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A REVIEW ON
COMMERCIAL BANKS
AFTER
NATIONALISATION
[Type the document subtitle]

[Type the abstract of the document here. The abstract is

typically a short summary of the contents of the document.
Type the abstract of the document here. The abstract is
typically a short summary of the contents of the document.]

Shraddha
[Pick the date]
Banking in India
From Wikipedia, the free encyclopedia

Structure of the organised banking sector in India. Number of banks are in brackets.

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India
is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is
the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of
India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India,
relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was
nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial
banks; the government nationalized the six next largest in 1980.

Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with
the Government of India holding a stake), 31 private banks (these do not have government stake; they
may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating
agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively
[edit]Early history
Banking in India originated in the last decades of the 18th century. The first banks were The General
Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The
oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in
June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency
banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were
established under charters from the British East India Company. For many years the Presidency banks
acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form
the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence
of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is
the oldest Joint Stock bank in India. It was not the first though. That honor belongs to the Bank of Upper
India, which was established in 1863, and which survived until 1913, when it failed, with some of its
assets and liabilities being transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States,
promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures,
most of the banks opened in India during that period failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of
Europeans for next several decades until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de
Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches
in Madras and Pondichery, then a French colony, followed. HSBC established itself in Bengal in 1869.
Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so
became a banking center.

The Bank of Bengal, which later became theState Bank of India.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad.
It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has
survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability.
Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other
infrastructure had improved. Indians had established small banks, most of which served particular ethnic
and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a
number of Indian joint stock banks. All these banks operated in different segments of the economy. The
exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock
banks were generally under capitalized and lacked the experience and maturity to compete with the
presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden
bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to
found banks of and for the Indian community. A number of banks established then have survived to the
present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara ( South
Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank.
Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

[edit]
From World War I to Independence
The period during the First World War (1914-1918) through the end of the Second World War (1939-
1945), and two years thereafter until the independence of India were challenging for Indian banking. The
years of the First World War were turbulent, and it took its toll with banks simply collapsing despite
the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in
India failed between 1913 and 1918 as indicated in the following table:

Authorised
Year Number of banks Paid-up Capital
capital
s that failed (Rs. Lakhs)
(Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

Post-independence
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing
banking activities for months. India's independence marked the end of a regime of the Laissez-faire for
the Indian banking. The Government of India initiated measures to play an active role in the economic life
of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed
economy. This resulted into greater involvement of the state in different segments of the economy
including banking and finance. The major steps to regulate banking included:

 In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it
became an institution owned by the Government of India.
 In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India
(RBI) "to regulate, control, and inspect the banks in India."
 The Banking Regulation Act also provided that no new bank or branch of an existing bank could
be opened without a license from the RBI, and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank of India,
continued to be owned and operated by private persons. This changed with the nationalisation of major
banks in India on 19 July 1969.

Nationalisation
By the 1960s, the Indian banking industry had become an important tool to facilitate the development of
the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued
about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime Minister of
India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a
paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive
enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance
and nationalised the 14 largest commercial banks with effect from the midnight of July 19,
1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political
sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received thepresidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the
nationalization was to give the government more control of credit delivery. With the second dose of
nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year
1993, the government merged New Bank of India with Punjab National Bank. It was the only merger
between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to
19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average
growth rate of the Indian economy.

The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped
the Indian economy withstand the global financial crisis of 2007-2009.[1][2]

Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a
small number of private banks. These came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in
India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in the norms for
Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could
exceed the present cap of 10%,at present it has gone up to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-
4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern
outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India.
People not just demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-
even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms
of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and
transparent balance sheets relative to other banks in comparable economies in its region. The Reserve
Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of
the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has
mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services
sector-the demand for banking services, especially retail banking, mortgages and investment services are
expected to be strong. One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold
more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding
5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive in their
loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that
the banks' loan recovery efforts have driven defaulting borrowers to suicide. [3][4][5]
Public ownership of banks, besides preventing the system from plunging into
periodic crises, delivers many growth and welfare benefits.

