1. Indian Banking System: The Current State & Road Ahead
Introduction
Recent time has witnessed the world economy develop serious difficulties in terms of lapse of
banking & financial institutions and plunging demand. Prospects became very uncertain causing
recession in major economies. However, amidst all this chaos India’s banking sector has been
amongst the few to maintain resilience.
A progressively growing balance sheet, higher pace of credit expansion, expanding profitability
and productivity akin to banks in developed markets, lower incidence of nonperforming assets and
focus on financial inclusion have contributed to making Indian banking vibrant and strong. Indian
banks have begun to revise their growth approach and re-evaluate the prospects on hand to keep
the economy rolling. The way forward for the Indian banks is to innovate to take advantage of the
new business opportunities and at the same time ensure continuous assessment of risks.
A rigorous evaluation of the health of commercial banks, recently undertaken by bank on Financial
Sector Assessment (CFSA) also shows that the commercial banks are robust and versatile. The
single-factor stress tests undertaken by the CFSA divulge that the banking system can endure
considerable shocks arising from large possible changes in credit quality, interest rate and liquidity
conditions. These stress tests for credit, market and liquidity risk show that Indian banks are by
and large resilient.
Thus, it has become far more imperative to contemplate the role of the Banking Industry in
fostering the long term growth of the economy. With the purview of economic stability and growth,
greater attention is required on both political and regulatory commitment to long term development
programme. FICCI conducted a survey on the Indian Banking Industry to assess the competitive
advantage offered by the banking sector, as well as the policies and structures that are required to
further the pace of growth. The results of our survey are given in the following sections.
General Banking Scenario
The pace of development for the Indian banking industry has been tremendous over the past
decade. As the world reels from the global financial meltdown, India’s banking sector has been
one of the very few to actually maintain resilience while continuing to provide growth opportunities,
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2. a feat unlikely to be matched by other developed markets around the world. FICCI conducted a
survey on the Indian Banking Industry to assess the competitive advantage offered by the banking
sector, as well as the policies and structures required to further stimulate the pace of growth.
The predicament of the banks in the developed countries owing to excessive leverage and lax
regulatory system has time and again been compared with somewhat unscathed Indian Banking
Sector. An attempt has been made to understand the general sentiment with regards to the
performance, the challenges and the opportunities ahead for the Indian Banking Sector.
A majority of the respondents, almost 69% of them, felt that the Indian banking Industry was in a
very good to excellent shape, with a further 25% feeling it was in good shape and only 6% of the
respondents feeling that the performance of the industry was just average. In fact, an
overwhelming majority (93.33%) of the respondents felt that the banking industry compared with
the best of the sectors of the economy, including pharmaceuticals, infrastructure, etc.
Most of the respondents were positive with regard to the growth rate attainable by the Indian
banking industry for the year 2009-10 and 2014-15, with 53.33% of the view that growth would be
between 15-20% for the year 2009-10 and greater than 20% for 2014-15.
(Source: Annual survey, February 2010)
(FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY)
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3. On being asked what is the major strength of the Indian banking industry, which makes it resilient
in the current economic climate; 93.75% respondents feel the regulatory system to be the major
strength, 75% economic growth, 68.75% relative insulation from external market, 56.25% credit
quality, 25% technological advancement and 43.75% our risk assessment systems.
Change is the only constant feature in this dynamic world and banking is not an exception. The
changes staring in the face of bankers relates to the fundamental way of banking-which is going
through rapid transformation in the world of today. Adjust, adapt and change should be the key
mantra. The major challenge faced by banks today is the ever rising customer expectation as well
as risk management and maintaining growth rate. Following are the results of the biggest
challenge faced by the banking industry as declared by our respondents (on a mode scale of 1 to
7 with 1 being the biggest challenge)
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4. (Source: Annual survey, February 2010)
(FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY)
As technology ingrains itself in all aspects of a bank’s functioning, the challenge lies in exploiting
the potential for profiting from investments made in technology. A lot needs to be done on the
technological front to keep in pace with the global economies, as is evident from the survey
results. Technology systems of Indian banks have been rated more advanced than Brazil and
Russia but below par with China, Japan, Hong Kong, Singapore, UK and USA. They find no
change on introspection of their past surveys which also highlighted the need for Indian banks to
pace up in adoption of advanced technology.
(Source: Annual survey, February 2010)
(FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY)
Global Expansion of Indian Banking
The idea of creating bigger banks to take on competition sounds attractive but one must realize
even the biggest among Indian banks are small by global standards. The lack of global scale for
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5. Indian banks came into sharp focus during the recent financial crisis which saw several
international banks reneging on their funding commitments to Indian companies, but local banks
could not step into the breach because of balance sheet limitations.
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6. (Source: Annual survey, February 2010)
(FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY)
We see from the above graph that amongst organic means of expansion, branch expansion finds
favor with banks while strategic alliances is the most popular inorganic method for banks
considering scaling up their operations. On the other hand, new ventures and buyout portfolios are
the least popular methods for bank expansion.
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7. 7
(2)
Potential Entrants is high
as development financial
institutions as well as
private and Foreign Banks
have entered in a big way.
(1)
Rivalry among existing
firms has increased with
liberalization. New products
and improved customer
services is the focus.
(4)
Bargaining power of
buyers is high as corporate
can raise funds easily due
to high Competition.
(3)
The threat of substitute
product is very high like
credit unions and
investment houses. There
are other substitutes as
well banks like mutual
funds, stocks, government
securities, debentures,
gold, real estate etc.
(5)
Organizing power of the
supplier is high. With the
new financial instruments
they are asking higher
return on the investments.

8. 1. Rivalry among existing firms
With the process of liberalization, competition among the existing banks has increased. Each
bank is coming up with new products to attract the customers and tailor made Loans are
provided. The quality of services provided by banks has improved drastically.
Top performing public sector banks
a) Andhra Bank.
b) Allahabad Bank.
c) Punjab National Bank
Top Performing Private Sector Banks
a) ICICI Bank.
B) HDFC Bank.
C) AXIS Bank.
Top Performing Foreign Banks
a) Citi bank
b) Standard Chartered.
c) BOBBank
The banking industry is highly competitive. The financial services industry has been around for
hundreds of years and just about everyone who needs banking services already has them.
Because of this, banks must attempt to lure clients away from competitor banks. They do this by
offering lower financing, preferred rates and investment services. The banking sector is in a race to
see who can offer both the be stand fastest services.
2. Potential Entrants
Previously the Development Financial Institutions mainly provided project finance and
development activities. But they now entered into retail banking which has resulted into stiff
competition among the exiting players.
Starting a bank in a country like India is not as easy as any other industry, but if anew bank is
started that is mainly targeted on Niche Segments might pose a threat to SBI. The new entrants
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9. from a different country are always discouraged to take part in the financial and banking sector by
regulatory reforms limiting foreign presence. Threat from other non banking financial services
could also pose a threat especially equity investment, insurance etc. Entrant of a larger player
can cause a drastic effect on the not so strong name in banking or the bank with low income but
would not cause any significant affect on SBI.
3. Threats from Substitutes
Competition from the non-banking financial sector is increasing rapidly. The threat of substitute
product is very high like credit unions and in investment houses. There are other substitutes as
well banks like mutual funds, stocks, government securities, debentures, gold, real estate etc.
As you can probably imagine, there are plenty of substitutes in the banking industry. Banks offer a
suite of services over and above taking deposits and lending money, but whether it is insurance,
mutual funds or fixed income securities, chances are there is a non-banking financial services
company that can offer similar services. On the lending side of the business, banks are seeing
competition rise from unconventional companies. Sony, General Motors and Microsoft all offer
preferred financing to customers who buy big ticket items. But these substitutes do not affects
due to its huge brand name and presence in the market.
4. Bargaining Power of Buyers
Corporate can raise their funds through primary market or by issue of GDRs, FCCBs. As a result
they have a higher bargaining power. Even in the case of personal finance, the buyers have a
high bargaining power. This is mainly because of competition.
With the emergence of larger number of players in the Banking Industry, the switching cost of the
buyer has gone done significantly. The onus is now on the effectiveness and speed with which the
services are provided to the customers. Financial institutions - by offering better exchange rates,
more services, and exposure to foreign capital markets -work extremely hard to get high-margin
corporate clients. Options in the Auto Finance Sector also give the customers more power to decide
upon the kind of financing. Introduction of specialized products for Women and Students etc also
show that the buyer power is high in this Industry.
5. Bargaining Power of Suppliers
With the advent of new financial instruments providing a higher rate of returns to the
Investors, the investments in deposits is not growing in a phased manner. The suppliers
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10. demand a higher return for the investments.
The suppliers of capital do not pose a big threat, but the threat of suppliers taking away the
human resource. If a talented individual is working in a smaller regional bank, there is the chance
that person will be enticed away by bigger banks, investment firms, etc.
6. Overall Analysis
The key issue is how banks can leverage their strengths to have a better future. Since the
availability of funds is more and deployment of funds is less, banks should evolve new
products and services to the customers. There should be a rational thinking in sanctioning Loans,
which will bring down the NPAs. As there is a expected revival in the Indian economy Banks
have a major role to play.
Market share of firms
10
Name Advances Market share
SBI 1,955 22.7%
ICICI Bank 631 7.3%
Canara Bank 476 5.5%
PNB 472 5.5%
Bank of India 458 5.3%
Bank of Baroda 356 4.1%
HDFC Bank 177 2.1%
Standard Chartered 162 1.9%
Total 4,687 54.4%

