STATE BANK OF INDIA - TRANSFORMING A STATE OWNED GIANT

Organizational Behaviour (OB - II)

Group Number - 13
Section - B

Members:
Kaushik Hazarika (0105/57)
Rushikesh Kure (0111/57)
Madhuporna Pal (0112/57)
Manas Kataria (0113/57)
Mayukh Roy (0115/57)
Shreyaansh Gupta (0141/57)
CASE HISTORY:

In 2011, SBI was India's largest commercial Bank and with a market capitalization of over
$36.5 billion. SBI, along with it its five associate banks and 22 subsidiaries, which
constituted the State Bank Group, had more than 267,000 employees and profits of $2.6
billion. This was possible due to the transformational leadership of Mr. O.P Bhatt. When
Mr. Bhatt assumed the leadership of SBI in 2006, its market share was 15%, and it was
rapidly losing share to private banks. Under Mr. Bhatt's aegis, the old, hierarchical
government bank was transformed into a modern, technologically advanced, and
customer-focused bank.

CASE QUESTIONS:

1. What were the reasons behind the implementation of the transformation

effort in the State Bank of India?
The major challenges at SBI due to which the implementation of transformation efforts
was undertaken during Mr. Bhatt's tenure from 2006 were:
 Losing Market Share – The Bank continuously lost its market share from 35% in the
1970s to 15% in 2006.
 Declining profitability – Since the bank nationalization, the focus gradually shifted
from profitability and more towards physical expansion to assist with the social policy
during the 1980s. As a result, SBI's net profit fell to $0.97 billion in 2006, with RoA being
a meager 0.87
 Declining ratings of SBI – The ratings of SBI declined steadily from 82 in 2004 to 107
in 2006 as per the Banker magazine
 Building a bank for the future – The Bank had to be prepared to serve future needs.
With rising income levels and a higher propensity to consume in the increasing number
of middle-income households, the Bank had to be ready to tackle future challenges

The reasons SBI faced these challenges can be attributed to the following factors:
 Increased competition in the market: Since the 1990s reforms, foreign and private
started entering the Indian banking market, ushering in a new era. These firms brought
in the concept like remote banking and coupled them with ATMs, centralized
processing, etc. to provide a satisfying experience to the customers. They attracted the
affluent and upcoming generation who were tech-savvy and brand conscious.
 Lack of Customer Focus: On the other hand, SBI had developed a dinosaur reputation
in its working style. The slow and tedious process the customer had to undergo while
they were at a branch was driving them away from SBI. SBI gained the ignominy of being
known as the Bank for, of, and by the Senior Citizens. Even the relatives of the staff
members avoided SBI
 Lack of customer segmentation: SBI did not seek to target the upcoming young,
affluent, and tech-savvy generation. Neither did they possess the stylish glass branches,
 nor did they incorporate any of the latest technology as part of their offerings.
Additionally, they did not react to the changing socio-economic environment, a case in
point being; new branches were not opened in semi-urban areas where the new
markets were upcoming.
 Bureaucratic system: SBI's Top-down approach & one-way communication impeded
its growth. The lack of human touch to the services, hierarchical approach towards
problems, faulty HR policies were some other reasons.
 Technological shortcomings: The Bank did not offer any of its competitors' technical
offerings, be it the remote banking facility or the ATM services. Even opening an account
took as long as 2 hours, which was a frustrating experience. Additionally, they were late
in deploying the CBS, which essentially meant that customers belonged to a branch, not
the Bank. When the system was eventually deployed, the software was riddled with
bugs, which in turn increased the complexity of the banking operations
 Resistance from Employees: Whenever the Bank proposed some changes, the reforms
faced perpetual opposition from the employee trade unions. They feared a plethora of
job losses would accompany the changes. Also, being an organization constrained by
government rules and regulations, SBI was unable to keep hold of its best employees
and was often left with those who only wanted a secure and safe job
 Treatment of staff: There was general apathy in the treatment of the middle and low-
level managers. Only top-down communication was existent, and any sort of redressal
of grievance and feedback system was virtually non-existent or slow & tedious. Even
for promotions, the process was very inefficient, which prevented many employees
from getting promoted and impacted the employees' morale and motivation
 Operational Inefficiency: With passing time, SBI had become an inward-looking
Branch with no sales Focus. The Bank used legacy methods (e.g., outdated risk
management system) for its day-to-day operations, and it did not proactively invest in
product innovation, marketing, or distribution. It would seem as if the entire
organization lacked vision and commitment
2. What specific steps did the SBI undertake during the transformation effort,
and what were the results of these steps?
Om Prakash Bhatt's loyalty towards SBI had been remarkable, which led to a paradigm
shift in its transformation to becoming a Fortune Global 500 company & leader in product
innovation, marketing, and distribution. In his interview with McKinsey Quarterly editor
Roger Malone in SBI corporate center, he spoke about the Bank's continuing efforts in
improving its performance. (1). Bhatt was keen on finding the gap as to why the market
was moving away from them and eventually came up with the opportunities that SBI had
been missing on it. Significantly, there were these two segments that had been drifting
away.

