Submitted To: Submitted By:
Yogesh Yogesh Yadav Yadav MBA Sem. 3
B.K. School of Business Management Page | 1
120 Feet Ring Road, Gujarat University, Navrangpura, Ahmedabad, Gujarat 38000
Introduction SBI, a bank with 60% government stake, was India’s largest commercial bank and 43rd largest bank in the world with a market capitalization o !36"# billion in $0" It along with its ive associate banks and $$ s&bsidiaries, which constit&ted the State Bank 'ro&p, had more than $6(00 emplo)ees, a pan India network o over *000 branches and $#000 +-S, and delivered proit o !$"6 billion" he origin o State Bank o India set its roots in )ear *06 when Bank o .alc&tta was established" In /$, the Bank o .alc&tta and two other presidenc) banks Bank o -adras and Bank o Bomba)1 were amalgamated to orm the Imperial Bank o India" In /##, in controlling interest the Imperial Bank o India was ac2&ired b) the eserve Bank o India and State Bank o India came into eistence b) an act o parliament, as a s&ccessor to the Imperial Bank o India" oda), State Bank o India has spread its arms aro&nd the world and has a network o branches spanning all time zones" SBI provides a range o banking prod&cts thro&gh its vast network o branches in India and overseas, incl&ding prod&cts aimed at non5 resident Indians" It also has aro&nd 30 branches overseas" It is one o the largest inancial instit&tions in the world" It has a market share o abo&t $0% among Indian commercial banks in deposits and loans" he Bank is orging ahead with c&tting edge technolog) and innovative new banking models, to epand its &ral Banking base, looking at the vast &ntapped potential in the hinterland and proposes to cover 00,000 villages in the net two )ears" oda), the Bank is the largest provider o inrastr&ct&re debt and the largest arranger o eternal commercial borrowings in the co&ntr)" It is the onl) Indian bank to eat&re in the ort&ne #00 list"
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Organization Structure
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Management Control Process + management control s)stems -.S1 is a s)stem which gathers and &ses inormation to eval&ate the perormance o dierent organizational reso&rces like h&man, ph)sical, inancial and also the organization as a whole considering the organizational strategies" inall), -.S inl&ences the behavior o organizational reso&rces to implement organizational strategies" -.S might be ormal or inormal" he term 7management control’ was given o its c&rrent connotations b) obert 8" +nthon)" 9e deined -anagement .ontrol is the process b) which managers inl&ence other members o the organization to implement the organization’s strategies" -anagement control s)stems are tools to aid management or steering an organization toward its strategic ob:ectives and competitive advantage" -anagement controls are onl) one o the tools which managers &se in implementing desired strategies" 9owever strategies get implemented thro&gh management controls, organizational str&ct&re, h&man reso&rces management and c<&re" ollowing are the control s)stems p&t in place in SBI;
RISK MANAGMN! S!R"C!"R
+n independent isk 'overnance Str&ct&re is in place or Integrated isk -anagement covering .redit, -arket,
he isk 'overnance Str&ct&re in place in the Bank is as &nder; •
he isk -anagement .ommittee o the Board -.B1 has the overall responsibilit) to monitor and manage >nterprise ?ide isk"
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he .redit isk -anagement .ommittee .-.1, -arket isk -anagement .ommittee --.1,
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.ommittee +@.<1 s&pport -.B" .hairman A 'ro&p >ec&tive +ssociates A S&bsidiaries1 are the members o
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-.B .hairman and ep&t) -anaging irectors are invited to attend all the meetings
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o the .ommittee" he ep&t) -anaging irector A .hie .redit and isk <icer head .-., --., <-. and '-." +@.< is headed b) the .hairman A .hie
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inancial <icer" isk -anagement is perceived as an enabler or b&siness growth and in strategic b&siness planning, b) aligning b&siness strateg) to the &nderl)ing risks" his is achieved b) constantl) re5assessing the inter5dependencies C
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interaces amongst each silo o isk and b&siness &nctions" Bank is in the process o implementing >nterprise isk -anagement >-1 that will integrate all the isk -anagement &nctions o the Bank, eplore inter5 dependencies amongst vario&s risk t)pes and act as a s&pport s)stem to strategic decision5making process"
BAS% II IMP%MN!A!ION
In accordance with BI g&idelines, the Bank has migrated to the Basel II ramework, with the Standardized +pproach or .redit isk and Basic Indicator approach or
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Eario&s initiatives s&ch as new .redit isk +ssessment -odels, independent validation o Internal atings, loss data collection and comp&tation o market risk Eal&e at isk and improvement in @oan ata F&alit) wo&ld acilitate eicient &se o .apital as well as smooth transition to +dvanced +pproaches" isk +wareness eercises are being cond&cted across the Bank to enhance the degree o awareness at the
CR&I! RISK MANAGMN!
