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UNIVERSITY OF MUMBAI
PROJECTION
"STATE BANK OF INDIA"
BACHELOR OF COMMERCEBANKING & INSURANCE
SEMESTER V2012-2013
SUBMMITED BYGANESH BHIMAJI DANGE
T.Y.B.COM.BANKING & INSURANCEROLL NO.09
PROJECT GUIDEPROF. Mrs. JAYASHREE SEN
MANISHA EDUCATION TURST'S
SMT. JANAKIBAI RAMA SALVIDEGREE COLLEGE OF ARTS, COMMERCE & SCIENCE
MANISHA NAGAR, KALWA (W), THANE.
DECLERATION
I, Mr. GANESH BHIMAJI DANGE. Of S.J.R.S Degree College of Arts, Commerce & Science of B.COM. B&I ( Semester V ) have completed the project on Exam Bank for the year 2012-2013.
The information submitted is true and original to the best of my knowledge.
Date :- Signature of the Student
Place:-
ACKNOWLEDGEMENT
Success always strikes the door of the people who work hard with dedication plus the blessing of the elders and gentle part of the friends and colleagues. The success not due to any single person, but due to the combined efforts of ta group of dedication and aspirant individuals. Several special people have contributed significantly in the course. i wish to publicity recognize and thank them.
Before I get presentation of this dissertation entitled "STATE BANK OF INDIA". I find it as my obligation to express my sincere gratitude to many a specialist in this field without whose assistance and guide, I would ever have succeeded in making this venture e reality.
First of all i thank goes almighty, for this kind blessing for the successful completion of this project work.
I express my since thanks to the facilities, Prof. Mrs. Jayashree Sen, for encouragement and help given during this project work.
Yours sincerely,
GANESH BHIMAJI DANGE
INDEX
Chapter No.
Particulars Page No.
1. INTRODUCTION
2. HISTORY OF SBI
3. ASSOCIATES BANK OF SBI
4. GROWTH OF SBI
5. INTERNATIONAL PRESENCE OF SBI
6. SBI-FINANCIAL HIGHLIGHTS
7. BALANCE SHEET OF SBI
8. LIQUIDITY OF SBI STOCK
9. KEY AREAS OF OPERATIONS
10. SBI CHARGING AHEAD
11. CASE STUDY
12. CHALLENGES FOR THE BANK
13. FUNCTIONS OF SBI
14. CONCLUSION
15. BIBLIOGRAPHY
INTRODUCTION
State Bank of India (SBI)
State Bank of India (SBI) is the largest banking and financial services company in
India by revenue, assets and market capitalization. It is a state-owned corporation
with its headquarters in Mumbai, Maharashtra. As of March 2012, it had assets of
US$360 billion and 14,119 branches, including 173 foreign offices in 37 countries
across the globe. Including the branches that belong to its associate banks, SBI has
21,500 branches.
The bank traces its ancestry to British India, through the Imperial Bank of India, to
the founding in 1806 of the Bank of Calcutta, making it the oldest commercial
bank in the Indian Subcontinent. Bank of Madras merged into the other two
presidencies banks Bank of Calcutta and Bank of Bombay to form the Imperial
Bank of India, which in turn became the State Bank of India. The Government of
India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of
India taking a 60% stake, and renamed it the State Bank of India. In 2008, the
government took over the stake held by the Reserve Bank of India. SBI has been
ranked 285th in the Fortune Global 500 rankings of the world's biggest
corporations for the year 2012.
SBI provides a range of banking products through its vast network of branches in
India and overseas, including products aimed at non-resident Indians (NRIs). The
State Bank Group has the largest banking branch network in India. SBI has 14
local head offices situated at Chandigarh (Punjab & Haryana), Delhi, Lucknow
(Uttar Pradesh), Patna (Bihar), Kolkata (West Bengal), Guwahati (North East
Circle), Bhubaneswar (Orissa), Hyderabad (Andhra Pradesh), Chennai (Tamil
Nadu), Trivandrum (Kerala), Bengaluru (Karnataka), Mumbai (Maharashtra),
Bhopal (Madhya Pradesh) & Ahmedabad (Gujarat) and 57 Zonal Offices that are
located at important cities throughout the country.
SBI is a regional banking behemoth and is one of the largest financial institutions
in the world. It has a market share among Indian commercial banks of about 20%
in deposits and loans. The State Bank of India is the 29th most reputed company in
the world according to Forbes. Also, SBI is the only bank featured in the coveted
"top 10 brands of India" list in an annual survey conducted by Brand Finance and
The Economic Times in 2010.
The State Bank of India is the largest of the Big Four banks of India, along with
ICICI Bank, Punjab National Bank and HDFC Bank its main competitors.
What is the meaning of the sbi bank symbol?
State Bank of India logo is in the shape of a key hole. This symbolizes the banks
security. Further the round shape of the logo symbolizes that the bank is the largest
bank of India with its branches spread all over the country.
THE MEANING OF LOGO OF STATE BANK OF INDIA IS THAT IN SUCH A
BIG EARTH (WORLD), WE SERVE EVEN A SMALL MAN ALSO (denoted by
a narrow line).
HISTORY OF STATE BANK OF INDIA
The roots of the State Bank of India rest in the first decade of 19thcentury, when
the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2
June 1806. The Bank of Bengal and two other Presidency banks, namely, the Bank
of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated
on 1 July1843). All three Presidency banks were incorporated as joint
stock companies, and were the result of the royal charters. These three banks
received the exclusive right to issue paper currency in 1861with the Paper
Currency Act, a right they retained until the formation of the Reserve Bank of
India. The Presidency banks amalgamated on27 January 1921, and the reorganized
banking entity took as its name Imperial Bank of India. The Imperial Bank of India
continued to remain a joint stock company. Pursuant to the provisions of the State
Bank of India Act (1955), the Reserve Bank of India, which is India's central
bank , acquired a controlling interest in the Imperial Bank of India. On 30 April
1955the Imperial Bank of India became the State Bank of India. The Govt. India
recently acquired the Reserve Bank of India's stake in SBI so as to remove any
conflict of interest because the RBI is the country's banking regulatory authority.
