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Monday, June 06, 2005

200 and still ticking: SBI celebrates its history (Economic Times)

200 and still ticking: SBI celebrates its history (Economic Times)
TIMES NEWS NETWORK[ SATURDAY, JUNE 04, 2005 12:26:25 AM]

MUMBAI: Big Daddy as it is called in the money markets turns 200 this week. The bicentennial celebrations of State Bank of India will be flagged off on Saturday at a function to be attended by Prime Minister Manmohan Singh and finance minister P Chidambaram.

From its inception in 1806, the bank has been a fund raiser for the various powers that ruled the country. As the Bank of Bengal in the early 19th century, it helped the East India Company stabilise interest rates and mobilise funds to expand the Company�s operations in India.

A 100 years later, under the British crown as the Imperial Bank of India, it acted as a quasi-central bank and gave effect to the government�s monetary policy. Post-independence, as SBI, the bank repeatedly rose to assist the government in times of foreign currency crises.

During the foreign currency crisis of the 1990s, the bank raised billions in dollars to pay for oil. When the Pokhran tests put off foreign investors in 1998, it raised $4.2bn. Once again in �00 the bank mobilised over $5bn to raise funds for growth.

Because of its size the bank is treated as a proxy for the Indian economy by foreign investors. With foreign financial markets opening up to Indian corporates, SBI is once again at an inflection point where it is reinventing itself as a retail lender.
 
 The bank�s first makeover happened in 1995 following McKinsey & Co�s recommendation of a flatter organisation with the creation of corporate offices for lending to large companies. The offices had huge lending limits and would report directly to the head office. Now, once again the bank is in the midst of a transformation to emerge as a technology-driven retail giant.

Says VN Nadkarni, who retired as chairman of the bank over two decades ago, �The strength of the bank was that systems were decentralised and there was great delegation of power.� According to Mr Nadkarni the biggest challenge in those days was to convince people to borrow as there was a stigma attached to borrowing. �

At that time, a borrower would commit suicide rather than default. But now it is the banker who has to commit suicide.�

DN Ghosh, chairman, who retired in 1989 and who marked SBI entry�s into investment banking with the launch of SBI Capital Markets and SBI Mutual Fund says that the main strength of SBI is its highly competent workforce. �During nationalisation of banks in India, most senior SBI officials were posted as chairmen to other banks� he says.

There were instances when politicians tried to use the bank for favours. Ex-chairman PG Kakodkar, during whose tenure the bank launched its Global Depository Receipts offering, had a unique way of dealing with such requests.

�I would ask them to fax me the request on the pretext that the phone line was not clear. After that, I would never receive any fax.� Mr Kakodkar also relates instances when the bank had to work around issues because of problems with unions.

�Computerisation had started in 1991, with the Backbay Reclamation branch being the first to be computerised. But due to opposition from unions the project had to be renamed Commercial & Institution Banking project.� Even transferring the forex department from Kolkata to Mumbai, where the markets were, took the bank 10 years. �

It was done in a subtle way with a namesake forex department being retained in Kolkata, which undertook only reconciliation work, while most of the forex business was shifted to Mumbai,� says Mr Kakodar.

MS Verma, who headed the bank during the Asian currency crisis and the panic selling which followed the Pokhran II tests in 1998 says that at that time, when there was a threat to isolate India, it was important to demonstrate that India could manage its own economy.

�SBI was the only bank which could raise this kind of money and deploy it in a manner that could cover its cost,� says Mr Verma. The bank ended up raising $4.3bn. According to Mr Verma the only handicap the bank has is the high average age of the organisation which means that training requirements would be different than those required for private banks.

The pressure of foreign exchange did not end when GG Vaidya took charge when the rupee was still under pressure and foreign investors were still wary. Yet the bank managed to raise $5bn in a span of two weeks. �The bank has the capacity to single-handedly deal with any transaction of any volume,� says Mr Vaidya.

According to him, there is an intertia in the bank when it comes to getting moving on new projects; This can be witnessed in the time taken to complete networking of branches. It was during Mr Vaidya�s tenure that a major attempt was made to resolve the issue of SBI�s seven associate banks.

Prior to independence, these were the apex banks at each of the independent princely states. Mr Vaidya had pushed for a merger of SBI with its associates and brought the bank to the brink of consolidation. However, his term came to an end before he could initiate merger proceedings.



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