Changing Face of State Bank of India: Strategic Priorities in Maintaining Market Leadership

Case Code: BSTR411 Case Length: 17 Pages Period: 2006-2012 Pub Date: 2012 Teaching Note: Not Available

Price: Rs.500 Organization: State Bank of India Industry: Banking Countries: India Themes: Business Strategy, Market Leader Strategy, Implementation

Abstract Case Intro 1 Case Intro 2 Excerpts

In November 2011, HDFC Bank Ltd. dethroned State Bank of India (SBI) in terms of market capitalization. HDFC Bank's market cap was Rs.1.1 trillion - almost a percent higher than SBI's Rs. 1.09 trillion. Earlier in October 2011, Moody's Investors Service had cut down SBI's financial strength rating from 'C-' to 'D+' as the bank's bad loans had been rising continuously, lowering in turn its core capital. Following the downgrading, SBI's shares were traded 5.35% lower on the Bombay Stock Exchange (BSE). Since Pratip Chaudhuri (Chaudhuri) took up the reins of SBI in April 2011, there had been an erosion in SBI's market capital and investors' wealth.

Chaudhuri took over as chairman of SBI from his illustrious predecessor, Om Prakash Bhatt (Bhatt). Chaudhuri assumed charge of the bank at a time when its profits had peaked to Rs. 110.34 billion (as of March 2010). Back in 2006, when Bhatt became the chairman of SBI, the bank had been losing market share to private and foreign banks in India for over two decades. SBI, under Bhatt's leadership, adopted aggressive strategies from mid-2006 to raise its market share and compete against the private banks. Bhatt transformed the organization from an old hierarchical government bank into a modern, customer-focused bank. By 2011, SBI had doubled its deposits and profits and had regained and re-established its position as India's largest bank.

The foremost challenge Chaudhuri faced was to sustain the profits and stay ahead of the competition. Industry observers were keenly watching Chaudhuri's moves regarding issues like special loan rates on mortgages, amalgamation of associate banks, Non-performing Assets (NPA) provision requirements, etc. However, on May 17, 2011, Chaudhuri announced at an earnings conference that there had been a drop in the bank's profits. While Chaudhuri reasoned that the revision of interest rates and the provisions made for the NPAs was the main cause for the drop in profits, the announcement took analysts by surprise. While the bank's position in early 2012 was not as bad as it was in 2006, Chaudhuri adopted a conservative approach in handling the bank, had a certain set of challenges to face, and needed to steer the bank out of trouble. But some analysts were doubtful whether SBI would be able to remain in the position of a market leader under Chaudhuri.

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