11. ABOUT SBI:
The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet size,
number of branches, market capitalization and profits is today going through a momentous phase
of Change and Transformation – the two hundred year old Public sector behemoth is today stirring
out of its Public Sector legacy and moving with an ability to give the Private and Foreign Banks a
run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General
Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition,
Advisory Services, structured products etc – each one of these initiatives having a huge potential
for growth.
The Bank is forging ahead with cutting edge technology and innovative new banking models, to
expand its Rural Banking base, looking at the vast untapped potential in the hinterland and
proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s
growing mid / large Corporate with a complete array of products and services. It is consolidating its
global treasury operations and entering into structured products and derivative instruments. Today,
the Bank is the largest provider of infrastructure debt and the largest arranger of external
commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly
processes to help improve the total customer experience. With about 8500 of its own 10000
branches and another 5100 branches of its Associate Banks already networked, today it offers the
largest banking network to the Indian customer. The Bank is also in the process of providing
complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels
such as Internet banking, debit cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centers spread all over the
country the Bank is continuously engaged in skill enhancement of its employees. Some of the
training programs are attended by bankers from banks in other countries.
The bank is also looking at opportunities to grow in size in India as well as internationally. It
presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries in India
– SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards -
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12. forming a formidable group in the Indian Banking scenario. It is in the process of raising capital for
its growth and also consolidating its various holdings.
Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and take
all employees together on this exciting road to Transformation. In a recently concluded mass
internal communication programme termed ‘Parivartan’ the Bank rolled out over 3300 two day
workshops across the country and covered over 130,000 employees in a period of 100 days using
about 400 Trainers, to drive home the message of Change and inclusiveness. The workshops fired
the imagination of the employees with some other banks in India as well as other Public Sector
Organizations seeking to emulate the programme. The Bank is actively involved since 1973 in
non-profit activity called Community Services Banking. All their branches and administrative offices
throughout the country sponsor and participate in large number of welfare activities and social
causes.
Their business is more than banking because they touch the lives of people anywhere in many
ways. Their commitment to nation-building is complete & comprehensive.
TRANSFORMATION JOURNEY IN STATE BANK OF INDIA
The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet size,
number of branches, market capitalization and profits is today going through a momentous phase
of Change and Transformation – the two hundred year old Public sector behemoth is today stirring
out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a
run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General
Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition,
Advisory Services, structured products etc – each one of these initiatives having a huge potential
for growth.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s
growing mid/ large Corporate with a complete array of products and services. It is consolidating its
global treasury operations and entering into structured products and derivative instruments. Today,
the Bank is the largest provider of infrastructure debt and the largest arranger of external
commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly
processes to help improve the total customer experience. With about 8500 of its own 10000
branches and another 5100 branches of its Associate Banks already networked, today it offers the
largest banking network to the Indian customer. The Bank is also in the process of providing
complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels
such as Internet banking, debit cards, mobile banking, etc.
The CNN IBN, Network 18 recognized this momentous transformation journey, the State Bank of
India is undertaking, and has awarded the prestigious Indian of the Year – Business, to its
Chairman, Mr. O. P. Bhatt in January 2008.
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13. 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.
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% shareholdings 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 corner of India. As
on September 06, the bank has 14,061 branches which include 4,755 branches of its associated
banks. The bank also has the largest network of 5,624 ATMs.
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 of over 14,000 branches (including subsidiaries). Apart from Indian 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, Kolkata Stock Exchange,
Chennai Stock Exchange and Ahmadabad Stock Exchange while its GDRs are listed on the
London Stock Exchange.
SBI group accounts for around 25% of the total business of the banking industry while it accounts
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%.
EVOLUTION OF SBI:
The origin of the State Bank of India goes back to the first decade of the nineteenth century with
the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank
received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique
institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal.
The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of
Bengal. These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.
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14. Imperial Bank
The Imperial Bank during the three and a half decades of its existence recorded an impressive
growth in terms of offices, reserves, deposits, investments and advances, the increases in some
cases amounting to more than six-fold. The financial status and security inherited from its
forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking which
the Imperial Bank consistently maintained and the high standard of integrity it observed in its
operations inspired confidence in its depositors that no other bank in India could perhaps then
equal. All these enabled the Imperial Bank to acquire a pre-eminent position in the Indian banking
industry and also secure a vital place in the country's economic life.
When India attained freedom, the Imperial Bank had a capital base (including reserves) of
Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and
a network of 172 branches and more than 200 sub offices extending all over the country.
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15. 15

