State Bank of India

Do you know in those days the loans were restricted to Rs. 1 L only and the loan tenure was a mere 3 months only?! Also, these were security loans. Another trivia to note is that in this period lending against shares of the banks or on the mortgage of houses, land or other real property was forbidden! However, this scenario is veru different today. Today,  SBI home loan packs in several benefits and innovative features in its different loan schemes such as SBI MaxGain home loan, SBI-Flexi home loan, SBI-Freedom home loan, SBI-Realty home loan, SBI Hi-five home loan, SBI upfront home loan, SBI NRI and PIO home loan etc. Some of the other loans the bank offers include SBI personal loans, which come at reasonable interest rates and low processing charges and SBI car loans where you can avail discounts and benefits as SBI has tied up with different Car manufacturers to aid in quick and convenient car loan processing.

The mammoth history behind SBI

How did State Bank of India start?

SBI originated when Bank of Calcutta came into existence on 2 June 1806, which was rechristened as Bank of Bengal three years later. The unique factor about SBI is the fact that it was the first joint-stock bank of British India, first sponsored by the Bengal government. Following the establishment of Bank of Bengal more such banks on the same lines was set up, namely Bank of Bombay in April 1840 and Bank of Madras in July 1843. A makeover took place several years later during January 1921, when the three banks merged to form the Imperial Bank of India.

Let’s retrace the steps before such an occurrence.

Of Anglo-Indian origin, the culture, structure and function of these three banks followed the European model and changes that took place in various functional spheres were influenced directly by the changes that took place in Europe and England and economic relations between India and these countries. Governed by royal charters that were revised periodically, they were responsible for a share capital (four-fifth were private subscriptions and the rest had the ownership of the provincial government). The board of directors comprised of representatives of large European managing agency houses in India, government nominees, civil servants etc.

Operations during yester years

When these banks first started operations it was largely restricted to discounting bills of exchange, negotiable private securities, maintaining cash accounts, deposits and cash circulation.

Forbidden loans

Do you know in those days the loans were restricted to Rs. 1 L only and the loan tenure was a mere 3 months only?! Also, these were security loans – meaning goods of non-perishable nature like public securities – under which Company’s Paper, bullion, treasure (!), plate, jewels etc. were retained as security for these 1 L loans! The best part is that the banks were not allowed to charge more than 12% of interest rate! Another trivia to note is that in this period lending against shares of the banks or on the mortgage of houses, land or other real property was forbidden!

Business Model

So what was the business model based on? Well, primarily the most significant purpose for which these three banks were set up from the government’s perspective was to help raise loans at regular intervals and also create a stable environment for the prices of government securities.

When and how did change happen?

The year 1860 brought a dramatic change in the scope of the existing banking activities. This was ushered in when the Paper Currency Act of 1861 was passed, which brought an end to the right of these three presidency banks to issue notes. The sole power of issuing currency within British India was transfered to the Government of India. However, the task of circulation and management of these new currency notes was passed on to the three banks ( Bank of Bengal, Bank of Bombay and Bank of Madras) and the government also transfered treasury balances to the the banks and planned to do so with any branches the banks may have as well. Prior to the assured free use of government treasury balances the banks did not operate through branches but soon they embarked on a branch expansion spree. In 1876, branches, agencies and sub agencies of these three banks dotted all the major parts of the country. The Bank of Bengal has 18 branches while the Banks of Bombay and Madras had fifteen branches.

Presidency Banks Act

The Presidency Banks Act launched in May 1876 was created to bring all three banks under a common business structure. The proprietary connection with the government came to end but the banks however continued holding charge of public offices and custody to a portion of the treasury balances. Also, the creation of reserve treasuries was put in place in Calcutta, Bombay and Madras, where specified minimum balances, which were allocated to the presidency banks were to be maintained in the main branch of each bank. These however could not be used at will and was to be considered a favour and not a right.

Restricted use of treasury balance

These control measures on how the treasury balance was spent led to a more organized approach and the growth of new branches was restricted. However, the growth of profits continued at a decent pace. This was owing to the bank’s trading activities.

Intense Trading Activity

The last quarter of the 19th century saw a phenomenal change in the face of commerce with an expanded railway network, new irrigation networks and an upswing in agricultural activities with a spate of cash crops being cultivated. It resulted in India’s international trade improving nearly 6 times, the current pace. The three presidency banks became involved in a full fledged commercial activity involving all kinds of trades, manufacturing and mining activities.

However, the three banks were not included very consciously in any business involving foreign exchange which was considered too risky for the banks during this stage, however when the Reserve Bank of India came into existence in 1935, things changed.

The Imperial Bank

Finally in 1921 about 70 odd branches of all the three presidency Banks of Bengal, Bombay and Madras merged into a single entity to become the Imperial Bank of India. This bank played three crucial roles – that of a commercial bank, a banker’s bank as well as a banker to the government.

