State Bank of India - Essay Example

? Introduction bank of India (SBI) is considered to be the biggest bank in India in relation to customer base, though it is not the best. In 2006, SBI chairman contended that, in order for the bank to move from the view of being the biggest bank to the view of the bank being the best, there as a need to reconsider changing the leadership pattern (State bank of India). In fact, after five years of deliberations, the chairman reflected bank’s achievements on the attribute of positive attitude regained by leadership thought. This opened up avenues through which the chairman shifted the focus to start aiming at being among the top twenty banks in the world. With such deliberations, the concern is on how the bank has been performing, what contributed to its advancements, the challenges it met along the journey, the opportunities available, its current weaknesses, and the potential it has in order to go to higher horizons. In light with this, the following section will evaluate on the current bank’s situation. This will give an insight and overview of the potential that the bank has in terms of advancing or deteriorating (Samuelson 1980). SBI profile: the primary internal and external influences on State Bank of India One theory that can be put into the context of explaining the primary internal and external influences on state bank is theory of planed behavior. This theory can be applicable in explaining why, for example, people have a perception the SBI is a good bank. It takes several strategic measures for the internal management of the bank to put incentives that change the view of customers in relation to services offered by the bank. In order for employees to be able to perform well in their duties, they need to have a good attitude towards both the organisation and the customers. In essence, theory of planned behavior argues that, the attitude toward a behavior changes individual behavioral intentions (Ajzen 2007). In this regard, due to good employee incentives offered by the bank, employees are able to have a positive attitude towards the bank, something that results in top performance. In addition, organisation and management theory argues that organisations must understand both internal and external factors in order to succeed in their business. This can be analyzed to be the case in SBI. For example, on his reflection of the journey, in 2011, the chairman admitted that the bank has been the largest commercial bank in India. According to the chairman, this has been a journey full of transformations, which focused on changing its hierarchy, transaction orientation, customer focus, government ownership, and change of technological advancement, which has made it to be a universal bank. After Bhatt took over its leadership, he talked of transforming the leadership of SBI in order to propel it further. By 2010, SBI had doubled its profits and regained market share, something that led to the bank being awarded the ‘achievement award’ for the strongest bank in the Asian pacific region. In this regard, it is apparent that the change of leadership exhibited by Bhatt was very instrumental in taking the bank to new levels (Rust and Zahorik 1993). Therefore, analytically, it can be argued that apart from adopting all necessary technology and other strategies in business, leadership plays an indispensable role in development of any organisation (Yeung, Ging and Ennew 2002). By 2011, SBI was 43rd largest bank in the world taking a capitalization of over $ 36.5 billion in. By that time, SBI had more than 267,000 employees and with 18,000 branches and 25,000 ATMs. In this year, it made profits of $ 2.6 billion. However, the journey of SBI has been a long one since its establishment in 1806. Some years down the line, the bank was granted the right to issue currency; something updated it into the status of a presidency bank. At that time, the bank was partly owned by the government and part by private individuals. One of the parties that have had influence on the management and operations of SBI is the government. Since post independent, the government had a vision of transforming rural areas by developing them further. This called for the establishment of an institution that would foster the intended economic development in these areas. In 1995, the government incorporated SBI in this development since it commanded more that quarter of the country’s banking industry. In subsequent years, the government enacted Act that enabled the SBI to take over several state-owned banks as its subsidiaries (State bank of India). In this regard, it is apparent that the government has been playing a crucial role in dictating the operations of SBI. On another dimension, the bank has been having external influences in its operations. This is seen where the bank was commissioned to foster rural development projects through provisions of finance incentives to the country’s agricultural industry. In addition, the bank also helped in infrastructure development by offering credit and other financial assistance to villages (State bank of India). Internally, it can be argued that SBI have been leading in the banking industry because of its potent and internal leadership. For example, for many years, SBI have been considered as the preferred employer. Studies have documented that, when people get attracted to work for a particular organization, it is apparent that the organisation contains good employment terms. In fact, such an organisation is argued to have incentives that retain and attract new employees. Categorically, the former SBI chairman once said that ‘people used to treat SBI as a temple and used to touch their foreheads against its steps before entering the premises’. With such deliberations, it is evident that the bank has for a long time been known to be ‘the bank of the people’ by many. This is what can be termed as the fruits of good leadership and governance, mainly emanating from its internal operations and management (Alexander and Hill 2006). How globalisation influenced policies and decision making on State Bank of India Globalization has played