.redit
isk
-anagement
process
encompasses
identiication,
assessment,
meas&rement, monitoring and control o the .redit >pos&res" ?ell5deined basic risk meas&res s&ch as .+ .redit isk +ssessment1 models, Ind&str) >pos&re norms, .o&nter5part) >pos&re limits, S&bstantial >pos&re limits, etc", have been p&t in place" .redit isk components s&ch as Drobabilit) o ea<, @oss 'iven ea< and >pos&re at ea< are being comp&ted" re2&enc) o Stress ests in respect o .redit isk has been increased rom +nn&al to 9al5)earl), to identi) .redit isk at an earl) stage and to initiate appropriate meas&res to containC mitigate .redit isk"
MARK! RISK MANAGMN!
-arket isk -anagement is governed b) the Board approved policies or investment, Drivate >2&it) A Eent&re .apital, trading in Bonds, >2&ities, oreign >change and Page | 6
erivatives" >pos&re, Stop @oss, -odiied &ration, Dresent Eal&e and Eal&e at isk limits have been prescribed" hese limits, along with other -anagement +ction riggers, are tracked dail) and necessar) action initiated, as re2&ired, to keep -arket isk within approved limits"
OPRA!IONA% RISK MANAGMN!
he Bank manages operational risks b) having in place and maintaining a comprehensive s)stem o internal controls and policies" he main ob:ectives o the Bank’s
GRO"P RISK MANAGMN!
he State Bank 'ro&p is recognized as a ma:or inancial .onglomerate and as a s)stemicall) important inancial intermediar), with signiicant presence in vario&s inancial markets" +ccordingl), it is imperative, both rom the reg&lator) point o view as well as rom the 'ro&p’s own internal control and risk management point o view, to oversee the &nctioning o individ&al entities in the 'ro&p and periodicall) assess the overall level o risk in the 'ro&p" his acilitates optimal &tilization o capital reso&rces and adoption o a &niorm set o risk practices across the 'ro&p >ntities"
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he 'ro&p isk -anagement Dolic) applies to all +ssociate Banks, Banking and 8on5 banking S&bsidiaries and Hoint Eent&res o the State Bank 'ro&p &nder the :&risdiction o speciied reg&lators and compl)ing with the relevant +cco&nting Standards, where the SBI has investment in e2&it) shares o 30% and more with control over management" ?ith a view to enabling the 'ro&p >ntities to assess their material risks and ade2&ac) o the risk management processes and capital, all 'ro&p members, incl&ding 8on5banking S&bsidiaries are enco&raged to align their policies and practices with the 'ro&p, ollow Basel prescriptions and international best practices"
ASS! %IABI%I!' MANAGMN!
