State Bank of India – How it Became the Biggest PSU Bank and Overcame Challenges

The State Bank of India (SBI) is the largest public sector undertaking(PSU) bank in India and one of the largest banks in the world. The day the BiznessByte team was working upon this story, the market capitalization of SBI was INR 5.01 Trillion. The only two Indian banks which are bigger than SBI in terms of market capitalization were HDFC and ICICI. Since its establishment in 1955, the biggest PSU bank in the country has undergone significant changes, growth, and evolution, making it a major player in the Indian banking industry.

Even today, it’s a must-to-do thing for many Indians to have a bank account with the State Bank of India. Many of them associate it with their pride in an Indian identity. And many of them have tremendous trust in SBI. In fact, it’s one of the most trustworthy brands of India.

The State Bank of India (SBI) is also one of the largest banks in the world, with over 450 million customers and more

Let’s take a closer look at how SBI evolved over time, its challenges, and its criticism.

The Birth of SBI: Nationalization of Imperial Bank of India

than 24,000 branches in India and abroad. SBI’s journey began in 1806 as the Bank of Calcutta, which later became the Imperial Bank of India in 1921, and finally, the State Bank of India in 1955 after nationalization. Since then, SBI has evolved into the largest public sector bank in India, with a market share of 23.04% as of September 2021. This article explores how SBI became the biggest PSU bank and how it overcame challenges to maintain its position

Before the formation of SBI, the Imperial Bank of India was the premier commercial bank in India, established in 1921. However, the concentration of commercial banks in the hands of a few industrialists and businessmen prevented many common people from accessing banking services. In 1955, the Indian government decided to nationalize the Imperial Bank of India, and as a result, the State Bank of India was born. The bank’s primary objective was to provide banking services to the common man, which was not possible before nationalization.

SBI’s Early Years: Setting the Foundation for Growth

After its formation, SBI focused on consolidating its position in the Indian banking industry. The bank’s first step was to establish a strong branch network across the country. By the end of the 1960s, SBI had already established more than 5,000 branches across India, providing banking services to millions of people.

SBI’s Expansion Strategy: Branch Network and Merger & Acquisition

In the 1970s and 1980s, SBI continued to expand its branch network, adding thousands of new branches in rural and urban areas. The bank’s expansion strategy also included mergers and acquisitions of smaller banks to increase its market share. In 2008, SBI acquired its associate banks, which included State Bank of Hyderabad, State Bank of Saurashtra, State Bank of Indore, State Bank of Patiala, and State Bank of Travancore, making it the largest bank in India.

However, with its rapid expansion, SBI also faced significant challenges, particularly in the form of Non-Performing Assets (NPAs) or bad loans. The bank struggled to maintain profitability and faced increased scrutiny from regulators and investors.

NPA Issues, Criticisms & Challenges being the Biggest PSU Bank

SBI’s growth and success have not been without challenges. One of the biggest challenges that the bank faced in recent years was bad loans. Non-performing assets (NPAs) increased across the Indian banking industry, and SBI was no exception. To tackle the issue, SBI implemented several measures, including asset quality review, NPA resolution, and recovery, and strengthened its risk management practices.

SBI faced a big turmoil in terms of its NPA in 2012 when businessman Vijay Mallya’s companies failed to return a whopping loan amount of INR 1600 Crores. The shares of SBI performed terribly in the stock markets. People lost not only trust in SBI but also in public sector banks as a whole.

SBI was not the only public sector bank facing the crisis, however. There were 17 banks that owed a total amount of more than INR 9000 Crores, including interests and taxes. Moreover, in 2016, Vijay Mallya fled from India. A consortium of 17 banks was created to recover the loan amount from Vijay Mallya, with SBI leading the consortium. Some of his properties were sold by the consortium to recover money, but it was not enough to cool the burn. These banks are still waiting to recover their money.

Another challenge that SBI faced was criticism for its customer service. Several customers complained about long waiting times, inefficient processes, and lack of transparency. To address these concerns, SBI implemented several customer-centric initiatives, including the launch of its Customer Loyalty Program and the SBI Quick App, which allows customers to perform a range of banking transactions with just a few taps on their smartphones.

SBI’s dominance in the Indian banking industry has also attracted criticism from some quarters. Some have criticized the bank for its monopolistic practices, while others have questioned its approach to lending and risk management. However, SBI has defended its practices, stating that it is committed to maintaining transparency and ethical practices in all its operations.

Digital Transformation: Embracing Technology for Better Customer Service

With the advent of technology, SBI embraced digital transformation to provide better customer service. The bank introduced various digital services such as mobile banking, internet banking, and e-wallets. It also launched SBI YONO (You Only Need One), a digital banking platform that provides a range of financial and non-financial services.

In addition to expanding its physical presence, SBI has also invested in digital transformation to cater to the changing needs of its customers. SBI’s digital transformation journey began in 2015 with the launch of SBI Anywhere, a mobile banking app that allowed customers to perform a wide range of banking transactions on their smartphones. Today, SBI offers a suite of digital services, including internet banking, mobile banking, UPI, and more.

While SBI’s digital transformation journey has been impressive, the bank has faced criticism for its customer service, with many customers complaining about long wait times, slow service, and bureaucratic processes. The bank has made efforts to improve its customer service in recent years, with the introduction of digital services and other initiatives aimed at improving the overall customer experience.

The Future of SBI: Embracing the Challenge of Change

The Indian banking industry is going through significant changes due to various factors such as increasing competition, changing customer preferences, and the emergence of new technologies. SBI has acknowledged the challenge of change and is continuously adapting to meet the evolving needs of its customers. The bank is investing in new technologies such as blockchain and artificial intelligence to provide innovative solutions to its customers.

India and a major player in the global banking industry. The bank’s success can be attributed to its strong foundation, expansion strategy, and digital transformation journey. SBI has overcome several challenges, including bad loans and criticism for its customer service, by embracing new technologies and continuously adapting to meet the changing needs of its customers.

Moving forward, SBI will need to remain competitive and innovative in the face of increasing competition and changing customer preferences. The bank’s ability to adapt to new technologies and emerging trends while maintaining its focus on customer service will be key to its continued success in the years ahead.

Final Thoughts:

Despite criticisms of its dominance in the Indian banking industry, SBI has played a critical role in providing banking services to millions of people across the country. By embracing change and investing in new technologies, SBI has positioned itself as a leader in the Indian banking industry and a major player on the global stage.

the story of SBI is one of growth, evolution, and transformation. From its humble beginnings as a nationalized bank aimed at providing banking services to the common man, SBI has grown into the largest PSU bank in India and one of the largest banks in the world. While the bank has faced its fair share of challenges and criticisms, its ability to adapt to change and embrace new technologies has allowed it to maintain its position as a leader in the Indian banking industry. SBI’s future success will depend on its ability to continue to innovate and evolve in the face of increasing competition and changing customer preferences.