The importance of public banking

 C.P. CHANDRASEKHAR
 THE HINDU PHOTO ARCHIVES 

 
Prime Minister Indira Gandhi addressing members of a taxi drivers' union in
Delhi who visited her to express their support for the nationalisation of 14
banks, in 1969.
 IN a reversal of its recently held position, the Congress party has declared that
publicly owned banks are one of India’s strengths and that the nationalisation of
banks was one of the party’s important achievements. This has, as expected, upset
those who have supported the party’s two-decade long flirtation with financial
liberalisation, which included an as yet unfinished drive to privatise public sector
banks.
 The declaration was first made by Congress president Sonia Gandhi at the Hindustan
Times Leadership Summit. She argued that while the ongoing “economic upheaval”
could “grievously affect the most vulnerable sections of our society”, her party had
partially insulated India’s poor from becoming “victims of the unchecked greed of
bankers and businessmen”. Elaborating, she said: “Let me take you back to Indira
Gandhi’s bank nationalisation of 40 years ago. Every passing day bears out the
wisdom of that decision. Public sector financial institutions have given our economy
the stability and resilience we are now witnessing in the face of the economic
slowdown.”
 Coming from the Congress party chief at election time, this could be dismissed as
mere rhetoric that is unlikely to influence policy. After all, the United Progressive
Alliance chairperson had noted in the same speech that, the response to the
economic slowdown resulting from the crisis should not be a return to the era of
controls. But the cynics were surprised when just days after Sonia Gandhi made her
remarks, Finance Minister P. Chidambaram took the cue from his leader and extolled
the virtues of a nationalised banking sector. Speaking at a function organised as part
of the M. Ct. M. Chidambaram Chettyar centenary celebrations, he emphasised that
India’s public sector banks were strong pillars in the world’s banking industry.
 This was because, unlike the chief executives of private banks in the United States,
public sector bank managers did not violate regulations in search of profits. For a
Minister who has been pushing for the dilution of banking regulations, the
privatisation of public banks, and the relaxation of the cap on voting rights of
shareholders in banks, this is indeed a reversal of position. Three factors may have
contributed to this change of opinion. First, the evidence that the managers of
private banks pursuing profits had dropped all diligence and made decisions that
have threatened and are still threatening the viability of leading banks in the
developed capitalist countries. These include banks that the advocates of financial
liberalisation and privatisation upheld as models of modern banking.
 Second, the recognition that the only way in which the losses made by these banks
could be socialised and their viability ensured was for the government to invest in
their shares so as to recapitalise them. Across the world, the response to the
financial crisis has shifted out of mere measures to inject liquidity into the system to
backdoor nationalisation of these banks so as to save them from bankruptcy and to
ensure that they keep lending.
 Finally, the evidence that on an average, the public sector banks in India have
weathered the financial storm much better than the private banks, including some
that had been celebrated as the post-liberalisation icons of innovative
banking.However, if the argument stops here, the explicit or implicit defence of
nationalisation and support for public banking can only be partial and circumstantial.
What needs recognition is a conceptual case for regulated, public banking that
emerges from the current and previous financial crises. It is now widely recognised
that the current crisis can be traced to forces unleashed by the transformation of
U.S. banking in the 1970s, when it moved away from the “lend and hold” model in
which the interest margin – or the difference between interest paid on deposits and
the interest charged on loans – determined the profits of banks.
 With interest rates being controlled or regulated, this margin was small and implied
that the profitability of banking was low and below that of the rest of the financial
sector and even that of many non-financial industries. In fact, during the inflationary
1970s, profitability sank even further because savers moved out of bank deposits,
returns on which were regulated, to other kinds of financial instruments.
 There was a good reason why the banking system was thus regulated. As financial
intermediaries, banks accept deposits from the public at large, including small
savers. These deposits are insured against risk, are liquid and can be withdrawn at
will.
 On the other hand, the banks that pool these deposits provide medium or long-term
advances to borrowers who are risky targets, creating loan assets that are relatively
illiquid. Given the risk carried by these intermediaries, which are crucial to the real
economy, they had to be protected and the savings of small savers and households
secured through regulation, including regulation of interest rates. A consequence was
that banking was an island of low profits, resulting in a conflict between this profit
scenario and private ownership.
 Transfer of risk
  KAMAL NARANG 