16. 16

17. Key Areas of Operations
The business operations 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 operations.
These SBUs are as follows:
1) Corporate Accounts
This SBU is important for the bank as its loan portfolio constituted about 27.05% of the bank’s
commercial and institutional non-food credit and 12.85% of the total domestic credit portfolio 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.
4,705.75 bn as of 31st March 2006. This product is now comprehensive cash management
solution, offering payments in addition to collections.
• Vendor financing activity is being integrated with core banking through the internet platform. This
is identified as a focus area to capture the credit portfolio of vendors.
• The foreign exchange business grew by around 55% y-o-y and reached Rs.1,747.70 bn as of
31st March 2006. This SBU now handles nearly 12% of the country’s visible trade and about 43%
of bank’s forex business.
2) Leasing
This SBU is not writing any leases since the past few years as unfavorable business climate and
availability of alternative funding options at cheaper cost. As at the end March 2006, the
disbursements and capitalization were zero and profit amounted to Rs.245.9mn.
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18. 3) Project Finance
This SBU focuses on funding core projects like power, telecom, roads, ports, airports, special
economic zones and others. During FY06, total sanctions for 18 projects involving a total State
Bank of India, Corporate Banking, National Banking, International Banking, Treasury Operations
Associates & Subsidiaries amount of Rs.42.11bn were in place as against 13 projects involving
Rs.25.08bn in the previous year. It also handles non-infrastructure projects with certain ceilings on
minimum project costs. During FY06 sanctions for 29 projects involving a total amount of
Rs.55.80bn were in place as against 27 projects involving Rs.51.63bn in the previous year. As a
whole, this SBU achieved total sanctions of Rs.238.86bn (fund based and non fund based)
including syndication amount of Rs.140.95bn during the period ended March 2006. During FY06,
this SBU entered into financing of aviation sector actively by sanctioning loans for modernization of
airports and acquisition of aircrafts.
4) Mid Corporate Group
The Mid Corporate Group (MCG) created in June 2004 has 7 MCG Regional Offices controlling 28
large branches with high concentration of Mid Corporate (MC) business. The entire Off-Site MC
business of all branches at 31 identified centers has been brought under the fold of MCG. The
average processing time of credit proposals is about 15 days and quicker decision making on
credit proposals of the Mid Corporate units has resulted in greater customer satisfaction. As of
March 2006, 21 MCG branches have been migrated to core banking platform. New technology
products like RTGS, CINB, Multi-City cheque facility and Core Power have been introduced in all
these branches. These technology products coupled with quick Turn Around Time (TAT) have
enabled Mid-Corporate Group to increase its business substantially and generate higher income,
both interest and fee based.
5) Stressed Assets Management
During FY06, the banking industry witnessed a major policy initiative by Reserve Bank of India with
the opening up of sale / purchase of non performing assets to banks, FIs and non-banking finance
companies (NBFCs). During FY06, the bank sold NPAs to the tune of Rs.8.9bn against security
receipts and Rs.11.41bn on cash basis to Asset Reconstruction Company (ARCIL). The progress
in enforcing the security interest has somewhat slowed down due to the requirement of
withdrawing suits pending before the tribunal prior to action being initiated against the defaulting
borrowers under the SARFAESI Act.
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19. B) NATIONAL BANKING
The national banking group has 14 administrative circles encompassing a vast network of 9,177
branches, 4 sub-offices, 12 exchange bureaus, 104 satellite offices and 679 extension counters, to
reach out to customers, even in the remotest corners of the country. Out of the total branches, 809
are specialized branches. This group consists of four business group which are enumerated
below:
1) Personal Banking SBU
This SBU is mainly responsible for retail business. During FY06, personal banking advances
increased from Rs.464.51bn to Rs.610.67bn, showing a growth of Rs.146.16bn at the rate of 31.47
% against a growth rate of 40.12% in the previous year.
On the home loan front, several new products were introduced, tailored to fit the needs of specific
customer segments, such as SBI Maxgain (minimize interest burden, earn on savings, at no extra
cost), SBI NRI-Home Loans, SBI Freedom Home Loans (Loans given without mortgage of
property, but against alternate securities, instead), SBI Tribal Plus Home Loans. The auto loans
portfolio has shown a growth of Rs.17.74bn in absolute terms and 65% which is considerably
higher than last year’s growth, mainly due to implementation of well planned strategies.
2) Small & Medium Enterprises
The SME Business Unit implemented comprehensive strategies, revamped business processes
and with its focus on market dynamics and customer preferences, achieved commendable
business growth. The initiative was implemented by focusing on specific industry segments, and
concentrating on various players in the value chain. Debt restructuring mechanism for units in SME
sector has been devised to ensure restructuring of debt of all eligible Small and Medium
Enterprises (SMEs) on favorable terms.
Focused on the SME sector, projects under Up tech are taken up in location specific and activity
specific industry clusters. So far the bank has taken 28 projects for modernization under the
Project Up tech covering industries like foundry, pumps, glass, auto components, and knitwear,
etc. The bank has also covered agro based industries like rice mills, sago and starch and
horticulture activities like Apple Orchards and grape farming under the scheme. The deposits of
the SME SBU increased to Rs.1,042.70 bn as at the end of March 2006 from Rs.890.60bn of
previous year recording a growth of 17.08% during the year. SME advances increased to
Rs.456.53bn from Rs.328.30bn of previous year, recording a growth of 39.06 %. The criteria laid
down by the Government of India for growth in SME advances is 20%.
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20. 3) Agricultural Banking
This SBU is accountable for agricultural credit both traditional and new thrust areas like contract
farming, farmers financed through Agro Export Zones (AEZs) and value chain financing. Increase
in disbursements during FY06 was 83% against the Govt. of India target of 30%. Agricultural
advances grew from a level of Rs.205.26bn in FY05 to Rs.305.16bn as at the end of March 06. As
on November 2006, agriculture loans contribute 11% of the total loan book.
4) Government Banking
With the establishment of the government business unit and the consequent focus on marketing,
business turnover of this segment has grown substantially over the years. Bank’s business
turnover from the government business segment during 2004-05 was Rs.8,843.81 bn. The
turnover increased by 10.52 % to Rs. 9,773.90 bn during FY06.
C) INTERNATIONAL BANKING
SBI has a network of 73 overseas offices in 30 countries in all time zones and correspondent
relationship with 520 international banks in 123 countries. The bank is keen to implement core
banking solution to its international branches also. During FY06, 25 foreign offices were
successfully switched over to Finacle software. SBI has installed ATMs at Male, Muscat and
Colombo Offices. In recent years, SBI acquired 76% shareholding in Giro Commercial Bank
Limited in Kenya and PT Indomonex Bank Ltd. in Indonesia. The bank incorporated a company
SBI Botswana Ltd. at Gaborone.
D) TREASURY
The bank manages an integrated treasury covering both domestic and foreign exchange markets.
In recent years, the treasury operation of the bank has become more active amidst rising interest
rate scenario, robust credit growth and liquidity constraints. The bank diversified its operations
more actively into alternative assets classes with a view to diversify the portfolio and build
alternative revenue streams in order to offset the losses in fixed income portfolio. Reorganization
of the treasury processes at domestic and global levels is also being undertaken to leverage on
the operational synergy between business units and network. The reorganization seeks to
enhance the efficiencies in use of manpower resources and increase maneuverability of banks
operations in the markets both domestic as well as international
E) ASSOCIATES & SUBSIDIARIES
The State Bank Group with a network of 14,061 branches including 4,755 branches of its seven
Associate Banks dominates the banking industry in India. In addition to banking, the Group,
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21. through its various subsidiaries, provides a whole range of financial services which includes Life
Insurance, Merchant Banking, Mutual Funds, Credit Card, Factoring, Security trading and primary
dealership in the Money Market.
1) Associates Banks:
SBI has seven associate banks namely
• State Bank of Indore
• State Bank of Travancore
• State Bank of Bikaner and Jaipur
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Hyderabad
• State Bank of Saurashtra (which is merged with SBI in 2009)
All associate banks have migrated to Core Banking (CBS) platform. Single window delivery system
has been introduced in all associate banks. SBI’s seven associate banks are the first amongst the
public sector banks in India to get fully networked through CBS, providing anytime-anywhere
banking to its customers to facilitate a bouquet of innovative customer offerings.
2) Non-Banking Subsidiaries/Joint Ventures
i) SBI Life:
SBI Life is the third largest private insure with the market share of 10.21% among the private
players and number one in terms of number of lives insured amongst private players (no. of lives
insured and policies is 25mn). In H1FY07 gross premium was Rs.7.68bn.
ii) SBI Capital Markets Limited (SBICAP)
SBI Caps forged ahead in issue management, project advisory and structured finance, sales and
distribution. To capitalize on the emerging opportunities, SBI Caps has promoted four wholly
owned subsidiaries viz. SBICAP Securities Ltd. for undertaking stock broking activities, SBICAPS
Ventures Limited, SBICAP Trustee Company Limited for undertaking venture capital business and
SBI CAP (UK) LTD., for carrying on the Financial Services Authority (FSA) regulated activities. On
the international front, the expertise of SBI Caps in the infrastructure and project advisory has
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22. received international acclaim. In addition, the company has been placed 11th globally in the
Mandated Project Advisor league tables by Thompson’s, and one of the projects handled by the
company has been selected as the Asia Pacific Infrastructure deal of the year for FY06. SBI Caps
booked gross income amounting to Rs.1.79bn in FY06 as against Rs.1.75bn in the previous year,
while PAT of the company was at Rs.906.2mn in FY06 as against Rs.881.2mn in the last year.
3) SBI DFHI LTD
SBI group holds 67.01% of the company’s paid up capital, while other nationalized banks hold
22.46%. All India financial institutions and private sector banks hold 5.84% and the Asian
Development Bank holds 4.69% as on March 31, 2006. For the year ended 31st March, 2006, the
company has earned a PAT of Rs.24.4mn. Total secondary market turnover of the company was
Rs.285.39bn which amounted to a market share of 12.89% among all primary dealers.
4) SBI Cards & Payments Services Pvt. Ltd. (SBICSPL)
SBICSPL is ranked 2nd in industry with cards in force over 3mn as on September 06. During
FY06, the aggregate revenue generated by the SBICSPL was Rs.5.27bn while pre-tax profit was
Rs.558.6mn.
5) SBI Funds Management (P) Ltd. (SBIFMPL)
SBI Mutual Fund is the mutual funds arm of the bank. SBIFMPL reported a total inflow of
Rs.481.67bn in the various schemes during the year. The total assets under management are
Rs.132.49bn. The company reported a net profit of Rs.186.4mn as at the end of March, 2006.
F) Human Resources
The bank had total staff strength of 198,774 on the 31st March, 2006. Of this, 29.51% areofficers,
45.19% clerical staff and the remaining 25.30% were sub-staff. SBI had launched VRS scheme for
its employees in FY01 in which it has reduced it staff by approximately 5,000 and estimates natural
retirement of another 5,000 employees in next 4-5 year.
22

23. NON BANKING SUBSIDIARIES:
The Bank has the following Non-Banking Subsidiaries in India
SBI Capital Markets Ltd
SBI Funds Management Pvt Ltd
SBI Factors & Commercial Services Pvt Ltd
SBI DFHI Ltd
State Bank of Travancore (SBT)
INVESTOR RELATIONS:
State Bank of India, the country’s largest commercial Bank in terms of profits, assets, deposits,
branches and employees, welcomes you to its ‘Investors Relations’ Section. SBI, with its heritage
dating back to the year 1806, strives to continuously provide latest and upto date information on its
financial performance. It is our endeavor to walk on the path of transparency and allow complete
access to all the stakeholders enabling total awareness about the Bank. The Bank communicates
with the stakeholders through a variety of channels, such as through e-mail, website, conference
call, one-on-one meeting, analysts’ meet and attendance at Investor Conference throughout the
world.
Please find below Bank’s financial results, analysis of performance and other highlights which will
be of interest to Investors, Fund Managers and Analysts. SBI has always been fundamentally
strong in its core business which is mirrored in its results – year after year.
State Bank of India has an extensive administrative structure to oversee the large network of
branches in India and abroad. The Corporate Centre is in Mumbai and 14 Local Head Offices and
57 Zonal Offices are located at important cities spread throughout the country. The Corporate
Centre has several other establishments in and outside Mumbai, designated to cater to various
functions. Our Colleges/Institutes/Training Centers are the seats of learning and research and
development to spread the wings of knowledge not only to our employees but also other
banks/establishments in India and abroad.
The Corporate Accounts Group is a Strategic Business Unit of the Bank set up exclusively to fulfill
the specialized banking needs of top corporate in the country.
State Bank of India has 52 foreign offices in 34 countries across the globe
State Bank of India invites you to take a journey to understand the potential of not just a large but
truly global organization.
23

24. 24

25. PESTEL ANALYSIS
• Political trends
• Economic trends
• Socio cultural trends
• Technological trends
• Environmental trends
• Legal trends
Let us understand each phenomenon briefly
 Political Trends
o The advent of liberalization and globalization has seen a lot of changes in the focus of Reserve
Bank of India as a regulator of the banking industry. De-regulation of interest rates and
moving away from issuing operational prescriptions have been important changes. The focus
has clearly shifted from micro monitoring to macro management. Supervisory role is also
shifting more towards off-site surveillance rather than on-site inspections. The focus of
inspection is also shifting from transaction-based exercise to risk-based supervision. In a
totally de-regulated and globalised banking scenario, a strong regulatory framework would be
needed. The role of regulator would be critical for:
a. Ensuring soundness of the system by fixing benchmark standards for capital adequacy and
prudential norms for key performance parameters.
b. Adoption of best practices especially in areas like risk-management, provisioning, disclosures,
credit delivery, etc.
c. Adoption of good corporate governance practices.
d. Creation of an institutional framework to protect the interest of depositors.
e. Regulating the entry and exit of banks including cross-border institutions.
o Further, the expected integration of various intermediaries in the financial system would add a
new dimension to the role of regulators. Also as the co-operative banks are expected to come
under the direct regulatory control of RBI as against the dual control system in vogue,
regulation and supervision of these institutions will get a new direction.
o Some of these issues are addressed in the recent amendment Bill to the Banking Regulation
Act introduced in the Parliament.
25

