives. Across the branches and levels of hierarchy
individual efforts were directed in multiple directions and were counterproductive. The
erstwhile pride of working in the most influential bank of India was lost.
● Restrictive Government directives and RBI regulations​: Since SBI was a nationalized
bank, their decision making power was curtailed by the RBI. Customers, loan amount
and rate of interest would be decided by the RBI. Further, the government stipulated that
40% of loans needed to be allocated with the purpose of economic development of the
country to priority sectors, like agriculture, small scale industry and retail. They also
operated on an outdated risk management system. As a result, they had a large number
of NPAs which became an enormous financial burden
● Ease of entry of Competitors through Government Reforms​: The 1990 reforms by the
Indian Government rendered the banking industry open to new players. RBI permitted
the banks to set their own lending and deposit rates and reduced obligations for
depositing majority savings with RBI or investing in government securities. 1:4 branch
license policy was also relaxed. All these reforms led to entering pf new domestic banks
as well as foreign banks which posed a serious competition to SBI.
● Lack of Customer Focus​: The customer experience offered by the new entrants
superseded the multiple queue and iron-grilled counters at SBI. They had spacious,
well-designed offices with glass doors that gave a sense of openness, while SBI
reserved 75% of its waiting area for employees. The new banks also ushered in the
relationship banking to enhance the customer focus and attract the brand-conscious
customer. All these factors combined with tech-aversion led to SBI being known as the
old bank for old people.
● Aversion to Adoption of Technology​: The new entrants invested heavily in technology.
They introduced remote banking, phone and internet banking as well ATM network. They
possessed centralized systems offering a pervasive banking experience to the
customers. SBI on the other hand had a very decentralized system where banking
 across branches was cumbersome. They were averse to adopting new technology and
this gave their competitors an edge in attracted young, tech-savvy customers.
● Lack of Self-awareness and Marketing Focus​: SBI’s employees were unaware of the
issues plaguing the bank’s growth due to the top down communication and SBI had
become an “inward looking bank” with no “sales focus”. It ceased to be a leader in
product innovation, marketing and distribution. The managers did not interact with the
customers and there was no efforts to do a customer segmentation. Additionally SBI did
not focus on the young customers. SBI was perceived as a bank for, of and by senior
citizens.

Question 2

Business Initiatives
1. ​Middle class customers
SBI focused on positioning its brand to target the middle class young customers through
branding campaigns. It started banking with themes such as “Pure Banking Nothing Else” rather
than advertising the products. It then advertised along the lines of “Banker to Every Indian”
“Proud to be an Indian”. SBI also aggressively expanded its ATM network to provide services
such as cash dispensing, cheque-book printing etc. expansion. It hired young talent to better
address needs of young customers. This was also supported through launch of specific
products for the segment, e.g, salary accounts. Brand campaigns, ATMs, younger employees
and customized products helped the bank in regaining market share in the middle class and
young customer segments. Part of success could be measured when IT vendors shifted their
salary accounts with SBI

2. ​Rural India
SBI initiated “Own Rural India” campaign. Bhatt planned to reach 1,00,000 unbanked rural
villages. This was a very aggressive target. However, Bhatt believed that Rural India would help
drive the net wave of growth and with long-term thinking while achieving social objectives of
“more inclusive society”. SBI approached the rural business to cater to its specific needs. It
created RBAG, adopted an outsourcing model and used BCs thus ensuring maximum reach
with minimal costs, leveraging technology. It leveraged newer technologies such as fingerprint
recognition, mobile banking and internet kiosks with the changing technological landscape. SBI
had reached 1250,000 villages by 2011 and 200,000 villages by 2012

3. ​Wholesale Banking
SBI initiated “Rebuild Profitable Wholesale Bank” campaign. It created a new strategic business
group “Wholesale Banking Group” to come at pace with the private banks. Bhatt focused on
providing services, e.g., trade finance, treasury services etc. to these clients apart from funding.
The fee income doubled during this time from $1.63 Bn to $3.3 Bn

4. ​Global Expansion
SBI, post aggressive branch expansion in India, also decided to expand globally. It called it the
“Smart Global Expansion” initiative. The idea was to capture the Indian-linked business
opportunities, benefitting from the cross-sell of products from existing Indian relationships. SBI
became the only bank to provide single exposures extending up to $1 Bn. This helped it position
itself strongly in the business.