Offices of the Bank of Bengal In 1959 the Government passed the State Bank of
India (Subsidiary Banks) Act, enabling the State Bank of India to take over eight
former State-associated banks as its subsidiaries. On Sept 13, 2008,State Bank of
Saurashtra, one of its Associate Banks, merged with State Bank of India.
SBI has acquired local banks in rescues. For instance, in 1985, it acquired Bank of
Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate,
State Bank of Travancore, already had an extensive network in Kerala.
ASSOCIATE BANKS OF STATE BANK OF INDIA
There are six associate banks that fall under SBI, and together these six banks
constitute the State Bank Group. All use the same logo of a blue keyhole and all
the associates use the "State Bank of" name followed by the regional headquarters'
name. Originally, the then seven banks that became the associate banks belonged
to princely states until the government nationalized them between October,
1959and May, 1960. In tune with the first Five Year Plan, emphasizing the
development of rural India, the government integrated these banks into State Bank
of India to expand its rural outreach. There has been a proposal to merge all the
associate banks into SBI to create a "mega bank" and streamline operations. The
first step along these lines occurred on 13 August 2008 when State Bank of
Saurashtra merged with State Bank of India, which reduced the number of state
banks from seven to six. Furthermore on 19th June 2009 the SBI board approved
the merger of its subsidiary, State Bank of Indore, with itself. SBI holds 98.3% in
the bank, and the balance 1.77% is owned by individuals, who held the shares prior
to its takeover by the government. The acquisition of State Bank of Indore will
help SBI add 470 branches to its existing network of 11,448. Also, following the
acquisition, SBI’s total assets will inch very close to the Rs 10-lakhcrore mark.
Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on
March 2009.
GROWTH OF STATE BANK OF INDIA
State Bank of India has often acted as guarantor to the Indian Government, most
notably during Chandra Shekhar 's tenure as Prime Minister of India. With 11,448
branches and a further 6500+ associate bank branches, the SBI has extensive
coverage. State Bank of India has electronically networked all of its branches
under Core Banking System (CBS). The bank has one of the largest ATM networks
in the region. More than 8500 ATMs across India. The State Bank of India has had
steady growth over its history, though it was marred by the Harshad Mehta scam in
1992. In recent years, the bank has sought to expand its overseas operations by
buying foreign banks. It is the only Indian bank to feature in the top 100 world
banks in the Fortune Global 500 rating and various other rankings
INTERNATIONAL PRESANCE OF SBI
The bank has 92 branches, agencies or offices in 32 countries. It has branches of
the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and
environs, Los Angele s , Male in the Maldives, Muscat, New York ,Osaka, Sydney,
and Tokyo. It has offshore banking units in the Bahamas, Bahrain, and Singapore,
and representative offices in Bhutan and Cape Town. SBI operates several foreign
subsidiaries or affiliates. In 1990 it established an offshore bank, State Bank of
India (Mauritius). It has two subsidiaries in North America, State Bank of India
(California), and State Bank of India (Canada). In 1982, the bank established its
California subsidiary, named State Bank of India (California), which now has eight
branches - seven branches in the state of California and one in Washington DC
which was recently opened on 23rd November, 2009. The seven branches in the
state of California are located in Los Angeles, Artesia, San Jose, Canoga Park,
Fresno, SanDiego and Bakersfield. The Canadian subsidiary too dates to 1982and
has seven branches, four in the greater Toronto area, and three in British Columbia.
In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo-
Nigerian Merchant Bank and received permission in 2002 to commence retail
banking. It now has five branches in Nigeria. In Nepal SBI owns 50% of Nepal
SBI Bank, which has branches throughout the country. In Moscow SBI owns 60%
of Commercial Bank of India, with Canara Bank owning the rest. In Indonesia it
owns 76% of PT Bank Indo Monex. State Bank of India already has a branch in
Shanghai and plans to open one up in Tianjin.