26. o The integration of various financial services would need a number of legislative changes to be
brought about for the system to remain contemporary and competitive. The need for changes
in the legislative framework has been felt in several areas and steps have been taken in
respect of many of these issues, such as,
o Abolition of SICA / BIFR setup and formation of a National Company Law Tribunal to take
up industrial re-construction.
o Enabling legislation for sharing of credit information about borrowers among lending
institutions.
o Integration of the financial system would change the way we look at banking functions. The
present definition of banking under Banking Regulation Act would require changes, if banking
institutions and non-banking entities are to merge into a unified financial system.
o While the recent enactments like amendments to Debt Recovery Tribunal (DRT) procedures
and passage of Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act) have helped to improve the climate for recovery of
bank dues, their impact is yet to be felt at the ground level. It would be necessary to give
further teeth to the legislations, to ensure that recovery of dues by creditors is possible within a
reasonable time. The procedure for winding up of companies and sale of assets will also have
to be streamlined.
o In the recent past, Corporate Debt Restructuring has evolved as an effective voluntary
mechanism. This has helped the banking system to take timely corrective actions when
borrowing corporate face difficulties. With the borrowers gaining confidence in the
mechanism, it is expected that CDR setup would gain more prominence making NPA
management somewhat easier. It is expected that the issue of giving statutory backing for
CDR system will be debated in times to come.
o In the emerging banking and financial environment there would be an increased need for self-
regulation. This is all the more relevant in the context of the stated policy of RBI to move away
from micro-management issues. Development of best practices in various areas of banks’
working would evolve through self-regulation rather than based on regulatory prescriptions.
26

27. o Role of Indian Banks’ Association would become more pronounced as a self regulatory body.
Development of benchmarks on risk management, corporate governance, disclosures,
accounting practices, valuation of assets, customer charter, Lenders’ Liability, etc. would be
areas where IBA would be required to play a more proactive role. The Association would also
be required to act as a lobbyist for getting necessary legislative enactments and changes in
regulatory guidelines.
o HR practices and training needs of the banking personnel would assume greater importance in
the coming days. Here again, common benchmarks could be evolved.
o Talking about shared services, creation of common database and conducting research on
contemporary issues to assess anticipated changes in the business profile and market
conditions would be areas where organizations like Indian Banks’ Association are expected to
play a greater role.
o Evolution of Corporate Governance being adopted by banks, particularly those who have gone
public, will have to meet global standards over a period of time. In future, Corporate
Governance will guide the way Banks are to be run. Good Corporate Governance is not a
straight
o jacketed formula or process; there are many ways of achieving it as international comparisons
demonstrate, provided the following three basic principles are followed:-
o Management should be free to drive the enterprise forward with the minimum interference and
maximum motivation.
o Management should be accountable for the effective and efficient use of this freedom. There
are two levels of accountability – of management to the Board and of the Board to the
Shareholders. The main task is to ensure the continued competence of management, for
without adequate and effective drive, any business is doomed to decline. As stated by
J.Wolfensohn, President, World Bank – “Corporate governance is about promoting
corporate fairness, transparency and accountability”.
o In order to enlist the confidence of the global investors and international market players, the
banks will have to adopt the best global practices of financial accounting and reporting. This
would essentially involve adoption of judgmental factors in the classification of assets, based
on Banks’ estimation of the future cash flows and existing environmental factors, besides
strengthening the capital base accordingly.
o When we talk about adoption of International accounting practices and reporting formats it is
relevant to look at where we stand and the way ahead. Accounting practices being followed in
India are as per Accounting Standards set by the Institute of Chartered Accountants of India
(ICAI). Companies are required to follow disclosure norms set under the Companies Act and
SEBI guidelines relating to listed entities.
27

28. o There are certain areas of differences in the approach under the two main international
accounting standards being followed globally. Of late, there have been moves for convergence
of accounting standards under IAS and USGAAP and this requires the standard
 Economic Trends
o The financial system is the lifeline of the economy. The changes in the economy get mirrored
in the performance of the financial system, more so of the banking industry. The Committee,
therefore felt, it would be desirable to look at the direction of growth of the economy while
drawing the emerging contours of the financial system. The “ India Vision 2020" prepared by
the Planning Commission, Government of India, is an important document, which is likely to
guide the policy makers, in the years to come. The Committee has taken into consideration the
economic profile drawn in India Vision 2020 document while attempting to visualise the future
landscape of banking Industry.
o India Vision 2020 envisages improving the ranking of India from the present 11th
to 4th
among
207 countries given in the World Development Report in terms of the Gross Domestic Product
(GDP). It also envisages moving the country from a low-income nation to an upper middle-
income country. To achieve this objective, the India Vision aims to have an annual growth in
the GDP of 8.5 per cent to 9 per cent over the next 20 years. Economic development of this
magnitude would see quadrupling of real per capita income. When compared with the average
growth in GDP of 4-6% in the recent past, this is an ambitious target. This would call for
considerable investments in the infrastructure and meeting the funding requirements of a high
magnitude would be a challenge to the banking and financial system.
o India’s share in International trade has remained well below 1%. Being not an export led
economy (exports remaining below 15% of the GDP), we have remained rather insulated from
global economic shocks. This profile will undergo a change, as we plan for 8-9% growth in
GDP. Planning Commission report visualizes a more globalised economy. Our international
trade is expected to constitute 35% of the GDP.
o In short, the Vision of India in 2020 is of a nation bustling with energy, entrepreneurship and
innovation. In other words, we hope to see a market-driven, productive and highly competitive
economy. To realize the above objective, we need a financial system, which is inherently
strong, functionally diverse and displays efficiency and flexibility. The banking system is, by
far, the most dominant segment of the financial sector, accounting for as it does, over 80% of
the funds flowing through the financial sector. It should, therefore, be our endeavor to develop
a more resilient, competitive and dynamic financial system with best practices that supports
and contributes positively to the growth of the economy.
o Government’s policy documents list investment in infrastructure as a major area which needs
to be focused. Financing of infrastructure projects is a specialized activity and would continue
to be of critical importance in the future. After all, a sound and efficient infrastructure is a sine
qua non for sustainable economic development.
28

29. o Infrastructure services have generally been provided by the public sector all over the world in
the past as these services have an element of public good in them. In the recent past, this
picture has changed and private financing of infrastructure has made substantial progress.
This shift towards greater role of commercial funding in infrastructure projects is expected to
become more prominent in coming years. The role of the Government would become more
and more of that of a facilitator and the development of infrastructure would really become an
exercise in public-private partnership. ‘India Infrastructure Report’ (Rakesh Mohan Committee
- 1996) placed financing of infrastructure as a major responsibility of banks and financial
institutions in the years to come. The report estimated the funding requirements of various
sectors in the infrastructure area at Rs 12,00,000 crore by the year 2005-06. Since the
estimated availability of financing from Indian financial institutions and banks was expected at
only Rs 1,20,000 crore, a large gap is left which needs to be filled through
bilateral/multilateral/government funding.
o It has been observed globally that project finance to developing economies flows in where
there is relatively stable macro-economic environment. These include regulatory reforms and
opening of market to competition and private investment. Liberalized financial markets,
promoting and deepening of domestic markets, wider use of risk management tools and other
financial derivative products, improved legal framework, accounting and disclosure standards
etc are some of the other aspects which would impact commercial funding of infrastructure
projects.
o The India Vision document of Planning Commission envisages Foreign Direct Investments
(FDI) to contribute 35% (21% now) to gross capital formation of the country by 2020.
Government has announced a policy to encourage greater flow of FDI into the banking sector.
The recent amendment bill introduced in Parliament to remove the 10% ceiling on the voting
rights of shareholders of banking companies is a move in this direction. The working group
expects this to have an impact on the capital structure of the banks in India in the coming
years.
o Consequent to opening up of the economy for greater trade and investment relations with the
outside world, which is imperative if the growth projections of India Vision 2020 were to
materialize, we expect the banking Industry’s business also to be driven by forces of
globalization. This may be further accentuated with the realization of full convertibility of the
rupee on capital account and consequent free flow of capital across the borders. An increase
in the income levels of the people would naturally lead to changes in the spending pattern
also. This could result in larger investments in the areas like entertainment and leisure,
education, healthcare etc and naturally, these would attract greater participation of the banking
system.
o On the basis of the projection made by the Draft 10th
Five Year Plan on relevant macro
indicators such as GDP and extending the trend for a further period of three years, it is
estimated that GDP at current market prices during 2009-10 would be Rs.61,40,000 crore.
Taking into account the on-going reform measures, expected Basel II needs, and financial
dis-intermediation, the pace of expansion in the balance sheets of banks islikely to decelerate.
29

