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

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Case Details:

Case Code : BSTR411
Case Length : 17 Pages
Period : 2006-2012
Pub Date : 2012
Teaching Note :Not Available
Organization : State Bank of India
Industry : Banking
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Indian Banking Scenario

In the pre-structural reform period of the Indian economy, till the 1990s, the banking sector was dominated by public sector banks occupying three-fourths of the total banking industry. Catering to the needs of planned development in a mixed economy framework and huge development expenditures, the public sector banks were weighed down with huge NPAs, falling revenues, lack of modern technology, and a massive and highly unionized workforce. Financial sector reforms, dictated by the World Bank-IMF and set in motion in 1991, transformed the Indian banking industry from a regulated environment to a deregulated market economy.

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The liberalization and globalization of the Indian economy opened the doors for private sector banks including foreign banks to make their appearance for the first time in India. Leveraging on fast emerging information technology, the private sector banks initiated a number of user friendly services such as Internet Banking, Automatic Teller Machines (ATMs), Debit Cards, Credit Cards, Mobile Banking, Phone Banking, Demat Accounts, and extension of business hours. The state-of-the-art technology not only helped to save on manpower costs but also helped them to provide better services, and so maximize customer satisfaction.

By the mid-1990s, the private banks grew in size through several mergers and acquisitions, to reap the benefits of economies of scale and expansion. They brought a new culture into the Indian banking industry. Instead of customers standing in queues at banks, the private banks started offering services to the customers at their doorsteps. They started disbursing customer-centric tailor-made loans within a short time - a process that took over a month at public sector banks. Moreover, the processing fee at the private banks was lower. The ambience in the private banks looked more corporate and professional while the customers were treated with courtesy, a practise that was lacking in the public sector banks.

This resulted in a shift in the customer base to the private banks. Ultimately, the public sector banks lost their market share to private banks. The business practices of the private banks intensified the competitive climate in the Indian banking industry and forced the public sector banks such as SBI to realize the need to shed flab and reduce exorbitant NPAs and excessive government equity so as to retain their market share and look for new avenues of growth.

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