State Bank of India: Competitive Strategies of a Market Leader

Case Code: BSTR132 Case Length: 19 Pages Period: 2000 - 2004 Pub Date: 2004 Teaching Note: Not Available

Price: Rs.500 Organization: State Bank of India Industry: Banking Countries: China Themes: Operational Restructuring

Abstract Case Intro 1 Case Intro 2 Excerpts

Background Note

The origin of SBI dates back to the early 19th century, when the Bank of Calcutta was established in Calcutta (present day Kolkata in the state of West Bengal) in June 1806 under the aegis of the Government of Bengal. Three years after its inception, the bank was renamed Bank of Bengal on receiving its charter. It was a unique banking institution as it was the first joint-stock bank in British India. Next came the Bank of Bombay in April 1840 followed by the Bank of Madras on July 1843. By 1876, the three presidency banks, together with their branches, agencies and sub-agencies, covered major inland trade centers in India. Bank of Bengal had 18 branches while the other two had 15 branches each. Initially, the business of these banks was restricted to discounting bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes. The last quarter of the 19th century witnessed rapid commercialization in India owing to the expansion of the railway network, to cover all major geographic regions of the country.

The three presidency banks were both beneficiaries and promoters of this commercialization process as they became involved in the financing of practically every trading, manufacturing and mining activity in the Indian sub-continent. The three presidency banks were amalgamated in January 1921 to form the Imperial Bank of India. The new bank performed the triple role of a commercial bank, a banker's bank and a banker to the government. However, the quasi-central bank role performed by the Imperial Bank ended with the formation of the Reserve Bank of India (RBI) as the central bank of India in 1935. RBI's establishment was a catalyst in the conversion of the Imperial Bank into a purely commercial bank. At the time of Independence in 1947, the Imperial Bank had acquired a paramount position in the country's banking industry. It had a capital base of Rs.118.5 mn, deposits of Rs. 2.7514 bn and advances of Rs. 729.4 mn. It had a network of 172 branches and over 200 sub-offices spread all over India. When the first Five Year Plan was launched in 1951, the rural sector was given top priority. The Imperial Bank and other commercial banks too operated mainly in urban areas and had not yet penetrated the rural sector. To overcome this lacuna, it was recommended that a state-partnered and state-sponsored bank be created to take over the Imperial Bank and integrate the former state-owned or state-associated banks with it...

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