STATE BANK OF INDIA -FINANCIAL
HIGHLIGHTS-2005-2011
Rs. in BillionFY200
5
FY200
6
FY200
7
FY200
8
FY200
9
FY201
0
FY201
1
Deposits 3670.48 3800.46 4355.21 5374.05 7420.73 8041.16 9339.33
Advances 2023.74 2618.01 3373.36 4168.95 5425.03 6319.14 7567.19
Investments 1970.98 1625.34 1491.49 1895.01 2759.54 2957.85 2956.01
Total Assets 4598.83 4940.29 5665.65 7215.26 9644.32 10534.13 12237.36
Interest Income 324.28 359.80 394.91 489.50 637.88 709.94 813.94
Interest Expenses 184.83 203.90 234.37 319.29 429.15 473.22 488.68
Net Interest
Income139.45 155.89 160.54 170.21 208.73 236.71 325.26
Non-Interest
Income71.20 74.35 57.69 86.95 126.91 149.68 158.25
Total Operating
Income210.65 230.24 218.23 257.16 335.64 386.40 483.61
Staff Expense 69.07 81.23 79.33 77.86 97.47 127.55144.80
Overhead
Expenses31.67 36.02 38.91 48.23 59.01 75.64 85.35
Total Operating
Expenses100.74 117.25 118.24 126.09 156.49 203.18 230.15
Operating Profit 109.91 112.99 100.00 131.07 179.15 183.20 253.36
Total Provisions 66.86 68.93 54.59 63.78 87.94 91.55 170.71
Net Profit 43.05 44.07 45.41 67.29 91.21 91.66 82.65
STATE BANK OF INDIA
KEY
FINANCIAL
INDICATORS
(%)
FY2005 FY2006 FY2007 FY
2008
FY
2009
FY
2010
FY2011
ROA 0.99 0.89 0.84 1.01 1.04 0.88 0.71
ROE 18.10 15.47 14.24 17.82 15.07 14.84 12.84
EPS(Rs.) 81.79 83.73 86.29 126.62 143.77 144.37 130.16
BVS(Rs.) 450 525 606 598 953 973 1014
Dividend
Payout Ratio
15.29 16.72 16.22 20.18 20.19 20.78 23.05
Cost/Income
Ratio
47.83 58.70 54.18 49.03 46.62 52.59 47.60
Capital
Adequacy
Ratio
(Basel I)
(Basel II)
12.45 11.88 12.34 13.54 12.97
14.25
12.00
13.39
10.69
11.98
Cost of 5.11 4.77 4.79 5.59 6.30 5.80 5.26
Deposits
Yield on
Advances
7.68 7.78 8.67 9.90 10.15 9.66 9.56
Yield on
Resources
Deployed
7.94 7.10 6.88 6.92 7.10 6.52 7.02
Net Interest
Margin
3.39 3.40 3.31 3.07 2.93 2.66 3.32
Gross NPA
Ratio
5.96 3.61 2.92 3.04 2.86 3.05 3.28
Net NPA Ratio 2.65 1.88 1.56 1.78 1.79 1.72 1.63
Provision
Coverage
(Excl AUCA)
57 49 47 42.17 38.42 44.36 51.25
Including
AUCA
56.98 59.23 59.23 64.95
SUMMARY OF STATE BANK OF INDIA’S
BALANCE SHEET(Rs. in
billion)
MARCH
2005
MARCH
2006
MARCH
2007
MARCH
2008
MARCH
2009
MARCH
2010
MARCH
2011
CAPITAL
&
LIABILITIE
S
Capital 5.26 5.26 5.26 6.31 6.35 6.35 6.35
Reserves
& Surplus
235.46 271.18 307.72 484.01 573.13 653.14 643.51
Deposits 3670.4
8
3800.4
6
4355.2
1
5374.0
4
7420.7
3
8041.1
6
9339.3
3
Borrowing
s
191.84 306.41 397.03 517.27 537.14 1030.1
2
1195.6
9
Other
Liabilities
&
Provisions
495.79 556.98 600.42 833.62 1106.9
7
803.37 1052.4
8
Total 4598.8
3
4940.2
9
5665.6
5
7215.2
6
9644.3
2
10534.
14
12237.
36
ASSETS
Cash &
balances
with
Reserve
Bank of
India
168.10 216.53 290.76 515.35 555.46 612.91 943.95
Balances
with
banks and
money at
call &
short
notice
225.12 229.07 228.92 159.32 488.58 348.93 284.79
Investme
nts
1970.9
8
1625.3
4
1491.4
9
1895.0
1
2759.5
4
2957.8
5
2956.0
1
Advances 2023.7
4
2618.0
1
3373.3
6
4167.6
8
5425.0
3
6319.1
4
7567.1
9
Fixed
Assets
26.98 27.53 28.19 33.73 38.38 44.13 47.65
Other
Assets
183.91 223.81 252.92 444.17 377.33 351.13 437.78
Total 4598.8
3
4940.2
9
5665.6
5
7215.2
6
9644.3
2
10534.
14
12237.
35
Contingen
t
Liabilities
1593.9
7
2288.5
1
3065.9
0
8107.9
6
7237 5484.4
6
7304.8
5
Bills for
Collection
167.77 205.93 233.68 189.47 438.70 479.22 599.05
1 State Bank of India January 2011
Investment Summary
State Bank of India (SBI) has history of more than 200 years of existence. SBI is the largest commercial bank in india and accounts
for approximately 18% of the total Indian banking business and the group account for 25% of the total Indian banking business.
Janarth-Aurangabad
Consolidated Balance Sheet for the year ending 31st March 2011
Pervious year31/03/2010
Liabilities SCH Current year31/03/2011
Previous year31/03/2010
Assets SCH Current year 31/03/2011
Funds Fixed Assets 8,592,386 Earmarked
FundsI 2,858,826 2,992,948 Immovable
Properties VI 2,959,971
Loans 3,398,232 Movable Properties
3,317,196
9,998,319 Secured Loans II 7,421,974
895,525 Unsecured Loans
III 895,525 6,164,361 Investments VII 6,664,361
65,445,962 Current Assets, Loans & Advances
VIII 62,494,268
35,239,150 Current Liabilities
IV 32,822,089
300,000 Capital contribution to JAP
300,000
24,445,190 Income & Expenditure A/c
V 32,508,984
1,159,070 Misc.Expenses ( New MSEB Connection)
1,071,601
300,000 Capital Contribution from Admin
300,000
79,470,570 Total 76,807,397 79,470,570 Total 76,807,397
The central bank, Reserve Bank of India (RBI) is the largest
shareholder in the bank with 59.7% stake followed by overseas
investors including GDRs with 19.78% shareholding as on
September 06. RBI’s stake in the bank is likely to be transferred to
the Government of India (GOI).
SBI has the largest distribution network in India spread across
every nook and include 4,775 branches of its associated banks. The
bank also has the largest network of 5,624 ATMs.
Since the last ? Ve years the bank has showed continued growth in
its core business. The total asset size of the bank reported a CAGR
of 9.4% during the period FY01-FY06 and stood at Rs.4,938.69bn
as of September 2006.