30. Thus total assets of all scheduled commercial banks by end March 2010 may be taken as
Rs.40,90,000 crore as a working estimate. At that level, the annual composite rate of growth
in total assets of Scheduled Commercial Banks would be about 13.4 per cent to be over 2002-
03 as compared to 16.7 per cent between 1994-95 and 2002-03. It will form about 65 per cent
of GDP at current market prices as compared to 67 per cent in 2002-03.
o On the liability side, there may be large augmentation to capital base. Reserves are likely to
increase substantially. Banks will relay more on borrowed funds. Hence, the pace of
accretion to deposits may slow down.
o On the asset side, the pace of growth in both advances and investment may slacken.
However, under advances, the share of bills may increase. Similarly, under investment, the
share of ‘others’ may increase.
 Social Trends
o Since the second half of 1960s, commercial banks have been playing an important role in the
socio-economic transformation of rural India. Besides actively implementing Government
sponsored lending schemes, Banks have been providing direct and indirect finance to support
economic activities. Mandatory lending to the priority sectors has been an important feature of
Indian banking. The Narasimham committee had recommended for doing away with the
present system of directed lending to priority sectors in line with liberalization in the financial
system. The recommendations were, however, not accepted by the Government. In the
prevailing political climate in the country any drastic change in the policy in this regard appears
unlikely.
o The banking system is expected to reorient its approach to rural lending. “Going Rural” could
be the new market mantra. Rural market comprises 74% of the population, 41% of Middle
class and 58% of disposable income. Consumer growth is taking place at a fast pace in 17113
villages with a population of more than 5000. Of these, 9989 villages are in 7 States, namely
Andhra Pradesh, Bihar, Kerala, Maharashtra, Tamilnadu, Uttar Pradesh and West Bengal.
Banks’ approach to the rural lending will be guided mainly by commercial considerations in
future.
o Commercial Banks, Co-operatives and Regional Rural Banks are the three major segments of
rural financial sector in India. Rural financial system, in future has a challenging task of facing
the drastic changes taking place in the banking sector, especially in the wake of economic
liberalization. There is an urgent need for rural financial system to enlarge their role functions
and range of services offered so as to emerge as "one stop destination for all types of credit
requirements of people in rural/semi-urban centers.
o Barring commercial banks, the other rural financial institutions have a weak structural base
and the issue of their strengthening requires to be taken up on priority. Co-operatives will have
to be made viable by infusion of capital. Bringing all cooperative institutions under the
regulatory control of RBI would help in better control and supervision over the functioning of
these institutions. Similarly Regional Rural banks (RRBs) as a group needs to be made
30

31. structurally stronger. It would be desirable if NABARD takes the initiative to consolidate all the
RRBs into a strong rural development entity.
o Instead of following the narrow definition of SSI, based on the investment in fixed assets, there
is a move to look at Small and Medium Enterprises (SME) as a group for policy thrust and
encouragement. For SMEs, banks should explore the option of E-banking channels to develop
web-based relationship banking models, which are customer-driven and more cost-effective.
Government is already considering legislation for the development of SME sector to facilitate
its orderly growth.
o In the next ten years, SME sector will emerge more competitive and efficient and knowledge-
based industries are likely to acquire greater prominence. SMEs will be dominating in industry
segments such as Pharmaceuticals, Information Technology and Biotechnology. With SME
sector emerging as a vibrant sector of the Indian economy, flow of credit to this sector would
go up significantly. Banks will have to sharpen their skills for meeting the financial needs of this
segment. Some of the Banks may emerge as niche players in handling SME finance. Flow of
credit to this Sector will be guided purely by commercial considerations as Banks will find
SMEs as an attractive business proposition.
o Mergers and acquisitions would gather momentum as managements will strive to meet the
expectations of stakeholders. This could see the emergence of 4-5 world class Indian Banks.
As Banks seek niche areas, we could see emergence of some national banks of global scale
and a number of regional players.
 Technological Trends
o Technology will bring fundamental shift in the functioning of banks. It would not only help them
bring improvements in their internal functioning but also enable them to provide better
customer service. Technology will break all boundaries and encourage cross border banking
business. Banks would have to undertake extensive Business Process Re-Engineering and
tackle issues like a) how best to deliver products and services to customers b) designing an
appropriate organizational model to fully capture the benefits of technology and business
process changes brought about. c) how to exploit technology for deriving economies of scale
and how to create cost efficiencies, and d) how to create a customer - centric operation model.
o Entry of ATMs has changed the profile of front offices in bank branches. Customers no longer
need to visit branches for their day to day banking transactions like cash deposits,
withdrawals, cheque collection, balance enquiry etc. E-banking and Internet banking have
opened new avenues in “convenience banking”. Internet banking has also led to reduction in
transaction costs for banks to about a tenth of branch banking.
o Technology solutions would make flow of information much faster, more accurate and enable
quicker analysis of data received. This would make the decision making process faster and
more efficient. For the Banks, this would also enable development of appraisal and monitoring
tools which would make credit management much more effective.The result would be a
definite reduction in transaction costs, the benefits of which would be shared between banks
31

32. and customers.
o While application of technology would help banks reduce their operating costs in the long run,
the initial investments would be sizeable. IT spent by banking and financial services industry
in USA is approximately 7% of the revenue as against around 1% by Indian Banks. With
greater use of technology solutions, we expect IT spending of Indian banking system to go up
significantly.
o One area where the banking system can reduce the investment costs in technology
applications is by sharing of facilities. We are already seeing banks coming together to share
ATM Networks. Similarly, in the coming years, we expect to see banks and FIs coming
together to share facilities in the area of payment and settlement, back office processing, data
warehousing, etc. While dealing with technology, banks will have to deal with attendant
operational risks. This would be a critical area the Bank management will have to deal with in
future.
o Payment and Settlement system is the backbone of any financial market place.
 ENVIRONMENTAL FACTORS
o Indian economy has registered a high growth for last three years and is
expected to maintain robust growth rate as compare to other developed and
developing countries. Banking Industry is directly related to the growth of the
economy.
The growth rate of different industries were:
Agriculture : 18.5%
Industry : 26.3%
Services : 55.2%
o It is great news that today the service sector is contributing more than half of the
o Indian GDP. It takes India one step closer to the developed economies of the
o world. Earlier it was agriculture which mainly contributed to the Indian GDP.
o This increases the avenues of investment by the industrial sector . This would
further increase the borrowings by the industries leading to the banking Industry
o In regards with the service sector , as the income of the people will increase ,
lending and savings will increase leading to increased business for the banks .
32

33.  Legal Trends
o The global economy continued its recovery from the global crisis of 2008-09. The recovery,
however, has been weak, uneven, and remains fragile, with uncertainty continuing to prevail
over the economic conditions in Europe and USA. Some of the countries like Greece,
Portugal, Ireland and Spain are going through throes of economic turmoil. Japan, which has
not yet shown definite signs of recovery from its long slowdown, has been further grievously
affected by the earthquake and tsunami, which hit it in March 2011. Global economy was
estimated to have grown by 5.00% in 2010. Growth in emerging economies remains strong
while advanced countries are growing slowly and facing uncertainty with large fiscal deficit,
high public debt and unemployment levels.
o International trade is an area where India’s presence is expected to show appreciable
increase. Presently, Indian share in the global trade is just about 0.8%. The long term
projections for growth in international trade are placed at an average of 6% per annum. With
the growth in IT sector and other IT Enabled Services, there is tremendous potential for
business opportunities. Keeping in view the GDP growth forecast under India Vision 2020,
Indian exports can be expected to grow at a sustainable rate of 15% per annum in the period
ending with 2010. This again will offer enormous scope to Banks in India to increase their
forex business and international presence. Globalization would provide opportunities for
Indian corporate entities to expand their business in other countries. Banks in India wanting to
increase their international presence could naturally be expected to follow these corporate and
other trade flows in and out of India.
o Structure and ownership pattern would undergo changes. There would be greater presence of
international players in the Indian financial system. Similarly, some of the Indian banks would
become global players. Government is taking steps to reduce its holdings in Public sector
banks to 33%. However the indications are that their PSB character may still be retained.
o Mergers and acquisitions would gather momentum as managements will strive to meet the
expectations of stakeholders. This could see the emergence of 4-5 world class Indian Banks.
As Banks seek niche areas, we could see emergence of some national banks of global scale
and a number of regional players.
The banking sector is also taken as a proxy for the economy as a whole. The performance of bank
should therefore, reflect “Trends in the Indian Economy”. Due to the reforms in the financial sector,
banking industry has changed drastically with the opportunities to the work with, new accounting
standards new entrants and information technology. The deregulation of the interest rate,
participation of banks in project financing has changed in the environment of banks.
The performance of banking industry is done through SWOT Analysis. It mainly helps to know the
strengths and Weakness of the industry and to improve will be known through converting the
opportunities into strengths. It also helps for the competitive environment among the banks.
33

34. STRENGTHS WEAKNESSES
OPPORTUNITIES THREATS
a) STRENGTHS
1. Greater securities of Funds:
Compared to other investment options banks since its inception has been a better avenue in
terms of securities. Due to satisfactory implementation of RBI’s prudential norms banks have
won public confidence over several years.
34

35. 2. Banking network:
After nationalization, banks have expanded their branches in the country, which has helped
banks build large networks in the rural and urban areas. Private banks allowed to operate
but they mainly concentrate in metropolis.
3. Large Customer Base:
This is mainly attributed to the large network of the banking sector. Depositors in rural areas
prefer banks because of the failure of the NBFCs.
4. Low Cost of Capital:
Corporate prefers borrowing money from banks because of low cost of capital. Middle
income people who want money for personal financing can look to banks as they offer at
very low rates of interests. Consumer credit forms the major source of financing by banks.
5. Brand name:
SBI Bank has earned a reputation in the market over the period of time(Being the oldest
bank in India tracing history back to 1806).
6. Market Leader:
SBI ranks at 363 in 2009 Fortune Global 500 list, and ranked 150 in2009 Forbes Global
2000. It is three times the second-largest public sector bank, and nearly two and a half
times the size of its biggest private sector rival.
7. Wide Distribution Network:
Excellent penetration in the country with more than10000 core branches and more than
5100 branches of associate banks.
8. Diversified Portfolio:
SBI Bank has all the products under its belt, which help it to extend the relationship with
existing customer’s Bank has umbrella of products to offer their customers, if once customer
has relationship with the bank.
9. Government Owned:
35

