Transforming Public Sector Banks

State Bank Of India

M S Verma, Former Chairman State Bank of India

HISTORICAL PERSPECTIVE

Banks nationalised in 1969 By early 1990s accounted for 90% of countrys 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

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
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Organisation structure
Corporate Governance Corporate Leadership Internal Controls Product Innovation Human Resources
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WHAT DIFFERENTIATES SBI?

STATE BANK GROUP

State Bank Group a financial conglomerate of: SBI Over 9,000 Branches
One

of the worlds largest branch networks

7 Associate Banks Over 4,000 Branches Banking Subsidiaries

in India 2 wholly-owned (outside India) 2 joint ventures (outside India)

7 Non-Banking Subsidiaries
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

ORGANISATION STRUCTURE

Adapting with time First Restructuring (1971)

segmentation Annual performance budgeting

Second Restructuring (1980)

structure controlling offices nearer to operating units for better control

Comprehensive Review of Structure Processes & Roles (1994 95)

business units business groups

State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

ORGANISATION STRUCTURE
Business Group Strategic Business Units 1 2
Corporate Banking Group National Banking Group Corporate Accounts Group Project Finance Group & Leasing 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 4

International Banking Foreign Offices(an SBU) , Global Merchant Banking, Global Link Office Associates & Subsidiaries Associate Banks, Subsidiaries of SBI
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

ORGANISATION STRUCTURE
Customer Focused Organisation Structure
State Bank of India
Corporate Centre

Corporate Banking Group

International Banking Group

National Banking Group

Associates & Subsidiaries

Project Finance SBU

Corporate Accounts Group

Leasing SBU

Local Head Offices

7 Associate Banks

100% owned banking subsidiary

Non-Banking Subsidiaries & Affiliates

Focus on Infrastructre, Telecom, Transport & Hydrocarbon financing

Dedicated focus on Top Corporates

Focus on Infrastructre & Capital intensive projects

Commercial Network

Development & Personal Banking Network

Mid-sized corporates, large SSIs & Agri.

SSIs/ Agriculture /Small business

Government Business

Personal customers

Investment Banking Funds Management Primary Dealership Factoring Credit Cards Insurance Credit Bureau 8

High networth Individuals

State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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 (Farmers) Credit Card Project Uptech - providing expertise and technical support to the borrowing customers in their activities
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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
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State Bank of India

Corporate Governance

Organisation structure

Corporate Leadership

Product Innovation

Human Resources

Internal Controls

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 18 Systematic evaluation of the impact of training

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
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CONCLUSION

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 20 Development of human resource is critical

Thank You
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