In HIFY07, the bank reported net interest income (NII) of
Rs.182.14bn, representing a growth of 2.74% over HIFY06 while
the bank reported a net pro?t of Rs.19.8bn, registering a decline of
18.67% during the same period.
Credit off take of the bank has been lower than the Indian banking
industry during the past few years. The total credit book of the
bank grew at a CAGR of 18.2% over the last? Ve years and stood
at Rs.2,832.68bn at the end of September 2006. The industry
growth during the same period was around 28%.
The bank’s asset quality has improved over the pas few years.
Gross NPL to gross loans stood at 3.57% as of Sep-end 2006 while
net NPLs stood at 1.67%. The bank has provided for 54.06% of it’s
NPLs as on Sep-end 2006, which is below the industry average of
around 68%.
Reuters Code:
SBI.BO
Listing:
Bombay Stock Exchange
National Stock Exchange
London Stock Exchange
Ahmedabad Stock Exchange
Kolkata Stock Exchange
Chennai Stock Exchange
Current Price:
Rs 1,955(Sep 23,2011)
State B
Total deposits of the bank grew at a CAGR of 9.4% over the last five year to
reach Rs.3, 800.5bn, with low cost deposits registering an impressive CAGR
of 15.4% during the same period. Contribution of low cost deposit during
the period too has moved up sharply from 36.3% in FY01 TO OVER 47.6%
in FY06. However, current and saving account (CASA) contribution in
H1FY07 has declined to 43.65%, thereby significantly increasing cost of
funds and hence margin contribution. On a sequential basis, margins of the
bank declined by 8bps to 3.32%
The capital adequacy ratio of the bank stood at 12.63% (Tier-I of 8.74% and
Tier-II of 3.89%) at the end of HIFY07. To augment its CAR to provide a
stable platform for further growth, the bank plans to raise up to Rs.100bn as
subordinate debt during the next few months. The bank also has a cushion to
raise further Rs.40bn in the form of Hybrid Tier 1 capital.
SBI has been a net seller in the bond market and is using its excess
investments to fund its loan growth. As on September 2006, investment
book size of the bank stood at Rs.1, 470bn which declined from Rs.1.650bn
as of March 2006. Of the total book size, Rs.1, 020bn is in Held to Maturity
(HTM). Of the Available for sale (AFS) book, the duration of the portfolio
of less than two years has been maintained, with mark-to market cushion up
to 8.12%.
SBI is the market leader in the Indian banking space. At the CMP, stock
trades at 14.5 xs and 12.1 xs of its earnings for FY07E and FY08E
respectively and 3.3 xs and 2.96x of its adjusted book value.
We have valued SBI on a sum-of-the-parts methodology to capture the true
value of the associate banks and non-banking businesses. SBI has seven
associates’ banks and comprised a significant portion of the book value.
Similarly, other businesses of the bank are growing significantly faster than
the core banking business and will make an increasing part of the market
value.
We initiate our coverage of SBI with a Hold rating and value the bank’s
share at an intrinsic value of Rs.1, 209 based on the sum-of-the-parts
valuation methodology. Though the bank is the proxy for Indian economic
growth, the
State Bank of India
Background
State bank of India is the largest and one of the oldest commercial bank in India, in
existence for more than 200 years. The bank provides a full range of corporate,
commercial and retail banking services in India. Indian central bank namely
Reserve Bank of India (RBI) is the major share holder of the bank with 59.7%
stake. The bank is capitalized to the extent of Rs.646bn with the public holding
(other than promoters) at 40.3% SBI has the largest branch and ATM network
spread across every corner of India. The bank has a branch network it also has a
network of 73 overseas offices in 30 countries in all time zones, correspondent
relationship with 520 International banks in 123 countries. In recent past, SBI has
acquired banks in Mauritius, Kenya and Indonesia. The bank had total staff
strength of 198,774 as on 31st march 2006. Of this, 29.51% are officers, 45.19%
clerical staff and the remaining 25.30% were sub-staff. The bank is listed on the
Bombay Stock Exchange, National Stock Exchange, London Stock Exchange,
Ahmadabad Stock Exchange, Kolkata Stock Exchange and Chennai Stock
Exchange while its GDRs are listed on the London Stock Exchange. SBI group
account for around 25% of the total business of the banking industry while it
account for 35% of the total foreign exchange in India. With this type of strong
base, SBI has displayed a continued performance in the last few years in scaling up
its efficiency levels. Net Interest Income of the bank has witnessed a CAGR of
13.3% during the last five years. During the same period, net interest margin
(NIM) of the bank has gone up from as low as 2.9% in FY02 to 3.40% in FY06
and currently is at 3.32%.
Management
The bank has 14 directors on the board and is responsible for the management of
the bank’s business. The board in addition to monitoring corporate performance
also carries out functions such as approving the business plan, reviewing and
approving the annual budgets and borrowing limits and fixing exposure limits. Mr.
O.P. Bhatt is the Chairman of the bank. The five-year term of Mr. Bhatt will expire
in March 2011. Prior to this appointment, Mr. Bhatt was Managing Director at
State Bank of Travancore. Mr. Bhatt has more than 30 years of experience in the
Indian banking industry and is seen as futuristic leader in his approach towards
technology and customer service. Mr. Bhatt has had the best of foreign exposure in
SBI. We believe that the appointment of Mr. Bhatt would be a key to SBI’s future
growth momentum. Mr. T S Bhattacharya is the managing Director of the bank and
known for his vast experience in the banking industry. Recently, the senior
management of the bank has been broadened considerably. The positions of CFO
and the head of treasury have been segregated, and new business banking has been
appointed. The management’s thrust on growth of the bank in terms of network
and size would also ensure encouraging prospects in time to come.
