State Bank of India (SBI) is the largest

nationalized commercial bank in India in

terms of assets, number of branches, deposits,
profits and workforce. With the liberalization
of the Indian banking industry in the mid-
1990s, SBI faced stiff competition from the
private sector and foreign banks which
resulted in significant loss of its market share.
The case describes the efforts of SBI to regain
its lost market share by undergoing a major
restructuring exercise which involved
redesigning its branch network, providing
alternate banking channels, emphasis on lean
structure and technology up gradation. The
case also discusses how SBI is building its
image as a customer friendly bank by
launching innovative products & services and
promoting its brand.

Finally, it discusses the challenges faced by SBI in 2004 and its plans in the future. The
case includes a note on the recent trends in the Indian banking industry.

The nationalized banking industry would be subject to tremendous pressures to perform

as otherwise their very survival would be at stake......The nationalized banking industry
in India will have to get its act together if it has to survive in the new millennium since it
would be subject to intense competition not only from the new domestic players but also
from established global outfits." 1

- SK Gupta, Chief General Manager, (Bengal Circle), State Bank of India.

"We are second to none in banking technology, though we were initially far behind the
private sector banks in launching core banking solutions to facilitate anywhere banking
facility. We are now in a position to take the lead in the banking technologies as we have
become front runners in the sector." 2

- A Ramesh Kumar, Chief General Manager, SBI's Mumbai Circle.

Introduction

In March 2003, State Bank of India (SBI) and its associate banks had 13,579 branches,
one of the largest branch networks for any bank in the world. It played a key role in
providing working capital finance and term loans to Indian industry.

In 2003, SBI had eight business units -

corporate banking, international banking and
domestic banking for concentrating on core
business areas; associate banks unit for
looking after these banks, credit division unit
to monitor overall credit and three other
business units including finance, corporate
development and inspection for in-house
work.(Refer Exhibit I for the Organization
Structure of SBI). SBI was the largest
commercial bank in India in terms of
revenues, assets, deposits, branches and
workforce. Since the late 1990s, SBI had been
losing market share in the Indian banking
industry due to the tough competition from
private sector banks (Refer Exhibit II for
market share of public, private and foreign
banks in 2001).

By adopting modern technology and offering superior customer service, the private sector
banks gained a significant share in urban banking.

Expressing concern over this trend, in an

interview to the Asian Banking Journal, AK
Purwar, SBI's Chairman and Managing
Director since November 2002, said, "The top
most priority for the bank has been retention
of market share. As a PSU bank, SBI was
losing its market share. Although it was at a
very slow pace, it was definitely losing its
market share."3 To regain lost ground, SBI
initiated a major internal restructuring
exercise. The bank responded to competition
by taking several measures including offering
an array of new products and services, forging
alliances with other business entities, entering
new areas of business and adopting novel
ways of reaching out to customers and
providing them value-added services.
Alliances and Tie-Ups

To boost its business, SBI entered into several alliances and tie-ups with automobile,
insurance, mutual fund, project finance and medical equipment companies.

Auto Finance

Unlike other competitors that relied on

reduced interest rates to get business, SBI
extended the tenure of car loans from five to
seven years, thereby lowering the monthly
debt repayment burden of the loan seeker. SBI
entered into a tie-up with Maruti, the largest
automobile manufacturer in India, to provide
loans for purchase of Maruti cars at the rate of
10.05 per cent and 11.25 per cent for three
years and above three years respectively.
After the scheme was introduced, SBI
emerged as the largest financier for Maruti
cars in India and the number of Maruti
vehicles financed grew by 17 per cent in the
fiscal 2003-04 over fiscal 2002-03...

The Marketing Initiatives

SBI carried out various marketing initiatives

to enhance its reach. They included
segregating and targeting existing high value
customers, cross sales of other products,
setting up call centers and outbound sales
force to secure new customers. Plans were
also made to utilize database marketing to
pursue large and medium sized corporates,
government and trade finance customers.
Database marketing was expected to draw
increased revenue from cross selling, lower
costs and increased customer loyalty. SBI also
introduced various other ways of reaching out
to customers like extension of hours of work
and aggressive marketing through print and
television media. SBI increased daily working
hours by two hours and Sunday banking was
introduced...
Looking Ahead

SBI's restructuring exercise and growth strategies resulted in an increase in profits for the
fiscal 2003-04. Net profits stood at Rs 36.81 bn for the fiscal ended 2003-04 as against Rs
31.05 bn the previous fiscal, an increase of 18.55 per cent. Operating profits stood at Rs
95.535 bn compared to Rs 77.754 bn in the fiscal 2002-03. In spite of SBI's efforts to
reduce workforce, staff costs rose by 13.3 per cent, mainly due to additional contribution
to pension fund and provision for leave encashment. The net NPA level came down from
4.5 per cent in the fiscal 2002-03 to 3.5 per cent in 2003-04. SBI aimed at 2 per cent NPA
by 2004-05 (Refer Exhibit IV & V for the financial highlights of SBI group)...

http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR132.htm

About Strategic Business Insights

Strategic Business Insights (SBI) works with clients to identify and map new opportunities
based on emerging technology and market insights. We combine ongoing research with
consulting services to create insights that affect customers, business, and technology.

With our help, leading organizations identify coming changes faster, separate hype from
reality, and create strategy with a greater awareness of what the future may bring.

SBI stands apart from our competitors in our staff’s ability to integrate all pieces of the puzzle
necessary to manage the future: the technology developments that will determine commercial
opportunities, the forces that will define the business environment, and the shifts in consumer
demand that will shape the marketplace.

SBI is the former Business Intelligence division of SRI International that has worked with
clients on opportunities and change since 1958. Headquartered in Silicon Valley—with offices
in Japan, the United Kingdom, and New Jersey—we have a global reach and work across a
wide range of government and business sectors, including electronics, health care, energy,
and financial services.