 
Bank employees stage a demonstration outside the State Bank of India head
office in New Delhi on January 25 protesting against privatisation,
outsourcing and the "anti-labour policies" of the United Progressive Alliance
government.
 It was this conflict that led to the financial liberalisation of the 1970s and the 1980s
in the developed countries, when processes euphemistically referred to as financial
innovation were adopted to boost the profits of the banks. As a part of that, banks
shifted to the “originate and distribute” model in which they created credit assets not
to hold them but to pool them, securitise them and sell them to other investors,
transferring risk in the process. The banks’ own incomes now depended not on net
interest margins (after accounting for intermediation costs) but on the fees and
commissions they were paid to serve as factories that produced financial assets for
investors with varying tastes for risk.
 In the process, banks migrated to a world where expected and realised returns were
much higher than earlier, resolving the conflict between private ownership and lower
relative profitability.
 Unfortunately, that transformation also generated all the elements that underlie the
current and previous crises. The number of bank failures in the U.S. increased after
the 1980s. From 1955 to 1981, U.S. banks averaged 5.3 failures a year, excluding
banks that were protected by official open-bank assistance. On the other hand from
1982 to 1990, the banks averaged 131.4 failures a year, or 25 times as many as
from 1955 to 1981. During the four years ending 1990, banks averaged 187.3
failures a year. The most spectacular set of failures was that associated with the
“savings and loan crisis”, which was precipitated by financial behaviour induced by
liberalisation. Thus, there is a fundamental contradiction in private enterprise
capitalism. If the banking sector is regulated, it cannot deliver the profits that are
considered adequate by private investors, who are given returns elsewhere in the
system. On the other hand, if regulations are relaxed to facilitate the pursuit of
profits, it will result in bank fragility and “the poor become the victims of the
unchecked greed of bankers and businessmen”, as Sonia Gandhi noted. The only
solution, therefore, is the nationalisation of banking, or the core of the financial
system.
 Such nationalisation, which delivers a resilient banking system, yields many
favourable outcomes:
 • It ensures the information flow and access needed to pre-empt fragility by
substantially reducing any differences in the objectives and concerns of bank
 managers, on the one hand, and bank supervisors and regulators, on the other. This
is a much better insurance against bank failure than efforts to circumscribe their
areas of operation, which can be circumvented.
 • It subordinates the profit motive to social objectives and allows the system to
exploit the potential for cross subsidisation. As a result, credit can be directed,
despite higher costs, to targeted sectors and disadvantaged sections of society at
lower interest rates. This permits the fashioning of a system of inclusive finance.
 • It gives the state influence over the process of financial intermediation and allows
the government to use the banking industry as a lever to advance its development
efforts. In particular, it allows for the mobilisation of technical and scientific talent to
deliver both credit and technical support to agriculture and the small-scale industrial
sector.
 This multifaceted role for state-controlled banking allows the government to combine
policies aimed at preventing fragility and avoiding failure with policies aimed at
achieving broad-based and inclusive development. Directed credit at differential
interest rates can lead to economic activity in chosen sectors and regions and among
chosen segments of the population. It amounts to building a financial structure in
anticipation of real-sector activities, particularly in underdeveloped and underbanked
regions of a country.
 The importance of public ownership in realising these objectives cannot be
overstressed, since it requires subordinating the profit motive to larger social goals,
which would not be acceptable to a privately owned and controlled banking system.
 It hardly bears emphasising that the achievements of India’s banks after
nationalisation have been remarkable. There was a substantial increase in the
geographical spread and functional reach of banking, with nearly 62,000 bank
branches in the country as of March 1991, of which over 35,000 (or over 58 per
cent) were in the rural areas. There was a sharp increase in the share of rural areas
in aggregate deposits and credit. In fact, a major achievement of the banking
industry in the 1970s and the 1980s was a decisive shift in credit provision in favour
of the agricultural sector. From an extremely low level at the time of bank
nationalisation, agriculture’s share of credit rose to a peak of about 18 per cent by
the end of the 1980s.
 In sum, public ownership of banks, besides preventing the system from periodic
crises caused by the behaviour encouraged by the pursuit of private profit, delivers
many growth and welfare benefits. It is, therefore, gratifying that the combination of
a financial crisis and the pressures of electioneering have forced the government to
retract on its mindless advocacy of financial liberalisation and recognise the benefits
of public ownership. Whether this will influence policy is, 
Public Sector Banks

There are total 27 public sector banks in India (As on 26-09-2009). Of these 19 are nationalised banks,
6(STATE BANK OF INDORE ALSO MEARGED RECENTLY) belong to SBI & associates group and 1
bank (IDBI Bank) is classified as other public sector bank.

[edit]Nationalised Banks

 Allahabad Bank
 Andhra Bank
 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Canara Bank
 Central Bank of India
 Corporation Bank
 Dena Bank
 Indian Bank
 Indian Overseas Bank
 Oriental Bank of Commerce
 Punjab and Sind Bank
 Punjab National Bank
 Syndicate Bank
 UCO Bank
 Union Bank of India
 United Bank of India
 Vijaya Bank
State Bank of India
From Wikipedia, the free encyclopedia

STATE BANK OF INDIA

Type Public (BSE, NSE:SBI) & (LSE:SBID)

Founded Kolkata, 1806 (as Bank of Calcutta)

Headquarters Corporate Centre,

Madam Cama Road,

Mumbai 400 021 India

Key people Om Prakash Bhatt,Chairman

Industry Banking

Insurance

Capital Markets and allied industries

Products Loans

Credit Cards,

Savings

Investment vehicles

SBI Life (Insurance) etc.