a key role in influencing not only the decision making in the SBI, but also in other banks and sectors. In regard to SBI having diversified its operations on the whole of Asia Pacific region, the bank had to strategically adjust its corporate and organizational culture in order to fit all its areas of operations. Studies have found out that in order for an organisation to capture a new market, it is important for such company to become accustomed to the new culture so as to have a command in that region (Grigoroudis and Siskos 2009). This calls for banking strategies that would fit the needs of customers from the new region (Arasu 2008). Some governments have a control of how banks lender credits to individuals and institutions. Such decisions are made by central banks, whereby banks are required to lender credits at a given interest percentage. In addition, globalization has also affected SBI operations. For example, when operating in foreign countries, the difference and currency exchange rates have made it difficult to align its profit margins. For instance, in countries with low GDP, it is apparent that businesses do not do well as compared to countries with high GDP (Heffernan 2005). In fact, this poses a great challenge especially in the banking sector. Conversely, due to technological development brought about by globalization, Malhotra and Birks 2007 noted that banks have started to shift from traditional banking systems into new technological systems. In this regard, in the case of SBI, the bank has to see to it that its employees are well conversant with any new innovations that would keep it at the competitive edge with its competitors (Harker 2000; Eyler 2009). As opposed to earlier times where customers belonged to branches rather than the bank and could not access their accounts from non home branches. However, the decision by management to move from centralized systems to decentralized systems was not without challenges. One such challenge was to adapt new technologies that could support such networking. In addition, highly politicized unions acted as an impediment as they felt that internet banking would lead to low productive levels of the workforce. Due to completion and change of new innovations that banks used in order to broaden their market share, many banks embarked on modernizing everything linked to their operations (Hoyer and MacInnis 2008). This includes building modern banking halls with shinning glass buildings with beautiful designed customer waiting areas. In addition, banks started hiring the best talent, and this called for irresistibly attractive salary packages. This has the implication that additional costs were to be encountered as a result of such moves. With such deliberations, it is apparent that globalization has played an eminent role in dictating the new face of SBI and other institutions in the banking sector (LeBlanc and Nguyen 1988). Use of technology by the state bank of India State Bank of India has a 60% government stake, as well as, being the largest commercial bank even in terms of market capitalization is slowly advancing in terms of technology. Its growth initially began in 1960 when it increased its branches from 500 to over 8000 by the 1990s (State bank of India). This played an important role in the development of rural regions and providing financials for modernization of the country’s agricultural industry. In turn, there was infrastructure development through the provision of credit and assistance to villages. It ventured into merchant banking, house finance, and institutional investor services through subsidiaries that were newly formed. During the 1990s, State Bank of India moved from a system of manual ledger to a computerized back office operations and branches. The branches worked on their own independent servers until later in 2003 when the banks initially adopted a Centralized Online Real Time environment Banking Solution (CBS) that linked in most of the branches. In essence, State Bank of India became conscious with the importance of technology transformation due to the fact that their business process reorganization had to be supported by a more advanced level of technology. SBI simultaneously embarked on executing the technology to over half of its branches (State bank of India). The embracement of technology by the SBI followed by a few other banks in India led to the growth of economy, and the banking sector. The country emerged as the fourth biggest economy in regard to purchasing power. This led to high income levels that were inclusive of credit appetite that was high, a concept that contributed to a growth in consumer finance (Leahy 1997). In turn, the Indian companies aggressively looked for global acquisitions, while the small and medium based companies grew at a significant pace. There were various objectives that the concept of technology under the initiative of the State Bank of India that was aimed at modernizing core systems included. These objectives included: the release of new products capabilities to all customers with the inclusion of those who were based in the rural areas. There was a process of unification across the bank to apprehend efficiency in the operating system and improve the services that they were offering to their customers. Moreover, the modernization of the core systems provided for a single customer view of all the accounts (Oliver 2010). SBI was in a position to merge affiliate banks, a concept that made transitions easier as compared to the past when there was the lack of technology. This ensured that it reduced customer wait times in its various branches, in India, and there was reverse of the attrition trend by the customer (Sami et al 1990). However, State Bank of India has faced several unexpected dares in executing a centralized core processing system. These challenges included: finding a new system that would support a higher number of clients as compared to other banks (Churchill and Surprenan 1982). In addition, State Bank of India was short of professionals who had experience in implementing centralized systems. Another short coming was that the bank