SBI is born finally!

A need for a “State Bank of India” was mulled over in the years leading to this development. The Imperial bank was then combining the functions of both a commercial bank and a quasi-central bank. This scenario changed when the Reserve Bank of India was set up in 1935 at which point the Imperial bank ceased to be the bankers to the Indian Government and became an agent of the RBI for government transactions instead.

The first five year plan ushers in State Bank of India

The First five year plan launched in 1951 had as one of its primary goals the development of rural India. It is important to note that the Imperial Bank of India had until that point in time concentrated only on the urban sectors neglecting the rural segments.

Upon the recommendation of the All India Rural Credit Survey committee regarding the need for a state partnered and sponsored bank a formal act was passed in the parliament in May 1955. According to this act, the Imperial Bank of India was to integrate with it state owned and state associate banks.

Thus the State Bank of India came into existence in July 1955. Around 25% of the country’s banking resources came under the direct control of the State. In the years to come, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries.

After this development the SBI helped in its new avatar by its 480 offices across the country evolved into the current modern banking system that is in sync with the economic development taking place.

Current operations

Today the State Bank of India is the country’s oldest financial institutions with a strong balance sheet size, number of branches and market capital and profit figures. It is currently undergoing yet another transformation to keep up with the changing times. The bank has plans to foray into several new segments including strategic tie ups for Pension funds, General Insurance, Custodial services, private equity, mobile banking, POS merchant acquisition, advisory services, a slew of new structured products etc.

SBI’s long term goals

Some of the other long term goals of the bank include expansion of their rural banking base with intentions to cover 100,000 villages in the next 24 months. On the other end of the scale, it is also looking to grow mid sized to large corporates by providing access to a slew of innovative products and services. SBI is also working on consolidation of global treasury operations, delivering structured products and derivative instruments. It is currently the largest provider of infrastructure debt and mediates for large external borrowings in the country.

The only Indian bank to get featured in the Fortune 500 list, the bank today has 8500 of its own branches and 5100 of associate bank branches the bank is well positioned to be the bank of the masses and has the largest banking network to offer to the Indian customer. It services its huge database of customers through its 10,000 branches (collective), 8500 ATMs and also through its electronic channels which includes net banking and mobile banking.

SBI loans

Today,  SBI home loan packs in several benefits and innovative features in its different loan schemes such as SBI MaxGain home loan, SBI-Flexi home loan, SBI-Freedom home loan, SBI-Realty home loan, SBI Hi-five home loan, SBI upfront home loan, SBI NRI and PIO home loan etc. Some of the other loans the bank offers include SBI personal loans, which come at reasonable interest rates and low processing charges and SBI car loans where you can avail discounts and benefits as SBI has tied up with different Car manufacturers to aid in quick and convenient car loan processing.

The future

The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years.

It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s growing mid / large Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured products and derivative instruments.

Today, the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.

With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the largest banking network to the Indian customer. The Bank is also in the process of providing complete payment solution to its clientèle with its over 8500 ATMs, and other electronic channels such as Internet banking, debit cards, mobile banking, etc.

SBI is looking to go on an expansion spree in India as well as in the international arena. Currently it has 82 offices in 32 countries across the globe. Its 7 subsidiaries in India includes SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards. SBI is currently undertaking the task of raising sufficient capital for growth and consolidation.

Awards

- The bank’s chairman Mr. O.P. Bhatt was awarded the prestigious Indian of the Year award in the Business category but the CNN IBN.

- State Bank of India has been adjuged the best bank 2009 bybusiness india (august-2009).

- Shri Om Prakash Bhatt declared as one of the 25 most valuable indians by the week magazine for 2009 (published in august-2009 issue).

- State Bank of India also improved its ranking in “Fortune” 500 Global List, “Forbes” list of 2000 largest companies in the world, “Banker” list of top 1000 world banks, Brand Finance – Global 500 Financial Brand recognition, to name a few.

- Most Admired Infrastructure Financier Award by KPMG,

- Top Public Sector Bank under SME Financing by Dun and Bradstreet 2

- The Bank was voted, for the third year in a row, as the Most Preferred Housing Loan and Most Preferred Bank in the CNBC AWAAZ Consumer Awards in a survey conducted by CNBC TV18 in association with AG Nielsen & Company.

- The Bank was also awarded the Best Home Loan Provider as well as The Best Bank – by Outlook Money Awards, 2008.

- SBI has been rated as the Best Public Sector Bank for Rural Reach by Dun & Bradstreet.

- The Bank was awarded Reader’s Digest Pegasus Corporate Social Responsibility Award 2007 in recognition of its contribution towards Rural Community Development.

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