Revenue ▲ US$ 24.577 billion (2008)

Net income ▲ US$ 2.25 billion (2008)[1]

Total assets ▲ US$ 257.183 billion (as of 31st March 2008)

Employees 205,896

Website StateBankofIndia.com

SBI redirects here, for SEBI, see Securities and Exchange Board of India

State Bank of India (SBI) is the largest bank in India.

The bank traces its ancestry back from British India, through the Imperial Bank of India, to the
founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian
Subcontinent. The Government of India nationalised the Imperial Bank of India in 1955, with
the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the
Government took over the stake held by the Reserve Bank of India.

SBI provides a range of banking products through its vast network in India and overseas, including
products aimed at NRIs. The State Bank Group, with over 16000 branches, has the largest branch
network in India. With an asset base of $250 billion and $195 billion in deposits, it is a regional
banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits
and advances, and SBI accounts for almost one-fifth of the nation’s loans. [2]

SBI has tried to reduce its over-staffing through computerizing operations and Golden
handshake schemes that led to a flight of its best and brightest managers. These managers took the
retirement allowances and then went on the become senior managers at new private sector banks.

The State bank of India is 29th most reputable company in the world according to Forbes.[3]

State Bank of India is one of the Big Four Banks of India with ICICI Bank, Axis Bank and HDFC
Bank.[4]

International presence
 State Bank of India (SBI), Mumbai Main Branch.

The bank has 141 overseas offices spread over 32 countries as on 31st Dec 2009. It has branches
of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los
Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. It has offshore
banking units in the Bahamas, Bahrain, and Singapore, and representative offices
in Bhutan and Cape Town.

SBI operates several foreign subsidiaries or affiliates. In 1990 it established an offshore bank, State
Bank of India (Mauritius).

In 1982, the bank established a subsidiary, State Bank of India (California), which now has eight
branches - seven branches in the state of California and one in Washington DC that it opened on 23
November 2009. The seven branches in California are located in Los Angeles, Artesia, San Jose,
Canoga Park, Fresno, San Diego and Bakersfield.

The Canadian subsidiary, State Bank of India (Canada) too dates to 1982. It has seven branches,
four in the greater Toronto area and three in British Columbia.

In Nigeria SBI operates as INMB Bank. This bank began in 1981 as the Indo-Nigerian Merchant
Bank and received permission in 2002 to commence retail banking. It now has five branches in
Nigeria.

In Nepal SBI owns 50% of Nepal SBI Bank, which has branches throughout the country. In Moscow
SBI owns 60% of Commercial Bank of India, with Canara Bank owning the rest. InIndonesia it owns
76% of PT Bank Indo Monex.

State Bank of India already has a branch in Shanghai and plans to open one up in Tianjin.[1]

History
The roots of the State Bank of India rest in the first decade of 19th century, when the Bank of
Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal
and two other Presidency banks, namely, the Bank of Bombay (incorporated on 15 April 1840) and
the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated
as joint stock companies, and were the result of the royal charters. These three banks received the
exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained
until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January
1921, and the reorganized banking entity took as its name Imperial Bank of India. The Imperial Bank
of India continued to remain a joint stock company.

Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India, which
is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955
the Imperial Bank of India became the State Bank of India. The Govt. of India recently acquired the
Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the
country's banking regulatory authority.

Offices of the Bank of Bengal

In 1959 the Government passed the State Bank of India (Subsidiary Banks) Act, enabling the State
Bank of India to take over eight former State-associated banks as its subsidiaries. On Sept 13,
2008, State Bank of Saurashtra, one of its Associate Banks, merged with State Bank of India.

SBI has acquired local banks in rescues. For instance, in 1985, it acquired Bank of Cochin in Kerala,
which had 120 branches. SBI was the acquirer as its affiliate, State Bank of Travancore, already had
an extensive network in Kerala.

