Strategies of Sbi Assnmnt

8/8/2019 Strategies of Sbi Assnmnt

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BUSINESS STRATEGY

OF

State Bank of India

PREPARED BY

PANKAJ DOBARIYA



Changing strategies of banks

In the Past

• Maintaining profitability• Credit Portfolio Management• Service Quality• Regional Economy• Cost Management / Expensereduction•

Declining Earnings/ moreFailures

At Present

• Service quality• Maintaining profitability• Market / customer focus• Operations/systems/technology• Credit portfolio management•

Productivity improvement• Investment to staycompetitive



Strategic Evolution of SBI

Strategy can be defined as the periodic changes a businessmust introduce to its structure and operations in order toensure continuity in the face of environmental changes. Thestrategic evolution of a business can thus be understood interms of major social institutions such as the State, the market,community or civil society and their interrelationships that mayhave a bearing on its working and thereby the achievement of the principle objectives of its establishment.

Historians recognize moments of profound change when thebalance of power or influence shifts between these institutions.

The SBI is a dynamic organization and has been continuouslychanging its form to adapt to its environment. Here, we haveexamined its vicissitudinal nature with respect to three keyenvironmental factors:

• Ownership and governance• Business processes• Structures and systems



Mission statement:

To retain the banks position as the premier Indian financialservices. It also aims to be a group with world class standardsand significant global business commitments to excellence incustomer, shareholder and employee satisfaction so as to playa leading role in expanding and diversifying financial serviceswhile continuing emphasis on its development banking role.

Vision:

To be a premier Indian financial services group with globalperspective, world class standard of the efficiency andprofessionalism and also its core institutional values, To retainits position in the country as a pioneer in developing countries,It also aims to maximize its shareholders value through highsustained earnings per share, To become an institution with aculture of mutual care and commitment. It also focuses on apleasant 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



Key Areas of Operations

The business operations of SBI can be broadly classified intothe key income generating areas Such as National Banking,International Banking, Corporate Banking, & Treasuryoperations.

Generic strategies adopted by State Bank

of India:• Institution for advanced learning: to provide state of theart training in financial products to middle level and senior levelexecutives.• Internal consultant/change agent: to act as a catalyst forchange in attitudes and orientation of banking staff and toprovide expertise and consultative support• Feedback supplier: to capture and structure feedback fromtrainees and from the market• Think tank: to provide expert and inform suggestions,model business strategies, analysis of market developmentsfrom a banker perspective.• Research and development role: to carry out research oncontemporary subjects that are relevant to the banks shortterm and medium term and operational needs and policyformulation



• Overlapping staff training centres: to validate and closelymonitor the staff training centres in seven circles attached tothe academy.



Centralization and Decentralization

It has a well-defined system for decision making process. Thefinancial decisions are taken at various levels by differentofficials depending upon their positions and also throughcommittee approach. The centralized credit processing cells arebeing formed at certain centres for sanction of personalsegment loans and under SBI segments. Its branches sourcethe applications and forward them to the respective creditprocessing sale for their consideration. Regarding the sanctionof loan each officer of the bank considers the loan proposalsand takes a decision in terms of scheme of delegation of powers, on merits of proposal. If the bank needs to purchaseany kind of equipment like computers or software branchmanagers are required to take permission from high authority.So in term of decision making centralization is high and lowdecentralization wherein the managers have some powers totake decision but at a limited base.



The Restructuring

To overcome the intense competition from private and foreignbanks, SBI planned a major organizational restructuringexercise.

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 asconsultants. The BPR's basic goal was to create anoperating architecture that would facilitate service deliveryof 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,➢ simplifying process for employees,➢ enhancing SBI's competitiveness in the market,➢ increasing the profitability through higher market shareand improved process efficiency"



New Products and Services

Apart from restructuring, SBI launched several innovative,value-added products and services to project a customerfriendly image. It launched a special service for corporatecustomers called 'telebanking and remote login' to supporttransactional requests. This facility would be available at 593branches, and remote login at 269 branches. The banks tradefinance solutions, called EXIMBILLS, were intended to handletrade 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 9000branches across India in the next two years. All the branches inMumbai are providing this facility. SBI also launched differentcustomized loan programs to cater to various sections of society depending on income levels and repaymentcapabilities. Interest rates and repayment periods were tailor-made to suit the customer groups.

SBI`s Strategies in the current scenario

SBI have set up capacity in places where they are not verystrong. 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 pastexpansion, since there is a lot of trust in SBI. Brand SBI is verystrong, while people may be generally cautious about someother brands. They can not only tap the potential better but canalso provide a safe and transparent insurance alternative to thepublic.

The bank is entering into many new businesses with strategictie ups – Pension Funds, General Insurance, Custodial Services,Private Equity, Mobile Banking, Point of Sale MerchantAcquisition, Advisory Services, structured products etc – eachone of these initiatives having a huge potential for growth.

Some of the strategies to cope with the current scenarioare listed below:• It is the part of SBI`s philosophy to open new branches .TheBank is forging ahead with cutting edge technology and



innovative new banking models, to expand its Rural Bankingbase, looking at the vast untapped potential in the hinterlandand 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 salebanking capabilities to provide India’s growing mid / largeCorporate with a complete array of products and services. It isconsolidating its global treasury operations and entering intostructured products and derivative instruments. Today, theBank is the largest provider of infrastructure debt and thelargest arranger of external commercial borrowings in thecountry. It is the only Indian bank to feature in the Fortune 500list. The Bank is changing outdated front and back end

processes to modern customer friendly processes to helpimprove the total customer experience. With about 8500 of itsown 10000 branches and another 5100 branches of itsAssociate Banks already networked, today it offers the largestbanking network to the Indian customer. The Bank is also in theprocess of providing complete payment solution to its clientelewith its over 8500 ATMs, and other electronic channels such asInternet banking, debit cards, mobile banking, etc.

