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.