 The large and midsize corporations: addressed by incorporating the required

technology that SBI didn't have initially.
 The young and affluent: by rolling out schemes where the young Indian saw the
opportunity to invest in such as personals loan for buying a home, car or a holiday trip,
etc. and SBI to be their first Bank of choice.

Hence, their focus dived on regaining share in customer segments and venturing into
geographical expansion globally and nationally. For SBI, the main challenge was the
attribution, and to examine these issues, it landed on McKinsey (2). SBI's transformation
efforts were supported through a renewed focus on human resource by undertaking
specific initiatives: -

 Leadership and Communication Management

 Performance Management System.
 Training and capacity Improvement

SBI's effort in creating value for the customers and an increase in customer satisfaction
was possible by undergoing: Process Re-engineering, investments in technology, and risk
management.

A. Transformation in Human Resource Management:

In bringing the employees on board, Bhatt started the transformation by talking to senior
executives in small unit groups, trying to get them both worried and excited. He had
brought two motives. One to get them concerned about what had happened to SBI and
the second being how they could transform them. This resulted in crafting several
transformational agendas related to business initiatives, enabling initiatives to facilitate
business and people initiatives. Initially, Bhatt engaged with MD and 22 DMDs to discuss
the problems faced by SBI and sort out a transformation strategy. The outcome of this
engagement was a 14-point agenda.

Moving ahead, Bhatt discussed with the chief GMs and GMs, and the DMDs worked with
the Branch Managers to identify the paint points, hence letting them understand the need
for transformation. Steps undertaken: -
 Parivartan Program: a 2-day workshop for the employees aimed to sensitize about
the transformation, making them customer-friendly and basically inspire the staff to be
the agents of change.
 Citizen SBI campaign: On the same line, Bhatt initiated the launch of these campaigns.
The aim was to bring a change in the employee's core value. He wanted his staff to
behave as an SBI citizen and take decisions as a citizen. Not like someone who waits for
directions and instructions. Every employee had to value this across the hierarchy, thus
creating bonding and smashing the barriers.
 Employee Share Purchase scheme: Putting an end to the program, i.e., Voluntary
Retirement Program (VRS), renovating the performance management systems, and
introducing ESP.i.e., Employee Share Purchase scheme for all the employee. With such
people initiatives, SBI took a step ahead in employee retention.
 Working with Union: Bhatt also worked with the union conclaves and explained to
them the need for transformation and its positive impact on the employees.
 Motivation: Even though SBI had the capability, it lacked motivation aspects, which he
tried to teach through schemes such as Citizen of SBI and Parivartan programs. He tried
to motivate his staff to be more customer-centric and have a self-created motivational
drive.

Results: -

By 2009, SBI was competing with foreign banks in segments like Foreign exchange
markets, money markets, etc., in which SBI had a limited presence before. All these were
possible because of increased motivation and innovation. It also ventured into business
such as custodial services, private equity, pension schemes, insurances, etc. SBI has
improved in the customer-centric parameters, which is seen as a positive impact of
"Parivartan" It also enhanced the friendly banking experience to the customers. Hence
these transformation initiatives are taking the SBI on the right path.

B. Reforms in Organizational Structure:

Bhatt believes that a revolutionary change is necessary for SBI. He created 4 new strategic
groups:

 The rural and agricultural banking group: which were aimed towards rural India.
 Mid-Corporate group, which was aimed towards the second-tier corporate borrowers
 Global Markets group: which was aimed towards the treasury operations
 Corporate Strategy and New Business group: which sought to roll out new business-like
private equity, wealth management, insurance, payments, and pension funds, an area
of focus of private and foreign banks.

The communication in SBI is top to bottom. Bhatt was known for his open and non-
hierarchical approach. He made David Azariah, a General Manager heading a new
department, "Corporate Commission & Charge" to report directly to him, which
challenged the SBI's hierarchical structure. SBI dismantled its conventional modular
design where modules or zonal officers were responsible for their zones and removed
deputy general managers who were responsible for the modules.

C. Expansion of service and functional resources:

In order to better utilize the technology changes, processes were re-engineered. To make
a presence in many strategic locations, Bhatt planned to add 1000 odd branches every
year and triple the ATMs count. Introduced a variety of services such as bill payment,
cheque book issue in ATMs, etc. From a business perspective, it started focusing on the
youth & middle class.

 It constituted Rural Banking and Agricultural Group, thereby strengthening its rural
presence.
 To make its presence in the SME sector, it started providing treasury products and
services to small corporates that were earlier provided to only big corporates.
 Increased its presence in the global markets by providing Indian companies access to
foreign currency loans.

As a result of these initiatives, SBI became the most valuable Bank in market
capitalization by 2008. It improved its ranking as per Banker Magazine from 107 in 2006
to 68 in 2010. It also won numerous awards like "The Bank of the year" in 2008 and 2009,
CNBC Awaaz consumer awards for "Most preferred bank", "Most preferred Home Loan
Brand" and "Most preferred Credit Card Brand". SBI strengthened its position in
segments like money markets and foreign exchange markets predominantly dominated
by foreign and private banks.