Associate banks
There are six associate banks that fall under SBI, and together these six banks constitute the State
Bank Group. All use the same logo of a blue keyhole and all the associates use the "State Bank of"
name followed by the regional headquarters' name. Originally, the then seven banks that became
the associate banks belonged to princely states until the government nationalized them between
October, 1959 and May, 1960. In tune with the first Five Year Plan, emphasizing the development of
rural India, the government integrated these banks into State Bank of India to expand its rural
outreach. There has been a proposal to merge all the associate banks into SBI to create a "mega
bank" and streamline operations. The first step along these lines occurred on 13 August 2008
when State Bank of Saurashtra merged with State Bank of India, which reduced the number of state
banks from seven to six. Furthermore on 19th June 2009 the SBI board approved the merger of its
subsidiary, State Bank of Indore, with itself. SBI holds 98.3% in the bank, and the balance 1.77% is
owned by individuals, who held the shares prior to its takeover by the government.

The acquisition of State Bank of Indore will help SBI add 470 branches to its existing network of
11,448. Also, following the acquisition, SBI’s total assets will inch very close to the Rs 10-lakh crore
mark. Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on March
2009.

The Subsidiaries of SBI till date

 State Bank of Indore

 State Bank of Bikaner & Jaipur
 State Bank of Hyderabad
 State Bank of Mysore
 State Bank of Patiala
 State Bank of Travancore
Growth
State Bank of India has often acted as guarantor to the Indian Government, most notably
during Chandra Shekhar's tenure as Prime Minister of India. With 11,448 branches and a further
6500+ associate bank branches, the SBI has extensive coverage. State Bank of India has
electronically networked all of its branches under Core Banking System (CBS). The bank has one of
the largest ATM networks in the region, with more than 9000 ATMs across India. The State Bank of
India has had steady growth over its history, though it was marred by the Harshad Mehta scam in
1992. In recent years, the bank has sought to expand its overseas operations by buying foreign
banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global
500 rating and various other rankings.

Group companies
  SBI Capital Markets Ltd
 SBI Mutual Fund (A Trust)
 SBI Factors and Commercial Services Ltd
 SBI DFHI Ltd
 SBI Cards and Payment Services Pvt Ltd
 SBI Life Insurance Co. Ltd - Bancassurance (Life Insurance)
 SBI Funds Management Pvt Ltd
 SBI Canada

[hide]
v • d • e
 Banking in India
Centr
al Reserve Bank of India
bank

Natio Allahabad Bank · Andhra Bank · Bank of Baroda · Bank of India · Bank of Maharashtra · Canara Bank · Central Bank of

nalise
d India · Corporation Bank · Dena Bank · IDBI Bank · Indian Bank · Indian Overseas Bank · Oriental Bank of Commerce · Punjab
banks
& Sind Bank ·Punjab National Bank Syndicate Bank · Union Bank of India · United Bank of India · Vijaya Bank

State
Bank State Bank of Bikaner & Jaipur · State Bank of Hyderabad · State Bank of Indore · State Bank of Mysore · State Bank of
Grou
p Patiala · State Bank of Travancore

Axis Bank · Bank of Rajasthan · Bharat Overseas Bank · Catholic Syrian Bank · City Union Bank · Development Credit

Privat Bank · Dhanalakshmi Bank · Federal Bank · Ganesh Bank of Kurundwad · HDFC Bank · ICICI Bank · IndusInd Bank · ING

e Vysya Bank ·Jammu & Kashmir Bank · Karnataka Bank Limited · Karur Vysya Bank · Kotak Mahindra Bank · Lakshmi Vilas
banks
Bank · Nainital Bank · Ratnakar Bank · Rupee Bank · Saraswat Bank · SBI Commercial and International Bank · South Indian

Bank ·Tamil Nadu Mercantile Bank · YES Bank

Foreig ABN AMRO · Abu Dhabi Commercial Bank · Antwerp Diamond Bank · Arab Bangladesh Bank · Bank International
n Indonesia · Bank of America · Bank of Bahrain & Kuwait · Bank of Ceylon · Bank of Nova Scotia · Bank of Tokyo Mitsubishi
banks
UFJ · Barclays Bank ·Citibank India · HSBC · Standard Chartered · Deutsche Bank  · Royal Bank of Scotland

Regio
nal
Rural South Malabar Gramin Bank · North Malabar Gramin Bank · Pragathi Gramin Bank · Shreyas Gramin Bank
banks

Finan
cial Real Time Gross Settlement(RTGS)  · National Electronic Fund Transfer (NEFT) · Structured Financial Messaging System
Servic
es (SFMS) · CashTree · Cashnet 
State Bank of India (BSE:SBI), a public sector bank, is the largest bank inIndia.[1] SBI accounts for almost one-fifth of

the nation’s loans.[1] The Total Income of the Bank for 2007-08 increased by 30.99% from Rs. 440.07 billion to Rs.