Shareholding & liquidity
Reserve Bank of India is the largest shareholder in the bank with 59.7% stake
followed by overseas investors including GDRs with 19.78% stake as on
September 06. Indian financial institutions held 12.3% while Indian public held
just 8.2% of the stock. RBI is the monetary authority and having majority
shareholding reflects conflict of interest. Now the government is rectifying the
above error by transferring RBI’s holding to itself. Post this, SBI will have further
headroom its CAR and Tier I ratio. As of Sep 2006, SBI has 526.3mn shares
outstanding and going by the actual trading volume, the stock’s liquidity seems to
have decreased in the past two years. In the first half of FY2007, 93mn shares
exchanged hands. The daily share turnover during the year 2006 was 0.22% down
from 0.39% witnessed in 2005. But the sentiment in the stock market improved in
the first six months of the current fiscal with the bank clocking further gains. As of
January 12, 2007 bank’s market capitalization stood at Rs.643.6bn.
Table 2: Liquidity of SBI’s stock
Mar-2004 Mar-2005 Mar-2006 Mar-2007
Volume of shares
traded (‘000)502,840 457,731 295,303 92,528
Shares turnover-
Daily Averages
(%)
0.39% 0.34% 0.22% 0.14%
Value traded
(Rs.mn)264,155 243,817 244,999 79,550
No. of
transactions3,832,948 4,223,574 3,168,107 1,570,410
Market
capitalization
(Rs.mn)
84,530 176,718 243,443 375,765
Key Areas of operations
The business operation of SBI can be broadly classified into the key income
generating areas such as National Banking, International Banking, Corporate
Banking & Treasury operations. The functioning of some of the key divisions
is enumerated below:
a) Corporate banking
The corporate banking segment of the bank has total business of around Rs.1,
193bn. SBI has created various strategic Business Units (SBU) in order to
streamline its operation. These SBUs are as follows:
a.1) Corporate Accounts
This SBU is important for the bank as its loan port folio constituted about 27.05%
of the bank’s commercial and institutional non-food credit and 12.85% of the total
domestic credit port folio as on 31st March 2006.
Some of the products under corporate accounts SBU are as
follows:
SBI-FAST, which is the cash management product offered by this SBU, had
a turnover of Rs.4, 705.75bn as of 31st March 2006. This product is now a
comprehensive cash management solution, offering payments in addition to
collection.
Vendor financing activity is being integrated with core banking through the
internet platform. This is identified as a focus are to capture the credit port
folio vendors.
SBI: Charging Ahead
SBI dominates the Indian banking sector with a market share of around 20% in
terms of total banking sector deposits. The increasing focus on upgrading the
technology back-bone of the bank will enable it to leverage its reach better,
Improve service levels, provide new delivery platforms, and improve operating
efficiency to counter the threat of competition effectively. Once the core banking
solution (CBS) is fully implemented, it will cover over 10,000 branches and ATMs
of the State Bank group, and emerge as the strongest technology enabled
distribution network in India. The increasing integration of SBI with its associate
banks (associates) and subsidiaries will further strengthen its dominant position in
the banking sector and position it as the country’s largest universal bank.
Resource-raising capabilities
SBI’s funding profile is strong, underpinned by its strong retail deposit base. The
bank is facing increasing competition in its metropolitan and urban franchise.
SBI’s strong franchise gives it access to a steady source of stable retail funds,
which constitute around 59% of the total recourses as on March 31, 2005 (56% as
at March 31, 2004).
Saving deposits have shown a strong three-year growth of 19%. Thus, despites a
reduction in the proportion of current account deposits, low-cost deposits have
continued to constitute over 40% of total deposits as at March 31, 2005. The
bank’s cost of deposits (excluding IMD) has significantly reduced to 4.70% for the
2004-05 (refers to financial year from April 1 to March 31), compared with 5.48%
in 2003-04. The bank’s liquidity position is very strong due to healthy accretion to
deposits, large limits in the call market, and significant surplus SLR investment.
SBI will maintain its strong funding profile and a low cost resource position in
view of its strong retail base and wide geographical reach.
Management strategies
In retail finance, the bank has leveraged its corporate relationships, pursued
business growth selectively, and has not completed based on interest rate. The
bank has taken initiatives like on-line tax returns filing and faster transfer of funds
to protect its dominant position in the government business. The bank also has a
clear technology strategy that will enable it to compete with the new generation
private sector banks in customer service and operational efficiency.
Business description
SBI along with its associate banks offer a wide range of banking products and
services across its different client markets. The bank has entered the market of
term lending to corporate and infrastructure financing, traditionally the domain of
the financial institutions. It has increased its thrust in retail assets in the last two
years, and has built a strong market position in housing loans.
SBI, through its non-banking subsidiaries, offers a host of financial services, viz.,
merchant banking, fund management, factoring, primary dealership, broking,
investment banking and credit cards. SBI has commenced its life insurance
business by setting up a subsidiary, SBI Life Insurance Company Limited, which is
a joint venture with Cardiff S.A., one of the largest insurance companies in france.
SBI currently holds 74% equity in the joint venture.
Industry prospects
To leverage benefits such as access to low cost resources and the facility to provide
a large gamut of services, a number of finance companies such as Kotak Mahindra
Finance Limited and HDFC Limited have promoted banks. Simultaneously, yet
another emerging trend is that of foreign banks promoting NBFCs to benefits from
regulatory flexibility available to such entities in areas like absence of statutory
liquidity ratio and cash reserve ratio requirements, priority sector requirements,
and corporate exposure limits.
Case Study: State Bank of India, World's Largest
Centralized Core Processing Implementation
TowerGroup Take-Aways
• The State Bank of India (SBI), the largest and oldest bank in India, had
computerized its branches in the 1990s, but it was losing market share to private-
sector banks that had implemented more modern centralized core processing
systems.
