1. Transforming Public Sector Banks State Bank Of India A Success Story Presented By: M S Verma, Former Chairman State Bank of India

2. 2 HISTORICAL PERSPECTIVE Banks nationalised in 1969 By early 1990s accounted for 90% of country’s banking business By 1992 had over 60,000 branch offices Highly regulated and protected environment Failed to measure up to international benchmarks of strength and efficiency

3. 3 HISTORICAL PERSPECTIVE Financial sector reforms initiated in 1991 Public Sector Banks (‘PSBs’) post losses for the first time as a group in the first year of reforms State Bank of India (‘SBI’) and its 7 subsidiaries continued to post profits By 1995-’96 several other PSBs also improved their profitability Wide variations in competitive efficiency of PSBs persists even today

4. 4 WHAT DIFFERENTIATES SBI? Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

5. 5 STATE BANK GROUP State Bank Group – a financial conglomerate of:  SBI – Over 9,000 Branches  One of the world’s largest branch networks  7 Associate Banks – Over 4,000 Branches  Banking Subsidiaries  1 in India  2 wholly-owned (outside India)  2 joint ventures (outside India)  7 Non-Banking Subsidiaries

6. 6 ORGANISATION STRUCTURE Adapting with time  First Restructuring (1971)  market segmentation  Annual performance budgeting  Second Restructuring (1980)  modular structure  controlling offices nearer to operating units for better control  Comprehensive Review of Structure Processes & Roles (1994 – 95)  strategic business units  business groups Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

7. 7 ORGANISATION STRUCTURE Business Group Strategic Business Units 1 Corporate Banking Group Corporate Accounts Group Project Finance Group & Leasing Group 2 National Banking Group Each of the Local Head Offices constitutes a separate SBU. Branches in LHO grouped under two networks:- a.Development & Personal Banking (Retail Banking) b.Commercial Banking (Corporate Banking) 3 International BankingForeign Offices(an SBU), Global Merchant Banking, Global Link Office 4 Associates & Subsidiaries Associate Banks, Subsidiaries of SBI Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

8. 8 ORGANISATION STRUCTURE Investment Banking Funds Management Primary Dealership Factoring Credit Cards Insurance Credit Bureau State Bank of India Corporate Centre Corporate Banking Group International Banking Group Development & Personal Banking Network Commercial Network Mid-sized corporates, large SSIs & Agri. SSIs/ Agriculture /Small business Government Business Personal customers High net- worth Individuals Corporate Accounts Group Dedicated focus on Top Corporates Project Finance SBU Focus on Infrastructre, Telecom, Transport & Hydrocarbon financing Leasing SBU Focus on Infrastructre & Capital intensive projects National Banking Group Associates & Subsidiaries 7 Associate Banks 100% owned banking subsidiary Non-Banking Subsidiaries & Affiliates Local Head Offices Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources Customer Focused Organisation Structure

9. 9 CORPORATE GOVERNANCE SBI practiced corporate governance even before it became the ‘buzz’ word SBI is unique in that it has both  Central Board  Local Board for each Circle Independent directors from different walks of life – industrialists, academicians, professionals The Board is the highest policy making body in the bank Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

10. 10 CORPORATE GOVERNANCE Contributions from these directors have been manifold:  Executive Committee of the Central Board – weekly meetings  Audit Committee – supervision of total audit function of the bank – external & internal  Asset-liability management Committee  Shareholders/investors grievance Committee – redressal of complaints Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

11. 11 CORPORATE GOVERNANCE Specific tenure for independent directors Information flow to the directors  Periodic reviews on micro & macro functioning of the bank benchmarked against the entire banking sector  Open discussions with the top management Bring in the outside-in perspective  Guiding the management in identifying opportunities for the bank Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

12. 12 CORPORATE LEADERSHIP Planning for the future  Clearly documented and transparent management process  Process for early identification of leaders and succession planning is followed at top-management levels Selection system involves outside specialists thereby reducing any influences/ biases Constant monitoring of performance at all levels for improving effectiveness Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

13. 13 CORPORATE LEADERSHIP Decisions evaluated through committee process Clear division in functions  Chairman as the Chairman of the Board of Directors spearheads policy-making  Group Executives entrusted with operational responsibility for the SBUs attached to them  Policy planning functions with Staff functionaries at the Apex level  Similar structure in Circles Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

14. 14 INTERNAL CONTROLS Time tested systems and procedures SBI does not compromise with the procedures as laid down by regulators and its own internal systems  Indeed, SBI has been seen by the market as the face of the regulator Comprehensive Management Information and Decision Support Systems Constant reviews of these systems to keep pace with the dynamics of the market Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

15. 15 INTERNAL CONTROLS New systems evolved on an-on-going basis to suit changing environment  Credit process – streamlining of the sanction process through greater delegation of sanctioning powers, delayering of the credit assessment process  Committee form of decision making Systems Audit periodically undertaken to assess deficiency Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

16. 16 PRODUCT INNOVATION Leveraging customer base to focus on Cross Selling Segmental focus  Focus on mid-corporate, trade, housing, consumer finance, agriculture Leaders in launching new products Innovative forms of credit – Self-Help Group, Kissan (Farmer’s) Credit Card Project Uptech - providing expertise and technical support to the borrowing customers in their activities Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

17. 17 HUMAN RESOURCES Committed professional cadre Best pool of human resources  SBI has been the source for talent for many of the foreign and private sector Banks Employee productivity - Performance Management System Transparency in personnel matter  Appellate / review authority Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

18. 18 HUMAN RESOURCES Excellent in-house training infrastructure – reputed to be the best in India and one of the best in Asia  Training system synchronised with the corporate objectives  Training delivery – practical oriented programmes, on-the-job trainings, job related  Proper selection of trainers / trainees  Hands-on training by deputing to the Branches  Training colleges/centres in each Circle  Training from the time of entry till the time for retirement for all staff  Research wing  Systematic evaluation of the impact of training Organisation structure State Bank of India Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources

19. 19 AREAS OF CONCERN Government ownership acts as a constraint in raising fresh capital Perception as one of the brightest “family silvers” often results in political intervention delaying decisions relating to critical strategic and policy changes Absence of market related compensation structure for employees Inability to offer performance based compensation and rewards Inability to attract and retain best-in-class talent

20. 20 CONCLUSIONCONCLUSION Notwithstanding its public sector nature SBI has shown consistently strong performance, demonstrating:  Being in the public sector in itself need not really be a handicap to success  It is not only possible but essential to retain a commercial culture and competitive efficiency while attending to social and developmental objectives  Quality of governance is independent of ownership  Ownership, and management roles and concerns can be kept separate and as long as they are kept so, performance is better  Long term strategy and a clear vision about market positioning is essential  Ability to provide leadership from within is important  Development of human resource is critical

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