Other Business Initiatives:

SBI consolidated treasury focus, focus on SME customer segments (turnover < INR 100 Cr). It
also focused on attracting HNI customer segment, custodial services, private equity, general
insurance etc.

People Initiatives
5.​ Leadership​:
Bhatt recognised early on to establish himself as a leader whose main agenda was bring SBI
back to the top without showing off his position. He wasted no time in his efforts and started
reshuffling the top structure and established new groups to improve the performance of the
bank. He was a leader who took hard decisions like stopping the roll out of CBS despite
criticism and he was later proved right.

6. ​Performance Management System

Existing method of performance review reports were lengthy and time consuming. Format of the
report was changed to multiple choice form to save time. Numerous committees were formed to
expedite pace of the promotion process. This resulted in the entire promotion backlog being
cleared up. Employees were also given more responsibilities to share back office as well as
marketing related tasks. The chairman introduced employee recognition measures like inviting
the top performers and their spouses for dinner at his residence.

7. ​Communication management
Through a series of conclaves, the chairman communicated his idea and vision to the
employees. The chairman held different conclaves for different employees to communicate their
roles and the expectations the bank had from them. Even the union members were invited to
participate in the conclave. As a result, the chairman won over the employees and the union
members and drove home the fact that he was acting in the best interests of all the
stakeholders. Programs like ‘Parivartan’ and ‘Citizen SBI’ campaigns were carried out to
communicate core values and motivate people across the cadre. These programs succeeded in
incentivising employees and feel them connected with the goals of the organization.

8. ​Training and capacity expansion

The organization hired 20,000 clerical staff along with 3500 officers to meet SBI’s aggressive
plans for growth. SBI also focused on training its employees by sending AGMs and above to top
business schools. As a result of their efforts they were able to meet chase its target of opening
1000 branches every year without compromising on the service or the quality.

Enablers:
9. ​Customer Service
SBI reoriented itself to provide good customer service and enhance customer experience in the
branches. SBI changed its longish Vision and Mission statement, and emphasized the focus on
customer service in it. It started two key initiatives - SMS service and “service desk” inside the
branches. It enhanced customer’s experience in the branches and they chose to stick with SBI.
The employees also felt more confident, which is described as “everybody has begun to walk a
little taller [with pride]”.

10. ​Technology investments

By leveraging IT technology SBI managed to reduce inefficiencies in service time and was able
to make their products and services available to the customer online. It also managed to roll out
its centralized banking system with the launch of CBS. As a result, customers were not
restricted to banking with their home branch and helped the company gain lost ground over its
private sector counterparts. The organization also took a more customer centric approach and
undertook initiatives like “service desk”, an internal website for staff queries and “sms unhappy”
for addressing grievances.

11. ​Risk and other initiatives

 SBI strengthened and integrated its risk system and created a new position of Chief Credit and
Risk Officer to better manage risk. It also implemented a new system for measuring business
performance. It improved its customer portfolio by offering credit cards, mutual funds and life
insurance by harnessing synergy among its subsidiaries.

Financial Results:
During 2006-10, SBI’s -
1. Deposits grew 2X from $83.9 Bn to $179.1 Bn
2. Advances (net loans outstanding) grew ~3X from $46.3 Bn to $140.7 Bn
3. Total assets grew ~2X from $105 Bn to $235 Bn
4. RoA was almost maintained despite aggressive business expansion (0.99% to 0.88%)
5. Gross NPA ratio declined significantly from 5.96% to 3.05%