• To remain competitive with its private-sector counterparts, in 2002, SBI began
the largest implementation of a centralized core system ever undertaken in the
banking industry.
• The State Bank of India selected Tata Consultancy Services to customize the
software, implement the new core system, and provide ongoing operational support
for its centralized information technology.
• Although SBI initially planned to convert only 3,300 of its branches, it was so
successful that it expanded the project to include all of the more than 14,600 SBI
and affiliate bank branches.
• The State Bank of India has achieved its goal of offering its full range of products
and services to all its branches and customers, spreading economic growth to rural
areas and providing financial inclusion for all of India's citizens.
Report Coverage
The implementation of the Tata Consultancy Services (TCS) BaNCS Core
Banking at the State Bank of India (SBI) and its affiliate banks represents the
largest centralized core system implementaion ever undertaken. The overall effort
included the conversion of approximately 140 million accounts held at 14,600
domestic branches of SBI and its affiliate banks. This TowerGroup Research Note
is a case study that overviews the history of the State Bank of India and details the
effort to modernize the bank's core processing systems. It also identifies the drivers
to modernization, the critical success factors, and the conversion methodology. For
a broader overview of the Indian core systems market, see TowerGroup Research
Note V47:13R, Looking for State-of-the-Art Core Banking? Try India.
Background
The State Bank of India is the oldest and largest bank in India, with more than
$250 billion (USD) in assets. It is the second-largest bank in the world in number
of branches; it opened its 10,000th branch in 2008. The bank has 84 international
branches located in 32 countries and approximately 8,500 ATMs. Additionally,
SBI has controlling or complete interest in a number of affiliate banks, resulting in
the availability of banking services at more than 14,600 branches and nearly
10,000 ATMs.
SBI traces its heritage to the 1806 formation of the Bank of Calcutta. The bank was
renamed the Bank of Bengal in 1809 and operated as one of the three premier
"presidency" banks (the presidency banks had the exclusive rights to manage and
circulate currency and were provided capital to establish branch networks). In
1921, the government consolidated the three presidency banks into the Imperial
Bank of India. The Imperial Bank of India continued until 1955, when India's
• The State Bank of India (SBI), the largest and oldest bank in India, had
computerized its branches in the 1990s, but it was losing market share to private-
sector banks that had implemented more modern centralized core processing
systems.
• To remain competitive with its private-sector counterparts, in 2002, SBI began
the largest implementation of a centralized core system ever undertaken in the
banking industry.
• The State Bank of India selected Tata Consultancy Services to customize the
software, implement the new core system, and provide ongoing operational support
for its centralized
Information Technology.
• Although SBI initially planned to convert only 3,300 of its branches, it was so
successful that it expanded the project to include all of the more than 14,600 SBI
and affiliate bank branches.
• The State Bank of India has achieved its goal of offering its full range of products
and services to all its branches and customers, spreading economic growth to rural
areas and providing financial inclusion for all of India's citizens.
Central bank, the Reserve Bank of India, acquired the majority interest in the bank
and changed its name to the State Bank of India (SBI). In 1959, the Indian
government passed the State Bank of India Act, resulting in the acquisition
(majority shareholding) of eight state-affiliated banks and the creation of the State
Bank of India Group (SBI Group). The SBI itself is now majority owned by the
Indian government, which purchased the shares held by the Reserve Bank of India.
The State Bank of India and its affiliate banks are profiled in Exhibit 1.
Unlike private-sector banks, SBI has a dual role of earning a profit and expanding
banking services to the population throughout India. Therefore, the bank built an
extensive branch network in India that included many branches in low-income
rural areas that were unprofitable to the bank. Nonetheless, the branches in these
rural areas bought banking services to tens of millions of Indians who otherwise
would have lacked access to financial services. This tradition of "banking
inclusion" recently led India's Finance Minister P. Chidambaram to comment, "The
State Bank of India is owned by the people of India."
A lack of reliable communications and power (particularly in rural areas) hindered
the implementation of computerization at Indian banks throughout the 1970s and
1980s. During this period, account information was typically maintained at the
local branches with either semi automated or manual ledger card processing.
During the 1990s, the Indian economy began a period of rapid growth as the
country's low labor costs, intellectual capital, and improving telecommunications
technology allowed India to offer its commercial services on a global basis.
This growth was also aided by the government's decision to allow the creation of
private-sector banks (they had been nationalized in the 1960s). The private-sector
banks, such as ICICI Bank and HDFC Bank, altered the banking landscape in
India. They implemented modern centralized core banking systems and electronic
delivery channels that allowed them to introduce new products and provide greater
convenience to customers. As a result, the private-sector banks attracted middleand
upper-class customers at the expense of the public-sector banks. Additionally,
foreign banks such as Standard Chartered Bank and Citigroup used their advanced
automation capabilities to gain market share in the corporate and high-net-worth
markets.
State Bank of India Core Systems Modernization
SBI had undertaken a massive computerization effort in the 1990s to automate all
of its branches, implementing a highly customized version of Kindle Banking
Systems' Bank master core banking system (now owned by Misys). However,
because of the bank's historic use of local processing and
the lack of reliable telecommunications in some areas, it deployed a distributed
system with operations located at each branch. Although the computerization
improved the efficiency and accuracy of the branches, the local implementation
restricted customers' use to their local branches and inhibited the introduction of
new banking products and centralization of operations functions. The local
implementation prevented the bank from easily gaining a single view of corporate
accounts, and management lacked readily available information needed for
decision making and strategic planning.