576.45 billion.[2] The Bank has posted a Net Profit of Rs. 67.29 billion for 2007-08 as compared to Rs.45.41 billion in

2006-07, registering a growth of 48.18%.[2]

Besides personal and corporate banking, SBI is also involved in NRI (Non Resident Indian) services through its

network inIndia and overseas. As of May 2008, the bank had 21subsidiaries and 10,186 branches. [2] SBI was

adjudged the best bank in India for 2008 by ‘The Banker’ magazine of The Financial Times Ltd. [3] In addition to latest

results, growth rates and performance data, the magazine also analyzed the available material on technology,

acquisitions and key strategic developments.

Banks across Asia are looking to shore up their balance sheets as they prepare for a tougher business environment
amid a global economic downturn. SBI, which had no direct exposure to sub-prime mortgages, has said that it would

still need to raise USD 2-4 billion capital in 2009 to boost its Tier-1 capital adequacy ratio, but whether it would be

done through a rights issue or other means has not been finalized. [4] Tier 1 capital is the core measure of a bank's

financial strength from a regulator's point of view. It is composed of core capital, which consists primarily of equity

capital and cash reserves.

Business Overview

SBI Revenue and Net Income[5]

SBI offers the services of banking and as well as a whole array of financial services which include Mutual
Funds, Credit Cards, Life Insurance, Merchant Banking, Security Trading & Primary dealership in the Money market.
The Bank is actively involved in non-profit activity called community services banking apart from its normal banking
activity.
Joint Ventures
SBI has entered into a lot of strategic agreements with banks, insurers and other companies. Insurance Australia

Group (IAG) has signed a $170 million joint venture agreement with the State Bank of India (SBI) to establish a

general insurance company in India. The newly formed company is expected to commence trading in 2009.[10]

SBI will become the first public sector bank in India to enter the custody services sector. State Bank of India (SBI)

and Societe Generale Securities Services (SGSS), part of Societe Generale Group, have announced a joint venture

which will offer custody and related services in India. The new company, SBI SG Custodial Services, will be based in

Mumbai and offer a range of services to both foreign and domestic investors and clients, covering custody,

depository, fund administration, registration and transfer agent services. The joint venture will leverage SBI’s strength

in the Indian financial sector.[11]

Business and Financial Metrics

SBI's income has risen continuously at an average 29.44% over 2002-08 (see Net Income graph) and it has been

able to weather the 2008 financial storm better than both its private and public sector competitors. Net Profit for FY 08

stood at Rs 67.29 billion, up by 48.2% from Rs 45.41 billion in FY 07. The bank's current and savings

account (CASA) ratio has remained stable at 43% even in the volatile times of 2007-08. [13] Net Interest Income (NII) is

the difference between the revenues on the assets and the cost of servicing the liabilities. [14] From 2003-08 SBI's NII

has grown at an average 9.6%, indicating improvement in operational efficiency. Similar trend has been observed in

Total Income. Over 2003-08 SBI's Net Profit has more than doubled from Rs 31.05 billion to Rs 67.29 billion.

Key Financial Metrics (in Rs. billions) 2003 2004 2005 2006 2007 2008

Net Interest Income 310.87 304.60 324.28 359.79 372.42 489.50

Non-Interest Income 64.54 76.71 71.21 75.28 74.29 94.87

Total Income 375.41 381.31 395.49 435.07 446.71 584.37

Reported Net Profit 31.05 36.81 43.04 44.06 45.41 67.29

Source: Company reports[13]

Business Segments
Global Markets

In keeping with its integrated approach to all treasury activities in various markets in different time zones i.e.,  Forex,

Interest Rates, Bullion, Equity and Alternative Assets, the Bank re-designated its Treasury Operations into “Global

Markets”.
Trading profits from equity and mutual funds portfolio increased by 321% from FY07 to FY08. Interest income from

investment portfolio increased in absolute terms due to the increase in the overall Fixed Income portfolio from

Rs.1,369.27 billion to Rs.1,732.39 billion. RBI’s decision to increase Cash Reserve Ratio (CRR) rate from 6.00% to

7.50% in four stages during the year and withdrawal of interest payable on CRR balances impacted overall income

from Treasury operations.[15]

Wholesale Banking Group

The Bank's Wholesale Banking Group consists of three Strategic Business Units viz., Corporate Accounts Group,

Project Finance & Leasing SBU and Stressed Assets Management Group. The Bank has recently launched the

"Wholesale Banking Initiative" to harness the SBI Group synergy for the benefit of the corporate customers by

providing them with a ‘One Stop Shop’ facility for all their banking needs.[15]

 Corporate Accounts Group (CAG): With focused initiatives on fee-based services, fee-based income

registered an impressive 62% growth during 2007-08. CAG continued on the growth trajectory in forex business

registering a YOY growth of 79% and contributed 49% of the total domestic forex turnover of the Bank.

