Introduction and Company Profile of Sbi

INTRODUCTION OF STATE BANK OF INDIA
The origin of the State Bank of India goes back to the first decade of the nineteenth century
with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later
the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A
unique institution, it was the first joint-stock bank of British India sponsored by the
Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July
1843) followed the Bank of Bengal. These three banks remained at the apex of modern
banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European commerce
and were not imposed from outside in an arbitrary manner to modernise India's economy.
Their evolution was, however, shaped by ideas culled from similar developments in Europe
and England, and was influenced by changes occurring in the structure of both the local
trading environment and those in the relations of the Indian economy to the economy of
Europe and the global economic framework.
State Bank of India has been at the forefront of financial inclusion efforts mandated by the
Government and Reserve Bank of India. After all, SBI was created pursuant to All India Rural
Credit Survey (Gorewala) Committee Report which recommended creation of a strong bank
to meet the need for formal credit in rural areas. SBI Act in fact mandated setting up of a
minimum 400 branches in 5 years (between 1955 and 1960). In other words, financial
inclusion and reaching out to the customer are the very reason for creation of SBI.
Inclusive growth basically means broad based or shared growth which does not bypass the
poor. Sustained poverty reduction requires inclusive growth that allows people to contribute
to and benefit from economic growth.
Financial inclusion, which envisages access to formal financial sector for all segments of the
society, is one of the enablers for inclusive growth.
Why Financial Inclusion:
Financial Inclusion has great significance on an economy such as India where a vast number
of people with low incomes do not have access to formal financial sector.
‘‘Speech at Bombay Chamber of Commerce, Mumbai on 4th Sept 2012 ‘’
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Benefits of inclusion:
For the community as a whole, Inclusion
 Uplifts financial conditions and standard of living.

 Increases economic activities.
 Reduces class conflicts in the society.
Overall, Financial Inclusion and levels of human development move closely with each other.
A comparison of Index of Financial Inclusion (IFI) values with Human Development Index (HDI)
shows that all countries with high and medium IFI also have high HDI. Higher the exclusion -
greater the income disparities. Since income disparities result in social tensions, increased
financial inclusion is essential for ensuring social stability.
For banks, Inclusion results in
 Increased and wider customer base for low cost deposits (due to higher disposable
incomes)
 Greater business opportunities in loans and other financial products (such as
insurance, mutual funds, etc.)
A large base of small value customers provides stability to the banks (and financial system)
even during crisis period. The poor customers that we include today will be a better off, loyal
customer of the Bank tomorrow.
How does India fare in the global community in terms of Financial Inclusion?
India ranks quite low in terms of financial inclusion. Ranking based on 2 dimensions [banking
penetration (Ratio of number of accounts to total population) and availability of banking
services (Number of bank outlets per 1,000 population)] shows India at 50th position amongst
100 countries surveyed. China (rank: 32), South Africa (rank: 43) and Brazil (rank: 44) rank
above us. In BRICS countries, only Russia (rank: 83) is behind India. (ICRIER Working paper).
Indian approach to Financial Inclusion:
Unlike many other countries which relied on single product (like remittance led model of
Kenya, Loan led model of Chile), Indian approach has been to provide a bouquet of products.
“Financial Inclusion is the process of ensuring access to appropriate financial products and
services needed by all sections of the society in general, and vulnerable groups such as weaker
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sections and low income groups in particular, at an affordable cost in a fair and transparent
manner by regulated mainstream institutional players”
- Dr. KC Chakraborty, Dy. Governor, RBI.
Minimum products to be offered are:
 Savings
 Loan
 Remittances and
 Non-banking financial products like Insurance
There are multiple delivery channels - commercial banks, RRBs, Urban Cooperative Banks,
Post Offices, SHGs and MFIs.
Challenges:
Since the Banks cannot reach out to all the customers through the traditional brick and mortar
branches, they have to necessarily depend on alliances with Business Correspondents, Micro
Finance Institutions, etc.
i) Alliances:
Business Correspondents (BCs):
The Business Correspondent (BC) channel approved in 2006 by RBI is one of the major
innovations that helped financial inclusion in the last decade. The channel is more cost
effective than the brick & mortar branch channel branches and can be scaled up more rapidly.
RBI has been liberalizing the channel gradually and now all entities (except NBFCs) can be
engaged as BCs.
Challenges with all outsourcing models are associated with this channel also. Some of these
are,
a)Reputation risk: Since it is the intermediary who sells the services, the banks are exposed
to the risk of 'mis-selling' – either by an uninformed BC or by a motivated BC who is pushing
his 'other' services.
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b) Violation of KYC/AML rules: BCs may violate KYC/AML rules either due to 'business
considerations' or due to lack of training.
c) Operational risk: What the banks need to appreciate is that there should be good training
for the BCs and there should not be any slackness in oversight.
d) Viability: A crucial risk with the BC model is the poor viability of the channel in general.
Income levels are pretty low, especially in rural areas due to low levels of transactions. There
may be case for financial support from the Government for FI efforts in rural areas. Sharing
of income by Corporate BCs with their field level staff/agents is another area of concern.
e) The BC model works only on technology: Development of user friendly and cost effective
technology and introduction of multiple products is essential to make the channel sustainable
in the long run.
f) Expectations: The stake holders (Banks, GoI and RBI) should not have unduly high
expectations from this channel which is still in its infancy. The mandate of covering > 74,000
villages with population 2,000+ in 2 years (2010-12) and the addition to this by addition of
villages with population >1,000 and <2,000 to be covered in one year (2012-13) possibly has
no parallel anywhere else in the world. Perhaps, banks would need to pause and strengthen
their internal systems & procedures and controls and build oversight and control mechanism
of the outsourced agents.

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INTRODUCTION OF STATE BANK OF INDIA

Why Financial Inclusion:

‘‘Speech at Bombay Chamber of Commerce, Mumbai on 4th Sept 2012 ‘’

For the community as a whole, Inclusion

 Uplifts financial conditions and standard of living.

For banks, Inclusion results in

Indian approach to Financial Inclusion:

- Dr. KC Chakraborty, Dy. Governor, RBI.

Minimum products to be offered are:

Business Correspondents (BCs):

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