The advantages in products and efficiency of the private-sector banks became
increasing evident in the late 1990s as SBI (and India's other public-sector banks)
lost existing customers and could not attract the rapidly growing middle market in
India. In fact, this technology-savvy market segment viewed the public-sector
banks as technology laggards that could not meet their banking needs. As
a result, the Indian government sought to have the public-sector banks modernize
their core banking systems. In response to the competitive threats and entreaties
from the government, SBI engaged KPMG Peat Marwick (KPMG) in 2000 to
develop a technology strategy and a modernization road map for the bank.
In 2002, bank management approved the KPMG-recommended strategy for a new
IT environment that included the implementation of a new centralized core
banking system. This effort would encompass the largest 3,300 branches of the
bank that were located in city and suburban areas. The State Bank of India's
objectives for its project to modernize core systems included:
• The delivery of new product capabilities to all customers, including those in rural
areas
• The unification of processes across the bank to realize operational efficiencies
and improve
customer service
• Provision of a single customer view of all accounts
• The ability to merge the affiliate banks into SBI
• Support for all SBI existing products
• Reduced customer wait times in branches
Challenges for the bank
The bank faced several extraordinary challenges in implementing a centralized
core processing system. These challenges included finding a new core system that
could process approximately 75 million accounts daily- a number greater than any
bank in the world was processing on a centralized basis. Moreover, the bank lacked
experience in implementing centralized system, and its large employee base took
great pride in executing complex transactions on local in branch systems. This
practice led some people to doubt that the employees would effectively use the
new.
System another challenge was meeting SBI’s unique product requirements that
would require the bank to make extensive modifications to a new core banking
system. The products include gold deposits (by weight), saving accounts with
overdraft privileges, and an extraordinary number of passbook savings accounts.
Vendor consortium selection
Recognizing the need for large-scale centralized systems expertise, SBI sought
proposals from a number of vendor consortiums that were headed by the leading
systems integrators. From these proposals, the bank narrowed down the potential
solutions to vendor consortiums led by IBM and TCS. The TCS group included
Hewlett-Packard, Australia-based Financial Network Service.
Although SBI favored the real-time processing architecture of FNS’s BANCS
system over that of the IBM consortium’s memo post/batch update architecture,
the bank had several concern about the TCS consortium proposal. They included
the small size and relatively weak financial strength of FNS (TCS would
eventually purchase FNS in 2005) and the ability of the UNIX-based system to
meet the scalability requirements of the bank. Therefore, it was agreed that TCS
would be responsible for the required systems modifications and ongoing software
maintenance for SBI. Additionally, scalability tests were performed at HP’s lab in
Germany to verify that the system was capable of meeting the bank’s scalability
requirements. These tests demonstrated the capability of TCS BANCS to support
the processing requirements of 75 million accounts and 19 million daily
transactions.
Tata Consultancy Services and TCS BaNCs
Tata Consultancy Services, headquartered in Mumbai, India, is one of the world’s
largest technology companies with particular expertise in systems integration and
business process outsourcing. The company has more than 130,000 employees
located in 42 countries and achieved revenues of $5.7 billion in fiscal 2008.
Although TCS has long been a leader in core systems integration services for
banks, after it purchased FNS in 2005, the company also became a leading global
provider of core banking software for large banks. The BaNCS system is based on
service-oriented architecture (SOA) and is platform and database independent. In
addition to SBI, TCS BaNCS clients include the Bank of China (installation in
process), China Trust, Bank Negara Indonesia, India’s Bank Maharashtra, National
Commercial Bank (Saudi Arabia), and Koram Bank (Korea). TCS has also
expanded its US footprint with the opening of its largest resource delivery center in
North America (near Cincinnati, Ohio) that can house 20,000 personnel. The
company is seeking to license and implement the BaNCS system in North America
and recently completed a major part of an effort to ensure that the BaNCS system
meets US regulatory and compliance requirements.
Initial SBI Core Systems Modernization project
The contract for the initial project was completed in May 2002; 3,300 branches
were to be converted by mid-2007. TCS immediately began a six-month gap
analysis effort to determine the required software changes to the BaNCS system.
The changes included installing required interfaces with more than 50 other
systems as well as making enhancements to support the bank’s product
requirements. These product requirements were separated by customer segment to
allow the vendor and bank to begin conversions before all the needed changes that
would allow branches with high-net-worth individuals and then corporate account
to be converted as soon as possible. Before the first conversion in August 2003,
TCS and HP created the data processing environment for SBI. The primary data
center was established on the outskirts of Mumbai and a backup center was
established approximately 1,000 miles to the east in Chennai. The centers were
equipped with HP superdome severs and XP storage systems in a failover
configuration utilizing HP’s UNIX operating platform. Initial Conversion Project
The conversion effort began in August 2003, when SBI converted three pilot
branches was followed by the conversion of 350 retail branches with high-net-
worth customers between August 2003 and September 2004. At this point, the
bank intentionally halted the conversions to analyzed, categorized and prioritized
these problems by type of resolutions (e.g., software, procedural, training) and
severity. TCS managed software revisions for the critical software changes while
the branch personnel manage the needed training and procedural changes. After the
software and procedural changes were implemented, SBI converted an additional
800 branches between December 2004 and March 2005. Unlike in the previous
conversions, this group of branches included predominantly commercially oriented
offices. The conversion efforts then refocused on retail branches until November
2005, when the bank paused again to resolve problems that came up during this
second group of conversions.
After the second round of changes, the system and processes were functioning
smoothly, and management believed the branch conversion could be accelerated.
An assembly line approach was then employed in April 2006 to speed the branch
conversion process.
Branch personal were responsible for data scrubbing and cleaning of their
customer information on the existing system.
Branches were notified three months prior to their conversion date to
begin “mock,” or test, conversions using a specially created test version
of the BaNCS system.