 Project Finance & Leasing SBU: The Project finance SBU focuses on funding core projects like power,

telecom, roads, ports, airports, SEZ (Special Economic Zones)[16] and others. It also handles non-infrastructure

projects with certain ceilings on minimum project costs. During 2007-08, the focus was on syndication and

underwriting of project loans. Project Finance SBU took up projects involving total debt of Rs. 925.58 billion and

achieved sanctions of Rs. 201.95 billion, while it syndicated Rs. 549.51 billion with other banks during 2007-08.

 Stressed Assets Management Group (SAMG): Stressed Assets Management Group (SAMG) was initially

set up to take over all NPAs (Non-performing Assets) with outstanding of Rs. 5 crore and above for focused

efforts in resolution of NPAs. The coverage has now been extended to Rs.1.00 crore and above across the

country.
Mid-Corporate Group

The Mid-Corporate Group (MCG) has been immensely successful in attracting the business of Mid-Corporate units

through relationship management and quicker creditprocessing. It is estimated that 38% of the Mid-Corporate

universe in the country is covered by the bank. The total credit portfolio (fund based) of the Group stood at Rs

1,090.02 billion as on 31st March, 2008. This is more than the aggregate business handled by many of the top banks

in the country. The average yield on advances went up from 8.76% in March 2007 to 9.73% in March 2008.[15]

National Banking Group

The Bank's National Banking Group (NBG) consists of three Business Groups viz., Personal Banking, Small &

Medium Enterprise (SME), and Government Banking.[15]

 Personal Banking Business Unit: During 2007-08, Personal Banking domestic deposits have grown from

Rs.1,908.70 billion to Rs.2,366.45 billion, showing a growth of Rs.457.75 billion (23.98 %) as against Rs.276.84

billion during the previous year.

 SME Business Unit (SMEBU): SME Business Unit is implementing multiple strategies to maintain Bank's

premier position in SME financing. Advances to SME sector increased to Rs.763.29 billion as on 31st March,

2008 from Rs.586.74 billion of the previous year registering a Y-O-Y growth of 30%. Deposits under SME sector

increased to Rs.1,651.68 billion as at the end of March 2008 from Rs.1,230.54 billion of previous year, recording

a growth of 34% during the year.

 Government Business Unit (GBU): The bank's linkage with Government business are widespread. No

wonder, its 7000 branches are conducting Government Business.[17]The large network of branches provides easy

access to deposit the Government dues and pension payments, services related to taxes, excise duties, customs

duties, VAT (Value-Added Tax)[18] and other fiscal tools.

Rural Business Group

During the year 2007-08, Rural Business Group of the Bank comprising rural and semi urban branches, accounting

for about 70% of the branch network of the Bank grew by Rs.298.07 billion in deposit representing a growth of 22.8%

and Rs.187.34 billion in advances representing a growth of 23.4%. This was against a growth of Rs.163.67 billion in

deposit and Rs.176.84 billion in the advances in the previous year.[15]

International Banking Group

As on 31.03.2008, the Bank had a network of 84 overseas offices spread over 32 countries covering all time zones.

Net Profit from Bank’s overseas operations (includingsubsidiaries and joint ventures with more than 50%

shareholding) registered a growth of 84% during the fiscal year mainly driven by significant growth of 48% in Net

CustomerCredit.

The Bank has further intensified its thrust in the area of syndicated foreign currency loans and participated in

corporate syndicated loan deals amounting to USD 27.57 billion during April 2007 to March 2008, besides extending

several bilateral facilities aggregating US$ 933 million. The Bank has participated to the extent of USD 3.04 billion in

31 Merger and Acquisition deals aggregating USD 22.56 billion in 2007-08 as against participation to the extent of US

$ 1.07 billion in 13 deals aggregating US $ 5.37 billion during the previous year. The Bank was ranked No. 1 in the

Asia Pacific (excluding Japan and Australia) in the mandated arranger/book runner league table for syndicated loans

by IFR Asia.[15]

Key Trends and Forces

Macro economic risk is the biggest risk for SBI, given its size, penetration and
exposures in India
Government regulations and the country's macroeconomic policies affect SBI's expansion and liquidity the most. Key
ratios such as Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo rate and Reverse Repo rate are all
controlled by the government and affect the bank's liquidity.