36. Government owns 60% stake in SBI. This gives SBI an edge over private banks in terms of
customer security.
b) WEAKNESSES
1. Basel Committee:
The banks need to comply with the norms of Basel committee but before that it is challenge
for banks to implement the Basel committee standard, which are of international standard.
2. Powerful Unions:
Nationalization of banks had a positive outcome in helping the Indian Economy as a whole.
But this had also proved detrimental in the form of strong unions, which have a major
influence in decision-making. They are against automation.
3. Priority Sector Lending:
To uplift the society, priority sector lending was brought in during nationalization. This is
good for the economy but banks have failed to manage the asset quality and their intensions
were more towards fulfilling government norms. As a result lending was done for non-
productive purposes.
4. High Non-Performing Assets:
Non-Performing Assets (NPAs) have become a matter of concern in the banking industry.
This is because reduced to meet the international standards of change in the total
outstanding advances, which has to be reduced to meet the international standards.
5. Hierarchical Structure:
The existing hierarchical management structure of the bank, although strength in some
respects, is a barrier to change.
6. High Non Performing Assets:
It has the highest Non Performing Assets (NPAs) in the industry.
36

37. 7. Lack of Modernisation
SBI lags with respect to private players in terms of modernisation of its processes,
infrastructure, centralisation, etc.
c) OPPORTUNITIES
1. Universal Banking:
Banks have moved along the value chain to provide their customers more products and
services. like home finance, Capital Markets, Bonds etc. Every Indian bank has an
opportunity to become universal bank, which provides every financial service under one
roof.
2. Differential Interest Rates:
As RBI control over bank reduces, they will have greater flexibility to fix their own interest
rates which depends on the profitability of the banks.
3. High Household Savings:
Household savings has been increasing drastically. Investment in financial assets has also
increased. Banks should use this opportunity for raising funds.
4. Untapped Foreign Markets:
Many Indian banks have not sufficiently penetrated in foreign markets to generate
satisfactory business therefore, it can be concluded clear opportunity exists in such
markets.
5. Interest Banking:
The advance in information technology has made banking easier. Business can effectively
carried out through internet banking.
6. Increasing Trade:
Increasing trade and business relations and a large number of expatriate populations offers
a great opportunity.
37

38. 7. Growing Economy:
The economy growing rapidly would lead to an increase in the amount of deposits and
advances for SBI.
8. Untapped market segments:
There is further scope in segments such as rural India, young generation etc.
9. Mergers with Associate Banks:
Merger of all the associate banks into SBI will create a huge bank which streamlines
operations and unlocks value.
10. Global Expansion:
SBI has already expanded globally and started its operations internationally in 32
countries like Australia, Bangladesh etc. and it has been very profitable. Thus future
expansion in other global markets should be planned.
d) THREATS
1. NBFCs, Capital Markets and Mutual funds:
There is a huge investment of household savings. The investments in NBFCs deposits,
Capital Market Instruments and Mutual Funds are increasing. Normally these instruments
offer better return to investors.
2. Changes in the Government Policy:
The change in the government policy has proved to be a threat to the banking sector. Due
to some major changes in policies related to deposits mobilization credit deployment,
interest rates- the whole scenario of banking industry may change.
3. Inflation:
38

39. The interest rates go down with a fall in inflation. Thus, the investors will shift his investments
to the other profitable sectors.
4. Recession:
Due to the recession in the business cycle the economy functions poorly and this has proved
to be a threat to the banking sector. The market oriented economy and globalization has
resulted into competition for market share. The spread in the banking sector is very narrow.
To meet the competition the banks has to grow at a faster rates and reduce the overheads.
They can introduce the new products and develop the existing services.
5. Consumer Expectations:
Consumer expectations have increased many folds and require effective and quick services.
6. Advent of MNC Banks:
Large numbers of MNC banks are mushrooming in the Indian market due to the friendly
policies adopted by the government. This can increase the level of competition and prove a
potential threat for the market share of SBI bank.
7. Employee Strikes:
There was an employee strike in the year 2006 which disrupted SBI’s activities. This might
happen again in the future if the employees are not taken care of.
8. Pvt. Banks - Retail Banking:
Private Banks have started venturing into Retail Banking in the rural and semi-urban sector,
which used to be the bastion of the State Bank and other PSU banks.
PROBLEM STATEMENT
 To study the HR IMPLICATIONS IN BANKING SECTOR, at State Bank of
India (SBI)
39

40. OBJECTIVES OF THE STUDY
Primary Objective:
 To know the various HR implications in banks.
Secondary Objective:
 To know whether employees are satisfied with their jobs?
 To know the various retention practices used in banks?
 To know the motivational factors used by the banks?
 To know whether training and development programs are conducted properly
in the banks or not
 To know the cause of their problems related with :
1. Their Health Problem
2. Dissatisfaction
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41. Research Methodology
In choosing a research methodology for this study, a first logical step was to reiterate and reflect
on the research question “To what extend are HR practitioners in the organisations equipped with
the capabilities that can increase HR effectiveness?”
It is important to keep in mind that the ultimate objective of this study is to determine to what extent
the current levels of capabilities of HR practitioners in the organisations match the expectations,
challenges, trends and requirements of their roles and responsibilities. Capturing contextual data
in order to gather opinions on a large scale can aid in identifying possible shortfalls in their
capabilities, hence addressing the stated research question. When examining the research
problem, taking into account the broader focus on five key HR themes, one can see that there was
a need to consider an approach which put the researcher in a strong position to collect data from a
sufficiently large number of organisations to generalize to the national population of organisations.
Therefore it was concluded that an optimum way to achieve this was by the means of a
quantitative approach. It was also decided that using a survey questionnaire than direct interview,
as the research instrument, would be best suited for this study.
Data Collection
The quantitative methodology adopted was a survey as well as interview, which was a
questionnaire obtaining structured open ended questions. This involved the selection of a sample
of people to ascertain how factors differ, and to make inferences about the population, in this case
HR practitioners in the organisations, or in other words generalizing from sample to population.
Reliability of the study was seen as high as previous leading HRM studies conducted in it proved
successful using a quantitative methodology and furthermore. When a quantitative methodology is
adopted, the validity of the study tends to be low, as the data collected may not reflect the
phenomena. Every effort was made to try to minimize the effect of factors such as research errors,
poor samples, inaccurate or misleading measurement and non-response bias, which are generally
problematic with respect to validity issues.
Sample Selection
For the purpose of this research it was proposed that the study focused on HR implications in the
organisations represents the interest of 100+ individual members who are involved in the
management and development of human resources in banks. General members are supported by
the institute to develop their professional skills and knowledge as HR practitioners and key
decision makers in their branches. Professional members must be able to demonstrate knowledge,
skills and experience in generalist or specialist roles in the field of HR to meet the criteria set out in
the rules of the institute.
The target population was limited to bank managers that had registered to participate in any
forthcoming HR research. The reputation of the institute would, at least in part, help to overcome
the problem of lack of familiarity. It is argued that obtaining support from legitimate representatives,
such as for example branch members, is helpful for gaining trust from the respondents, confirming
the purported use of the questions, and increasing the probability of returning the questionnaire.
41

