State Bank of India: Competitive Strategies of a Market Leader
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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
Excerpts
Liberalization of the Indian Banking Industry
Private sector banks made their first appearance in January 1993. During that period, PSBs accounted for over three-fourths of total banking industry assets. They were weighed down with huge NPAs(Non-Performing Assets), falling revenues, lack of modern technology and a massive and highly unionized workforce. New entrants began to erode the market share of the nationalized banks, especially in metro cities and urban areas. The PSBs found it increasingly difficult to compete with the new private sector banks and the foreign banks. These banks also employed state-of-the-art technology, which helped them to save on manpower costs and concentrate on providing better service...
The Restructuring
To overcome the intense competition from private and foreign banks, SBI planned a major organizational restructuring exercise. The key aspects involved redesigning of branches, providing alternate channels; focus on a lean structure and technological upgradation. A business process reengineering (BPR) team was constituted in June 2003 with McKinsey & Company as consultants. The BPR's basic goal was to create an operating architecture that would facilitate service delivery of international standards. The project objectives were defined as "increasing customer satisfaction and convenience, freeing up time for branch manager and branch staff to focus on sales and marketing, simplifying process for employees, enhancing SBI's competitiveness in the market, increasing the profitability through higher market share and improved process efficiency..."
New Products and Services
Apart from restructuring, SBI launched several innovative, value-added products and services to project a customer friendly image. It launched a special service for corporate customers called 'telebanking and remote login' to support transactional requests. This facility would be available at 593 branches, and remote login at 269 branches. The bank's trade finance solution, called EXIMBILLS, was intended to handle trade finance transactions efficiently and enhance the range of services provided to corporates and network branches. In March 2004, SBI announced that it would introduce 'anywhere banking' facility for its customers from over 9000 branches across India in the next two years. All branches in Mumbai would provide this facility by December 2004. SBI also launched different customized loan programs to cater to various sections of society depending on income levels and repayment capabilities. Interest rates and repayment periods were tailor-made to suit the customer groups...
Alliances and Tie-Ups
To boost its business, SBI entered into several alliances and tie-ups with automobile, insurance, mutual fund, project finance and medical equipment companies.
Unlike other competitors that relied on reduced interest rates to get business, SBI extended the tenure of car loans from five to seven years, thereby lowering the monthly debt repayment burden of the loan seeker. SBI entered into a tie-up with Maruti, the largest automobile manufacturer in India, to provide loans for purchase of Maruti cars at the rate of 10.05 per cent and 11.25 per cent for three years and above three years respectively. After the scheme was introduced, SBI emerged as the largest financier for Maruti cars in India and the number of Maruti vehicles financed grew by 17 per cent in the fiscal 2003-04 over fiscal 2002-03...
The Marketing Initiatives
SBI carried out various marketing initiatives to enhance its reach. They included segregating and targeting existing high value customers, cross sales of other products, setting up call centers and outbound sales force to secure new customers. Plans were also made to utilize database marketing to pursue large and medium sized corporates, government and trade finance customers. Database marketing was expected to draw increased revenue from cross selling, lower costs and increased customer loyalty. SBI also introduced various other ways of reaching out to customers like extension of hours of work and aggressive marketing through print and television media. SBI increased daily working hours by two hours and Sunday banking was introduced...
Looking Ahead
SBI's restructuring exercise and growth strategies resulted in an increase in profits for the fiscal 2003-04. Net profits stood at Rs 36.81 bn for the fiscal ended 2003-04 as against Rs 31.05 bn the previous fiscal, an increase of 18.55 per cent. Operating profits stood at Rs 95.535 bn compared to Rs 77.754 bn in the fiscal 2002-03. In spite of SBI's efforts to reduce workforce, staff costs rose by 13.3 per cent, mainly due to additional contribution to pension fund and provision for leave encashment. The net NPA level came down from 4.5 per cent in the fiscal 2002-03 to 3.5 per cent in 2003-04. SBI aimed at 2 per cent NPA by 2004-05 (Refer Exhibit IV & V for the financial highlights of SBI group)...
Exhibits
Exhibit I: Organization Structure of SBI
Exhibit II: Market Share of Banks (December 2001)
Exhibit III: Code of Fair Banking Practice
Exhibit IV: Financial Performance of SBI (1998-2001)
Exhibit V: SBI Group - Key Operational Highlights (As on March 31, 2004)
Exhibit VI: Indian Banking Industry (March 2003)
Exhibit VII: Performance of SBI Compared to Other Banks (2003-04)
Exhibit VIII: Deposits Market Share Trends
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