Source: Dun & Bradstreet Report[19]

 SBI and ICICI Bank Ltd, two of the nation’s biggest banks, have been worst hit by the Reserve Bank of India’s
(RBI) decision to increase the amount of cash they must hold with it (CRR).[20] Within 2008, RBI hiked CRR from its
long-standing value of around 6%, in steps, to 7.5% (see graph). Changes in interest rates adversely affect net
interest margin — the difference between the yield the bank earns on assets and the interest rate it pays for deposits
and other sources of funding — which in turn affect earnings. As SBI works to broaden its products and services and
increase its branch network, it will have to gain approval from the Reserve bank of India and other government
agencies.

International operations' increasing contributions to total income expected to

continue and boost income further
SBI is laying greater and greater thrust on its international operations, capitalizing its presence in 32 countries. Being

the largest commercial bank in India, it is one of the most capable banks to cater to Corporate India's growing

appetite for international mergers and acquisitions. Net Profit from Bank’s overseas operations

(including subsidiaries and joint ventures with more than 50% shareholding) registered a growth of 84% during FY

2007-08 mainly driven by significant growth of 48% in Net Customer Credit. The Bank was ranked No. 1 in the Asia

Pacific (excluding Japan and Australia) in the mandated arranger/book runner league table for syndicated loans by

IFR Asia in 2007-08.[15]

11,111 branches and still counting- a source of low-cost deposits

Bank branch expansion in India is regulated by RBI and banks cannot expand their branch network

without RBI’s approval. As low-cost deposits are directly tied to the size of the branch network, the number of
branches a bank has, is a key success factor for any bank in India. Branch expansion is particularly a key factor for

SBI, given that SBI's profit growth is driven by core business. The operating profit increased by 54.5% yoy, given a

robust increase in the NII and a modest rise in the non-interest income. Net profit rose by 40.2% yoy after accounting

for a 30% increase in the tax paid.[21]

Public sector banks facing stiff competition from private sector banks
Public sector banks are facing competition from their private sector counterparts and foreign banks entering India in

all realms of financial services. While public sector banks enjoy a pre-eminent position in terms of low-cost deposit

base (also called CASA deposits in India – stands for Current Accounts and Savings Account), private-sector banks

have been increasing their CASA base steadily over the years. ICICI Bank, the largest private bank in India, has

expanded its CASA market share by 218% over the period of 2003-2007. The bank’s CASA deposits have grown at a
CAGR of 61% over the same period, compared with a growth of 17.1% for public-sector banks, 32.5% for private

sector banks and 29% for foreign banks in India.[22]

Private sector banks, armed with usually more efficient management and employees, are employing all tricks- branch

expansion, mergers and acquisitions, international operations, etc. to compete with public sector banks.

Competition

 Punjab National bank - Punjab National Bank (PNB) is the second largest government-owned commercial

bank in India with about 4,500 branches across 764 cities.[23] This financial institution offers services in personal

and corporate banking, including industrial, agricultural, and export finance, as well as international banking. It

competes with SBI mostly in retail lending and wholesale businesses[24]

 ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is India's largest private sector

bank and second largest overall in terms of assets. Together with its subsidiaries, ICICI Bank offers a complete

spectrum of financial services and products ranging from commercial banking to investment banking, mutual

fund to insurance. It is also the largest issuer of credit cards in India.

 HDFC - Housing Development Finance Corporation Limited Bank Limited or HDFC Bank is the second

largest private bank in India, catering to the whole universe of financial services from commercial to investment

banking, mutual fund to insurance.[25] On February 25, 2008 HDFC agreed to buy Centurion Bank of Punjab. The

combined entity has the largest branch network among private banks in India, a strong deposit base of around

Rs 1220 billion and net advances of around Rs 890 billion.[26]

 Bank of Baroda - Bank of Baroda is another private player. It has a rich countrywide network of over 2800

branches. It also has significant international presence with a network of 74 offices in 25 countries.[27]
 Total Deposits Total Advances Net profit Total Assets Branches

State Bank of India 4,355.21 3,373.36 45.41 5,665.65 10,186

ICICI Bank 2,305.10 1,958.66 31.10 3,453.12 1,400

Punjab National Bank 1, 398.60 1,990.48 20.48 1,990.48 4,500

HDFC Bank 1,007.69 634.27 15.90 1,332.51 1,412

Bank of Baroda 1,520.34 1,067.01 14.35 1,795.99 2,800

(all money figures in Rs. billions, as on 31st March, 2008) Sources: [28] [29] [30]