•

Country’s largest lender, State Bank of India (SBI) hasprepared a blueprint to go retail in its international operations.Such strategy would help the bank to promote its lead insyndication of loans in the overseas market, at a cheaper cost.

The bank’s overseas operations have been instructed to thrustmore on promoting retail banking locally, SBI is assessing thatby opening more branches across foreign locations andpromoting retail services by mobilising deposits at interestrates as low as 3-3.5%, the bank will be able to increase its

operating margins by 250-300 basis points in overseas marketswhere syndication opportunities arise often.SBI is expected toopen seven new branches over next eight months in the UnitedKingdom where it operates six branches currently. Also, SBI’sWashington office is expected to get upgraded as a full-fledgedbranch by December 2009 and plans are afoot to open morebranches across North America under the control of CaliforniaState chartered subsidiary of State Bank of India (California).

•

In response to signals from the central bank, SBI haveprogressively reduced their PLR from 13.75% to 12.25% during



the past few months in stages, and further softening in interestrates cannot be ruled out. SBI is introducing loan products atsub-PLR rates - in home loans at 8%, auto loans at 10%, specialproducts for SMEs and... agriculture sector at 8%, but it may

not be possible for them to reduce the interest rate beyond acertain point.

• SBI is working on infrastructure sector projects, which hasseen a growth of 26% in the current year. For the year 2008 theRs 10,000 crores was sanctioned for the infrastructure projectswhile in the current year from April 08 to February 09 theamount sanctioned for the infrastructure project is Rs 13,000crores,out of which project worth Rs 8000 crore is in pipeline.

Despite of various viability issues the growth in this sector forSBI is been intact.

• With market-linked products finding fewer takers, insurancecompanies are launching more “guaranteed” products to lureinvestors. The latest to join the bandwagon is SBI Life insurancewith SBI Smart ULIP, a product that guarantees returns basedon the highest NAV recorded by the fund in the first sevenyears .

SWOT analysis:

Strengths:➢ Brand name: SBI Bank has earned a reputation in the marketover the period of time (Being the oldest bank in India tracinghistory 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 anasset base of $126 billion and its reach, it is a regional bankingbehemoth.➢ Wide Distribution Network: Excellent penetration in thecountry with more than 10000 core branches and more than5100 branches of associate banks (subsidiaries).➢ Diversified Portfolio: SBI Bank has all the products under itsbelt, which help it to extend the relationship with existingcustomer’s Bank has umbrella of products to offer theircustomers, if once customer has relationship with the bank.Some Products, which SBI Bank is offering are: Retail Banking



Business Banking Merchant Establishment Services (EDCMachine) 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 costswhich attracts small customers.➢ Continued effort to increase low cost deposit would ensureimprovement 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).➢ Modernisation: SBI lags with respect to private players interms of modernisation of its processes, infrastructure,centralisation, etc.➢ SBI is currently operating at a lowest CAR(8%). Insufficientcapital may restrict the growth prospects of the bank goingforward.➢ Delay in technology up gradation could result in loss of

market shares.➢ Management indicated a likely pension shortfall on accountof 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 riskto the bank.

Opportunities:➢ Merger of associate banks with SBI: Merger of all theassociate banks (like SBH, SBM, etc) into SBI will create a megabank 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 numberof expatriate populations offers a great opportunity to expandon foreign soil.➢ Global expansion: SBI already has expanded globally andstart its operations internationally in 32 countries like Australia,Bangladesh, etc.... and has more plans of expansion in otherglobal markets.➢ Growing retail & SMEs thrust would lead to higher businessgrowth.➢ Micro Finance: there is a lot of growth opportunity in thearea of micro finance.➢ Strong economic growth would generate higher demand forfunds pursuant to higher Corporate demand for credit onaccount of capacity expansion.



Threats:

➢ Advent of MNC banks: Large numbers of MNC banks aremushrooming in the Indian market due to the friendly policiesadopted by the government. This can increase the level of competition and prove a potential threat for the market shareof SBI bank.➢ Consumer expectations have increased many folds in lastfew years and the bank has not been responsive enough tomeet them on time.➢ Private banks have started venturing into the rural and semi-

urban sector, which used to be the bastion of the State Bankand other PSU banks➢ Employee Strike: There was an employee strike in the year2006 which disrupted SBI’s activities. This can be repeated inthe future.➢ Stiff competition, especially in the retail segment, couldimpact retail growth of SBI and Hence slowdown in earningsgrowth.➢ 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:

1. Threat of competitors: Top Performing Public Sector Banks

a. Andhra Bankb. Allahabad Bankc. Punjab National Bankd. Dena Banke. Vijaya Bank

Top Performing Private Sector Banksa. HDFC Bankb. ICICI Bankc. AXIS Bankd. Kotak Mahindra Banke. Centurion Bank of Punjab

Top Performing Foreign Banksa. Citibankb. Standard Charteredc. HSBC Bankd. ABN AMRO Banke. American Express

2. Threat of new entrants: there have been many newentrants in banking sector like yes bank

3. Threat of substitutes : investors as a substitute can alwaysinvest into the capital markets instead of depositing in theircapital in the bank.

4. Buying power of suppliers : changing policies andguidelines 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 attractiveoptions available to customers.



BCG theory: cash cow

There is a lot of growth potential for the banking industrybecause of increasing disposable income of customers,increasing working class, more volatility in other markets alsoincreasing importance of savings and in this banking industrySBI has shown a growth rate of 13% with a 21 % increase inPAT standing to 62.1 cr in the FY 2008-09. Hence, it can beconcluded that SBI stands at cash cow in BCG matrix.

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Strategies of Sbi Assnmnt