42. It was decided this sample size was sufficient for the purpose of this study. More importantly this
was to ensure that sampling error was at a tolerable level and confidence level was acceptable for
certainty of the generalizations from the sample.
Questionnaire Development
The questionnaire was deployed for the purpose of firstly providing background information about
the sample. This included identifying HR implications that came from larger branches. The
questionnaire was a source of valuable information about HR practitioner’s perceptions of core HR
capabilities. The instrument was developed specifically for this study by us. Effort was made to
standardize both the format of the questions and the response categories throughout the
questionnaire. Here the intention was to reduce complexity of the questions and thereby maximize
appeal and ease of completion. As the survey also involved a self-report on perceptions, careful
wording of instructions on how to answer the questions was made to guide the participants to
answer as accurately as possible.
Section one was a letter of introduction explaining the study and the benefits it would deliver
should recipients participate. The purpose here was to ensure that recipients could relate to the
researcher and consider the aim of the study worthwhile. Confidentiality of the completed survey
was guaranteed to all respondents.
We are encouraged to use such scales as the concept under investigation is more fully
represented and the resultant measurement is more reliable. It was also seen necessary to
ascertain whether number of years of experience in the HR profession and/or educational
attainment was an indicator of current HR capabilities inherent in the respondents or otherwise.
Some major points of methodology
• We developed a comprehensive questionnaire covering various issues relevant to the terms of
reference – enclosed as Annexure I and received responses from State Bank of India (SBI).
Data and information received was collated and appropriate inferences were drawn.
• We met and had interactive sessions with the officers of banks, during january-february 2012.
• We also collected secondary data by review of various documents, reports as well as records
provided by SBI officers.
• Analysis, interpretation of both quantitative data and qualitative information provided in the reply
to questionnaire and their integration in the report.
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43. Challenges
With economy growing at around 8% and expected to touch 10%, Indian banking sector is
poised to change but in a different way. The small size of the banking sector in relation to the
economy implies that growth will come from increasing penetration into new customer
segments. Greater penetration will be facilitated by technology and other modes of delivery.
Growth will also come from demand for new products and services (wealth management,
mutual funds, insurance, etc.) from existing as well as new customers, due to improving
standards of living and growing affluence. Incremental growth for banks will increasingly be
driven by non-fund based businesses. Competition will become more intense with the growing
presence of private and foreign participants. With the advantage of effective regulatory systems,
Indian banks have the opportunity to improve their capability to become global leaders on their
own strengths.
The growing economy will also spur exponential growth in the business mix and customer base
of the banks, in the next decade. One estimate is that the business mix of India’s banking
system may grow threefold from the present about Rs.70,00,000 crores (as at March 2011).
Besides, banks will also be required to play a significant role in financing of infrastructure and
new economy sectors. To acquire global size and scale and pursue global banking, the system
is also likely to witness internal consolidation. All this will call for leadership of a higher order for
managing large system besides higher level of skills and risk taking initiatives.
Another massive business challenge before the banks in the next few years will be in the area
of financial inclusion. In spite of massive vertical and horizontal expansion of SBI, India is still a
grossly under-banked nation. As much as 60% of the country’s population – about 600 million
people – still does not have access to formal banking system. Nearly 90% do not have access
to bank loans. With a view to promoting growth with equity, Government of India and the
Reserve Bank of India (RBI) have mandated the banks to implement financial inclusion (delivery
of banking services at affordable cost to vast sections of the disadvantaged and low income
groups) in habitations with population of over 2000 by March 2012. India’s growing economy will
thus need financial deepening that is linked to financial inclusion. Promoting efficiency without
ignoring financial inclusion will be a major challenge for SBI in the years to come.
Issues
In spite of many positives, SBI is today seriously handicapped vis-à-vis their competitors in the
market place, on account of huge human capital deficit. Their employee compensation package,
skill sets, skewed age profile, restrictive deployment, performance management system are the
major issues placing SBI somewhat at a disadvantage. Clearly, for too long, SBI has carried on
with routine, standardized and administrative orientation to HR. Developmental interventions
have been far and few in between. Considering the new challenges before the banking sector,
HR has indeed become a new risk – possibly the biggest risk in the system. Reforms in HR
have become overdue in the context of challenges and opportunities of new age banking.
43

44. SBI currently employ nearly 200,000 people who are trained in traditional banking skills. With
competition intensifying and huge retirement of trained and experienced staff, issues of
identifying talented staff and nurturing them for critical roles have become more crucial than
ever. Added to this, people with new skill sets and new roles are required for new business
verticals. Cumulatively, the challenge to acquire, develop and retain human resources of the
right kind and right skills was never as important as today.
Bank is more than convinced that without proactive measures in the realm of HR and
significantly changing the methodology and content of various HR systems like recruitment,
promotion, deployment and performance management system, SBI is not likely to lose the
present stature and be a drag on the efficiency of the financial system.
This report seeks to address the foregoing issues and recommend measures for
comprehensive reforms in HR such that India’s SBI can emerge as globally competitive financial
entities, leveraging its human capital.
Human Resource Management (HRM): Key Issues
The basic function of any HR department of a service organization like a bank revolves round
the well being of the human resources working within. Here the word “human resources” mean
both the officers and workmen staff.
The primary beliefs embedded in the scheme of things in HRM parlance are:
• To serve customer as the ultimate goal if one is to remain strategically competitive on a
sustainable basis.
• Internal workforce primarily those occupying frontline positions have to be extremely
motivated since they are primarily involved in the process of delivery of customer service.
• Since people are at the core of this service organization, this resource will have to be
considered as the most important stakeholder and has to be treated with as much care /
empathy as possible.
• Since the objective of human resource management is to manage human resource talent,
this is also known as talent management.
• Management has to evolve suitable talent management strategies to attract, manage,
develop and retain this key asset.
• Since in a service industry like banking, there is very little product differentiation, the main
differentiating strategy is with reference to human resources management.
• Since emotional instinct is as important as intelligence quotient for human resources,
the policy cannot be uniformly applied to all, as each human being is different.
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45. • This is true for all levels of a bank; the type of strategy might, however, vary according to
the tier of cadre.
• Commitment of top management is an essential pre-condition if human management
resource management strategy is to succeed in any organization.
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46. CURRENT STATUS OF HR IN SBI
7.1.
Considerable spade work had been done by Narasimham Committee I and II on various HR
related issues. The first report in 1991 had adduced strong arguments in favour of far-reaching
reforms in HR along with reforms in the operational areas in order to bring about competitive
efficiency. The second report in 1998 had laid renewed emphasis and highlighted the need for
ushering in parallel reforms in HR. While a good number of recommendations have been acted
upon, some crucial recommendations, which go to the very root of HR reforms, remain to be
implemented.
7.1.1.
The data collected by bank from the SBI suggest the following trends on the current state of HR
in the banks:
• HR is heavily transactional, IR and administration oriented. It is adhoc and inadequately
professionalized. Barring a few, in most banks, HR is managed by operational functionaries
whose tenures are often short. In some cases, HR is attached with such diverse functions
like credit and estate management. The function is largely overloaded with routine
administration including transfers, promotions, union management relations, etc.
• In most of the SBI, there is no scientific system of manpower planning. Post-CBS, there has
been no reassessment and realignment of staff at branch level.
• Most sub-systems of HRD like performance management system (PMS) are routinely
administered and are seldom used for the development of employees. Apart from delay and
poor monitoring, the PMS does not bring out the talented people to the fore. There is no
system of potential appraisal. Talent management on the whole is a critical issue but found
to be generally ignored.
• There are huge skill shortages in the area of credit, IT, risk management, international
banking, treasury and infrastructure finance. Attritions from these functions are also quite
high. Only few banks have systematic plan in developing officers with such requisite skills.
There is huge turnover in those recruited from the market and through the campus.
Apparently, compensation is the problem.
• HR innovations are far and few in between except in the areas of education and training by
some leading banks. Education and training lacks both planning and implementation.
• Most functional heads and vertical business heads do not have any role in planning and
designing HR for their function including succession planning. They have no accountability
for building a cadre of trained people in their own functions.
• Although training plays a good role in aligning people to new tasks and responsibilities, it
needs to focus on workmen especially from rural areas and diverse groups like women as
they remain poorly covered by the training system today. There are only few courses which
are role based. Alternate delivery channels like e-training, e-learning are sparingly used.
46

47. Training of senior executives is met in a very general manner through external training
programmes. It lacks a strategic focus.
• The executive cadre in SBI will see large superannuation in the next 5 years and there are
palpable gaps in the leadership positions. Leadership development strategies in most banks
lack focus and strategic orientation. This is the most critical issue for attention as the future
of individual banks depends upon leadership roles.
• Compensation of senior and top executives and reward systems are the key issues for
retention of talent and building leadership.
• Many banks have internal settlements that constrain productivity and performance of
employees. There are also number of facilities and practices beyond industry level
settlements. There are also bank level practices in the area of union management relations
that need review.
• Lastly, the HR function is very weakly monitored at the Board level and in fact, strategic
issues relating to talent management, succession planning and leadership are rarely
discussed. Only 5 banks have Sub-Committee of the Board on HR and in at least 3 banks,
these are non-operational in spite of some excellent work done by these committees in
some banks. By the admission of CEOs themselves, they are not able to allocate time to
HRD issues. In some cases, even the consultant reports on HR have not been pursued
further.
7.1.2.
Clearly, HR has been a neglected area and has not found place in corporate priority.
‘Routineness’ in the processes of recruitment, promotion and appraisal and absence of
innovations in HR has led to a risk which would unfold in the times to come. Therefore, HR
demands attention and accountability. HR requires fundamental transformation as it will be a
major factor for survival and success of SBI.
7.1.3.
Bank is of the considered view that SBI have to create human abilities and organizational
capabilities that are substantially better than those of their competitors. HRD should become a
new competitive advantage for SBI to effectively play their multifaceted roles and align them to
be part of India growth story.
7.1.4.
Changing any single HR practice alone does not result in transformation. Transformation
requires integrating various HR practices and focusing them jointly on value added agenda such
as intangibles, customer connections, organizational capabilities and individual abilities.
7.1.5.
Having faced many challenges, including particularly technology, human resource
transformation has now become most critical for SBI and the present HR dispensation needs a
thorough overhaul and a 360º change.
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48. MANPOWER AND RECRUITMENT PLANNING
8.1.
Effective manpower planning (MPP) in any organization sets the stage for good human
resource system. In a service industry like a bank, it is much more important as it has direct
implications on the quality of service. The MPP exercise done scientifically helps proper
deployment and utilization of manpower resources and identification of skill needs and gaps.
Absence of effective MPP will manifest itself in the lopsided utilization of human resources as
also will have impact on cost and service.
8.1.1.
Lack of proper manpower planning has also resulted in wide variance in staff ratios across SBI.
Data collected reveals those officer-clerk ratio ranges from 0.24 to 1.58. SBI also fair poorly in
the matter of ratio of officers to total staff when compared with private banks. This stood at 0.37
for SBI against 0.85 for private banks. Similarly, the ratio of clerical staff to total staff was at a
high of 0.42 for SBI against 0.10 for private banks.
8.1.2.
Nearly 40% of the staff in SBI is deployed in branches and the rest in administrative offices.
Over 50% of the time of branch staff is spent on non-customer facing roles and less than 10%
of staff is devoted to proactive sales. There is thus perpetuation of routine clerical content in
branches even after introduction of technology. In view of impending nature of new sales and
service roles, such disproportionate allocation of roles on routine activities is dysfunctional to
productivity enhancement and customer focus. As large percentage of employees is deployed
in branches, the new branch architecture post-CBS more particularly with reference to metro
and urban branches will have greatest implications on the MPP exercise of bank.
8.2. Imperatives for Manpower Planning
While undertaking manpower planning exercise, banks also need to factor the following:
8.2.1. Staff Costs and Technology Costs
The issue of MPP becomes much more important as it has direct relationship with costs. Bank
observes that there are varying patterns of staff costs among the SBI. At one end, the ratio of
staff costs to operating expenses was at 47% and at the other; it was as high as 75%, average
being 62%. As many as 12 banks had above average ratio.
8.2.1.1.
With large scale use of technology - which will only increase in the coming years - and with
rising technology costs – now and in the future - staff costs alone will not be a sufficient
48