Branches performed several test conversions to ensure the actual
conversion went smoothly. As the new core banking system was rolled
out across the SBI branches nationwide, a special process was introduced
in the nightly batch window to add the new branches. The process
increased batch processing time approximately 20 minutes and typically
included adding branches in groups of 50. This additional process, of
course, was unnecessary upon completion of the rollout and has since
been removed from the nightly batch window. TCS and local area branch
managers oversaw the conversion, and the bank’s circle (regional) heads
formally reported the status to the chairman’s office. By employing the
assembly line approach for branch conversion, SBI was able to convert
1,200 branches in April and May 2006, completing the initial 3,300
branches conversion two months ahead of the original schedule. The
milestones for the initial core systems implementation.
As the rollout plans for State Bank of India were being finalized, the bank
decided to extend the scope of the core banking implementation to
include its (then) eight affiliate banks. TCS created a separate processing
environment within the Mumbai data center used to support SBI. The
conversion effort for each of the affiliate banks spanned 18 to 24 month;
the first six months were used for planning, training and establishing the
processing environment for the banks. The branch conversion overlapped
among the banks, allowing all the affiliate banks to be converted in 30
months. The project was begun in July 2003 for the State Bank of Patiala
and in 2004 for the other affiliate banks. All of the affiliate bank branches
were converted to the BaNCS system by the end of 2005, as reflected n
Exhibit2.
State Bank of India Full Branch Conversion
The success of the initial 3,300-branch conversion for SBI demonstrated that:
TCS had the technical capabilities to support the bank’s IT initiative and
scale of operations.
Bank personnel had the skills to adopt new processes and support the
conversions.
The Indian customer base would react to new technology by adopting new
electronic services and demanding new, more sophisticated banking
products.
An assembly line approach could be used effectively to support large-scale
branch conversions.
COMPANY BACKGROUND
Industry Name Finance – Banks – Public Sector
House Name SBI Group
Year Of Incorporation 1955
Refd. Office
Address State Bank Bhavan, Central Office,
District Mumbai
State Maharashtra
Pin Code 400021
Tel. No. 022-22883888,22022678
Fax. No. 022-22855348
Email : investor.complaints@sbi.co.in Internet: http://www.sbi.co.in
Auditors- B M Chatrath & Co.
Name Datamatrics Financial Software & Services Ltd.
Address Plot No.B5, MIDC, Part B
Mumbai-400093, Maharashtra
Cross Lane, Marol, Andheri (E),
Tel. No.:28213383 - 90
BOARD OF DRECTORS
Name Designation
Pratip Chaudhuri Chairman / Chair Person
A Krishna Kumar Managing Director
Ashok Jhunjhunwala Director
S Venkatachalam Director
G D NaDaf Director
Parthasarthy lyengar Director
Subir Vithal Gokran Director
Hemant G Contractor Managing Director
Diwakar Gupta Managing Director
Dileep C Choksi Director
D Sundaram Director
Rashpal Malhotra Non Official Part Time Director
D K Mittal Director
FUNCTIONS
The State Bank of India acts as an agent of the Reserve Bank of India and performs
the following functions:
1) Borrows money:- The bank borrows money from the public by accepting
deposits such as current account deposits, fixed deposits and savings
deposits.
2) Lends money:- It lends money to merchants and manufacturers for short
period. It also lends to farmers and co-operative institutions. It lends mostly
on the security of easily realizable commodities like rice, wheat, cotton, oil-
seeds, cloth, gold and government securities. The bank can lend against
agriculture bills up to a maximum period of fifteen months and incase of
other bills up to a maximum period of six months.
3) Banker’s Bank:- The State Bank of India acts as the banker’s bank. In
discharging this responsibility, the bank provides loans to commercial bank
when required and also rediscount their bill. It also acts as the clearing house
of the commercial bank.
4) Government’s Bank:- The State Bank of India also acts as the agent of the
Reserve Bank of India. As an agent, the State Bank of India maintains the
treasuries of the State Government. The Bank also manages the debts floated
by the State Governments.
5) Remittance:- The State Bank of India facilitates remittance of money from
one place to another. It also helps in the transfer on the funds of the State
and Central Government.
6) Function as Central Bank:- The State Bank of India performs the functions
of a Central Bank.
7) Subsidiary functions:- The State Bank performs various subsidiary services
also. It collects checks, drafts, bill of exchange, dividends interest, salaries
and pensions on behalf of its customers. It purchases and sells securities in
behalf of its customers. It receives valuables and documents for safe custody
and maintains safe deposit vaults.
The Bank has become the First public sector bank to offer fixed-rate home
loans.
The State Bank of India has tied up with State Bank of Mysore to launch co-
branched credit cards as part its strategy to collaborate with associate banks to
expand its cardholder base.
Central Depository Services (India) Ltd has signed an agreement with
State Bank of India as its Depository participant.
State Bank of India and the Exim Bank of the US have signed a memorandum
of Understanding, involving 0 million, to support the small and
Medium-sized Indian companies to purchase US goods and services.
Mr. Suresh Kumar Mehra, Workmen Directors, ceased to be a member of the
Central Board of the bank effect from October 1, due to his retirement at the
close of the business on September 30.
BIBLIOGRAPHY
SITES
www.rbi.org.in
www.indiainfoline.com
www.sbi.com
www.wikipedia.com
CONSLUSION
SBI’S achievement demonstrates that attention to critical factors is crucial in
implementing new core systems. The bank’s senior management commitment
business line involvement, project team staffing and empowerment, and extensive
employee training were all key contributors to the success of the project.
Management also recognized the need for a proven systems integrator that
processed in-depth expertise in both business and technology. Core systems
modernization has allowed the State Bank of India to centralize computer
processing and operations functions, offer new banking products to all the citizens
of India, reverse a trend of customer attrition, and consolidate its affiliate banks.
Additionally, the bank can now future expand its product offerings and improve
customer service.
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