D. Technological Transformations:

SBI, to turn itself into a customer-centric banking player, invested in new IT

transformations to enrich the existing customer experience and convert new potential
ones. The software was implemented successfully to ensure online services for the
customers, thereby helping the company to take on other private players through the
notion of "Anytime, Anywhere Banking." SBI also shifted to a central banking system
intending to increase process effectiveness. To ensure regular customer service and
leverage on the technological aspect, the company introduced the feature of "SMS
Unhappy." Anyone not satisfied with their service could get their query and grievances
resolved within 24 hours. The details of all the 196 products were available to everyone;
just a mouse click away. A "Service Desk" internal website was launched to streamline
operations and build confidence among the employees. Finally, even in hiring new talent
for the organization, parts of recruitment processes were shifted online for proper
handling of large volumes of applicants.
3. What are the challenges facing Mr. Bhatt's successor?
Mr. Bhatt was appointed as the chairman of SBI in 2006. He was a visionary leader who
took on initiatives so as to revive the stumbling market share of SBI. He analyzed the
problems within the organization and laid out an action plan which helped increase the
market share of SBI from 15% to 25% in a span of 5 years. Under his leadership, SBI won
several accolades, some of the prominent ones include 'Bank of the year, India' - 2008 &
2009. Some of the key characteristics of Mr. Bhatt's leadership were:

 'Focus on people' was the main outlook of his incorporated initiatives. His policies not
only focussed on SBI customers but also its employees across hierarchies.
 He was efficient in communicating the Bank's vision to SBI's 2 lakh+ employees and
helped change their mindset from that of indifference - resignation to confidence -
dedication.
 He kept a hands-on approach, decisive decision making & infectious enthusiasm as his
primary attributes and ensured that 'bottom to up' employee communication is well
heard and addressed.
 In order to keep pace with the competitors and improve customer experience &
retention, he wanted to shift to a centralized technological system and train its
employees to make them comfortable and tech-savvy.

The following are the challenges that Mr. Bhatt's successor faces as the chairman of SBI
for the upcoming years:

 The most important challenge is to maintain the momentum and continue to take the
right steps towards the development and expansion of the Bank. SBI, under Mr. Bhatt's
leadership, had increased market share and customer base through rapid expansion,
and it is essential that the new chairman is able to sustain this growth and stay ahead
of the competition.
 These past 5 years have witnessed rapid expansion with the opening of 1000+ branches
and 2000-3000 ATMs every year. Bringing in new leadership will also provide an
opportunity to evaluate the benefits of these capital investments and come up with new
strategies to increase the customer base and revenue.
 A number of organizational initiatives had been undertaken, which were focused on
adoption towards digital transformation and increasing employee efficiency for rising
customers. It was necessary that new leadership maintained this approach and goal-
oriented attitude to continue towards the path of success.
 India is estimated to maintain growth rates of 9% over the next decade but currently
lacks the necessary banking infrastructure to aid in such optimistic projections.
However, SBI is the closest among all its competitors in terms of size, scale, and capacity
to lead this growth. A huge obstacle for Mr. Bhatt's successor to overcome will be to
ensure the correct positioning of SBI to drive the country's growth rate.

Despite the success enjoyed by SBI, there were key specific areas where there is a huge
scope of improvement and which require immediate action:
  SBI has established itself as a major player in the retail banking industry. However, it is
currently lagging behind in corporate banking in terms of lending, treasury, and tenor
management. Moreover, with an increase in Indian global companies and an increase
in banking revenue pools from Corporate and SMEs, it is crucial that SBI enhances its
corporate banking division to support these industries.
 The Net NPA ratio is high, and the net interest margin is also low compared to the
competitors, who are essential parameters for the smooth functioning of the Bank.
Hence, some efforts should be made to handle these issues.
 The flourishing middle class translating to an increase in 30 million customers every
year was a huge opportunistic space for SBI to tap into. Therefore it is imperative that
SBI modifies its products and services to cater to these new emerging clients.
 With the increase in centralization, the perception of SBI moving in-tandem with its
high-income customers had changed. The number of informed customers rapidly
increased with the technology boom and felt SBI was unable to provide the convenience
they desired, and this posed a huge threat in terms of churn rate and higher customer
base for private banks. Thus SBI needs to modify its services to ensure customer
retention.

Overall, the new chairman had a mammoth task ahead in his tenure, and it was essential
that he would take risks and tough decisions to drive SBI towards the goal of maintaining
the top position in the Indian Banking sector.

REFERENCES:

1. https://www.mckinsey.com/industries/financial-services/our-insights/remaking-a-
government-owned-giant-an-interview-with-the-chairman-of-the-state-bank-of-
india
2. https://economictimes.indiatimes.com/jobs/sbi-banks-on-mckinsey-to-stem-
attrition/articleshow/5342005.cms?from=mdr
3. HBS case study