49. indicator of the competitive efficiency level of the banks. A more appropriate ratio - ratio of staff
costs plus technology costs to total income and total expenditure – would have to be critically
studied by each branch and suitably factored in the MPP exercise.
8.2.2. Outsourcing
Recent trends world over suggest that progressive corporations increasingly focus on their ‘core
businesses’ leveraging on their ‘core competence’, with a view to achieve quantum jump in their
operational efficiency and profitability. Non-core activities are outsourced by them to agencies
which can perform such activities more effectively with cost efficiency on account of domain
expertise and economy of scale they may have. ‘Outsourcing’ can help organizations to move
up in the ‘economic value chain’.
8.2.2.1.
Consequent to extensive use of technology, SBI will be required to change their business
processes, as discussed elsewhere. They are also coming out with new business models for
launching new business lines. All this will increasingly call for high focus on their core
businesses and outsourcing of non-core activities.
RBI guidelines have listed the core functions of a bank as:
• All management functions.
• Decision making functions such as
o Determining and compliance of KYC norms for opening accounts.
o Sanctioning of all types of loans / advances and other facilities to clients.
o Management of investment portfolio
• Compliance functions.
• Internal audit.
8.2.3. Branch Transformation Post-Core Banking
Implementation of Core Banking Solution (CBS) across branches of banks has brought in its
wake fundamental changes in the way customers are serviced, their transactions are handled
and banks’ internal book- keeping and accounting tasks are carried out. Customers can now
enjoy Any time Any where banking, use very many e-channels, transfer funds virtually in
seconds - all of which a dramatic improvement in customer service from what was obtaining just
a few years back.
8.2.3.1.
Internally, it is no longer necessary to use the ‘balancing of books’ method. Human errors are
virtually eliminated at branches. Errors, if any, are easily rectified and frauds are minimized. All
this means that stress levels of employees at branch level are coming down considerably - they
49

50. are getting relieved of the mundane and repetitive activities; they are getting freed from fatigue
and monotony of doing the same job day in and day out. It is now possible for the staff to aspire
for job enrichment and job enlargement. The new paradigm in the bank branches post-CBS
thus has the potential to improve employee productivity by several notches, like never before.
8.2.4. Business Process Re-Engineering (BPR) and Change Management
In spite of large scale infusion of technology into banking operations, intermediation cost is still
high in India. Cost of banking transactions is also high for both banks and customers. RBI has
time and again emphasized that one of the principal objectives of technology infusion should be
to bring about significant reduction in the cost of banking transactions.
8.2.4.1.
Bank feels that CBS(core banking service) is only the beginning of the journey and the next
most critical challenges for the SBI is to usher in ‘Business Process Re-engineering’ and
‘Change Management’ in a comprehensive manner in order for them to be able to reap optimum
benefits out of CBS. Trends world over suggest that a good blend of technology, processes and
people would have greater chances of adding value and competitive advantage to a business
organization. This is all the more true for organizations like banks, which are people intensive
and where transactions are highly process driven.
Large scale use of technology without the required process changes and re-skilling of
employees has the potential danger of increasing the cost of operations rather than reducing it.
For branch transformation to take place in the true sense, banks would, therefore, have to
undertake a holistic review of their business processes and work flows, which have been in
vogue for nearly a century. This will inevitably involve some labour practice issues.
8.2.4.2.
Committee has noted in this context that some banks are already into the job, with the help of
some outside experts. Bank would further like to urge the banks to speed up the process of
shifting the non-customer facing activities from branches to back offices (Regional or Central
Hubs) in order that branches are enabled to transform themselves into sales and service outfits.
The industry forum of IBA can be used for exchange of experiences and ideas on the issues
involved.
8.2.5. Requirement of Clerical Staff
Clerical staff today constitute single largest cadre in the total workforce (42%) of SBI. In the
post-CBS environment in banks, the border line between the job of an officer and a clerk is
rapidly disappearing. On the one hand, many clerical jobs are becoming increasingly redundant
and on the other, some jobs in the front office require officer level interface with the customers.
Having regard to this major change, continued requirement of clerical jobs is an issue that
needs closer examination and in this context, banks need to seriously deliberate on the future
requirement of clerical staff. Future clerical strength cannot be determined on the basis of head
to head replacement.
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51. 8.2.5.1.
In the current context of higher focus on rural banking and financial inclusion mandated by the
government and the RBI any fresh recruitment by SBI should be restricted to rural business /
areas only.
8.2.6. Need for Re-designation
In view of paradigm change in the nature of roles at branch level, there is need to redesign ate
the clerical staff as ‘Banking Associate’ (or some such contemporary job title). This can also
help enhance job satisfaction and pride in one’s own job, besides reflecting the core element of
responsibility assigned.
8.2.7. Requirement of Sub-Staff
Sub-staff today constitute 21% of the total workforce in SBI, as against only 4% in the Private
Sector Banks. Obviously, this percentage in relation to total staff needs review. Further, there
are as many as ten special pay carrying posts in sub staff category, as of now. This is inherently
constraining optimal utilization of sub- staff and contributing to its disproportionate percentage to
total staff. This has obvious implications on productivity.
8.2.7.1.
Having regard to the new work culture emerging in the bank branches and many activities
hitherto performed by the sub staff becoming redundant, bank feels that SBI would need to
redesign their jobs and if necessary, impart them additional skills to enable them perform new
jobs. Bank understands that some banks have initiated measures like utilization of sub-staff for
pass book printing etc. Nonetheless, fresh recruitment in sub-staff cadre should be minimal.
Bank also recommends that they be redesignated as ‘support staff ’. Similarly, sweepers can
also be redesignated as ‘Housekeeper’.
8.3. Recruitment
State Bank of India takes written tests, and there after interviews are to be conducted by the
bank concerned in most of the cases.
8.3.1.
Over 50,000 experienced employees of SBI would be retiring on superannuation in the next 5
years. Many branches are also facing the problem of employee turnover about which they are
quite alive and have initiated various measures to contain it. These have necessitated huge
recruitment at entry level in both clerical and officer cadre. Data collected by management
shows that about 50,000 persons have been recruited between 2005 and 2011 and in the next
5 years, they plan to recruit another 30,000, in addition to lateral recruitment through open
market and campus.
8.3.2.
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52. Banks have to factor the new banking environment, new capabilities and specific attributes
required in the new entrants. Hence the new entrants will have to be qualitatively superior
compared to yesteryear recruitees. Banks will have to carefully plan their recruitment in terms of
entry qualification, methodology of recruitment, etc. The present entry level qualification for
clerical cadre, fixed several decades back, is totally out of tune with the current day
requirements. In bank’s view, this needs to be changed from SSC to graduation, in view of
many changes in the environment.
8.4. Implications
 MPP exercise to be carried out by the SBI to be a rigorous exercise and to factor all possible
contingencies in HR area – both quantitative and qualitative, considering the impact of
technology, staff cost and expansion programmes, etc. Each bank’s MPP to have both short
term and long term projections.
 Each main branch to carry out detailed and structured manpower planning exercise every year
for a time spectrum of 5 years, linking it with strategic and business plans. Banks to take steps
to institutionalize manpower planning, with the help of outside expert advice, if required, and
subject it to review every year by the proposed Steering Committee of the Board on HR.
 Each branch to lay a roadmap for reaching officer-clerk ratio of 1:0.50 for metro and urban
branches and 1:0.75 for rural and semi-urban branches in the next 3 years.
 Boards of the banks to monitor staff costs and endeavor to achieve staff cost ratio of 50% in
the next 5 years.
 Banks to outsource more and more non-core activities in a time bound manner and its impact
to be factored in MPP.
 Banks to draw a time frame for implementing BPR and Change Management and Boards to
monitor its progress every 6 months.
 Clerical and sub staff to be redesignated.
 The standard of recruitment including methodology and content of testing has to be raised. For
this purpose, a Committee of experts including bankers can design the content of testing,
methodology for conducting such test and also review the existing arrangements.
 Testing of computer skills to be mandatory for both officer and clerical cadres.
 Recruitment of direct officers to be 50% of total officer vacancies.
 Minimum qualification for clerical recruitment to be graduation and for sub-staff, XII standard
pass.
 Minimum qualification for promotion from sub-staff to clerical cadre to be graduation.
 Fresh recruitment of clerks to be restricted to rural and semi-urban branches. Further,
Rural/Semi-urban service for a minimum period of three years should be made mandatory for
the new clerks joining the SBI.
52