was not capable of meeting the requirement by all banks in making broad modifications to a new core banking system. State Bank of India Managed Change and Innovation Never the less, the government of India appointed Bhatt as the State Bank of India chairman as being the five candidates that had been short listed. His coming in was marked by steady loss of market share in a period of two decades. Moreover, SBI was losing consumers to its competitors because there was an allegation that the bank was not treating its customers in a professional manner (State bank of India). There was the perception that there was no market share or customer segmentation. Employees’ were also neglected to an extent of not been aware of the challenges that the bank was facing since they were not permitted to mix with their seniors and communication run from top to bottom. It was evident that SBI had a weak technology backbone that compounded its tribulations. Although it was operating from transitioning to a centralized set up of computerization to one that was decentralized, it was hard to persuade them to work with the bank (Rich and Walter 1993). As soon as Bhatt took over the chairmanship, there was much consultation from the consultants, and other likeminded people on the transformation of SBI. He created four new strategic business groups that were headed by Deputy Managing Directors. There was reshuffle from rural India to urban India with the idea of creating a bank within a bank. Additionally, there was the creation of mid-corporate groups that were meant to cater for the needs of corporate borrowers with the main aim being to evoke the large and midsized corporations that had been taken away by other private banks that were thriving in the banking sector. There was another initiative by Bhatt that entailed the creation of a new department of Corporate Communication and change to move away from the old tradition of communication flow to a more conversant one that would ensure that there was better communication and relationship between the juniors and seniors (State bank of India). The next move was to meet all the seniors of the bank and hold close door meeting in a bid to air their views and perception of the bank its issues, and their preference in terms of its advancement. In fact, during the conclave period there were several proposals on the current position of the bank and how it was going to move forward especially now that challenges were at their highest. Bhatt further addressed the issues of employees on changing their perception that was glued on unresponsiveness and resignation to one that was full of confidence and dedication. He embarked on bring the SBI staff and families together in bonding and talking about the issues that affected them with relation to the bank. Training was held continuously in a bid to motivate the employees and make them embrace their work (Pathak 2007). The biggest challenge that Bhatt had was to ensure that he won over the trade unions. Throughout the conclave, Bhatt the chairman was able to hold together the SBI family with various implementation and suggestions on how the bank would go back to its old self of thriving in the market economy. The last two days of the conclave were marked by brainstorming sessions that saw 14 point transformation agenda through with three broad parameters. The three initiatives include business initiatives, enabling initiatives for facilitating business and people initiatives. All in all, SBI through the chairmanship of Bhatt was able to revamplish its products and service through proper implementation of its technology platform. In duration of three years, SBI was able to take back its position both at the market level with related institutions (State bank of India). There was shifting of all those who were not customers who faced branch activities to a centralized level. There was processing of back office cells to enable the branches concentrate specifically on sales and services. This ensured that there was fast turnaround time and processing quality that was far much better. Moreover, it restructured its branches to better looking places. In a bid to develop consistency in services given to the customers, there was the change of the existing vision for the bank, which emphasized on the importance of customer satisfaction and how the serving of the customer was continually beneficial to the bank (State bank of India). Technology was emphasized to ensure all customers were served accordingly, and that all those who were not satisfied with the services had the right to complain through a service that had been introduced known as “sms unhappy” (Roberts 2005). Recommendations 1. In order for the SBI to maintain its competitive advantage in the highly competitive banking market, it is important for the bank to improve its management. Organisations that command a majority of market share have been found to have good management in place. 2. Organisation culture is an important ingredient of any organisation that wants to establish a distinct culture that would retain and attract new customers. This culture acts as a representative of corporate brand, which indicates what a company stands for. In light with this, it will be indispensable for SBI to establish its own distinct culture. 3. In order to avoid adverse effects brought about by globalization, SBI should carryout extensive and comprehensive market research that would enable it to understand various markets and the ways through which it can overcome challenges emanating from globalization. 4. State Bank of India must ensure that it focuses more on the satisfaction of the customer because there are the most important assets in the banking institutions. There must be presence of broad based communication within and without the SBI including all the subsidiaries. 5. Needless to say, SBI also needs to struggle in ensuring that their image is able to bring back their previous customers who were the youth and Indian Middle Class consumers who had worked with the bank during its first thrive in the market. 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