he +sset @iabilit) -anagement .ommittee +@.<1 o the Bank is entr&sted with the evolvement o appropriate s)stems and proced&res in order to identi) and anal)ze balance sheet risks and setting o benchmark parameters or eicient management o these risks" +@- epartment, being the s&pport gro&p to +@.<, monitors the Bank’s market risk s&ch as li2&idit) risk, interest rate risk etc", b) anal)zing vario&s +@reports C ret&rns" he +@- department reviews the +@- Dolic) and complies with the Bank’s C BI’s polic) g&idelines on an ongoing basis" he -arket elated &nd ranser Dricing -echanism has been implemented or eval&ating the b&siness perormance o the branches o the Bank"
IN!RNA% CON!RO%
he Bank has in5b&ilt internal control s)stems with well5deined responsibilities at each level" he Bank carries o&t mainl) two streams o a&dits 5 Ins$ection ( Audit and Management Audit covering dierent acets o Internal +&dit re2&irement" +part rom these, Credit Audit is cond&cted or &nits with large credit limits and Concurrent Audit is carried o&t at branches having large deposits, advances and other
risk epos&res and selected BD <&tits"
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)$enditure Audit, involving scr&tin) o acco&nts and correctness o ependit&re
inc&rred, is cond&cted at .orporate .entre >stablishments, @ocal 9ead <ices, onal <ices,
he inspection s)stem pla)s an important and critical role o introd&cing international best practices in the internal a&dit &nction which is regarded as a critical component o .orporate 'overnance" Inspection A -anagement +&dit epartment &ndertakes a critical review o the entire working o a&dit &nits" isk oc&sed Internal +&dit, an ad:&nct to risk based s&pervision as per BI directives, is in vog&e in the Bank’s a&dit s)stem" Inspection A +&dit o all branches have been segregated into 3 gro&ps on the basis o b&siness proile and risk epos&res" ?hile a&dit o 'ro&p I branches and credit oriented BD entities ecepting S+.1 is administered b) .entral +&dit =nit .+=1 at Inspection A -anagement +&dit epartment headed b) a 'eneral -anager .+=1, a&dit o branches in 'ro&p II A 'ro&p III categor) and other BD entities are cond&cted b) ten onal Inspection <ices, located at vario&s .enters, each o which is headed b) a 'eneral -anager IA+1" he a&dit o branches and BD entities is cond&cted as per the periodicit) approved b) +&dit .ommittee o the Board +.B1 which is well within BI norms" Management Audit
?ith the introd&ction o isk oc&sed Internal +&dit, -anagement +&dit has been reoriented to oc&s on the eectiveness o risk management in the processes and the proced&res ollowed in the Bank" -anagement +&dit &niverse comprises o .orporate .entre >stablishmentsJ .ircles C +pe raining Instit&tions, +ssociate BanksJ S&bsidiaries omestic C oreign1J Hoint Eent&res omestic C oreign1, egional
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&ral Banks sponsored b) the Bank Bs1" &ring the period rom 0"04"$00 to 3"03"$0, -anagement +&dit o 4# domestic oicesCestablishments was carried o&t" Credit Audit
.redit +&dit aims at achieving contin&o&s improvement in the 2&alit) o .ommercial .redit portolio o the Bank thro&gh criticall) eamining individ&al large commercial loans with epos&res o # crores and above" .redit +&dit S)stem .+S1, which has been aligned with isk oc&sed Internal +&dit, assesses whether the Bank’s laid down policies in the area o credit appraisal, sanction o loans and credit administration are metic&lo&sl) complied with" .+S also provides eedback to the b&siness &nit b) wa) o warning signals abo&t the 2&alit) o advance portolio in the &nit and s&ggests remedial meas&res" It also comments on the risk rating awarded and whether it is in order" .redit +&dit carries o&t a review o all individ&al advances above the c&t o limit within 6 months o sanctionCenhancementC renewal as o5site a&dit and a post sanction a&dit once in $ months as on5site" Information S-stem Audit
Since +pril $006, all the Branches are being s&b:ected to Inormation S)stems IS1 a&dit to assess the I related risks as part o a&dit o the branch" + K9andbook on Sel +&dit o Inormation S)stemsL was introd&ced to acilitate branches or eval&ating the eicienc) level o I s)stems" IS +&dit o centralized I establishments has commenced in Han&ar) $00("
CONC"RRN! A"&I! S'S!M
.onc&rrent +&dit s)stem is essentiall) a control process integral to the establishment o so&nd internal acco&nting &nctions, eective controls and overseeing o operations" It works as a tool or the .ontrollers o operations or scr&tin) o da)5to5 da) operations" .onc&rrent +&dit S)stem is reviewed on an on5going basis as per the BI directives so as to cover 30540% o the Bank’s eposits and 605(0% o the Bank’s +dvances and other risk epos&res" Inspection A +&dit department prescribes Page | 10
the processes, g&idelines and ormats or the cond&ct o conc&rrent a&dit at branches and BD entities" +s on 3"03"$0, the s)stem covers 30"# % o deposits and (#"$ % o advances and other risk epos&res o the Bank"
/IGI%ANC
he main ob:ective o vigilance activit) in the Bank is not to red&ce b&t enhance the level o managerial eicienc) and eectiveness in the organization" isk taking is integral part o the banking b&siness" hereore, ever) loss does not necessaril) become s&b:ect matter o vigilance en2&ir)" -otivated or reckless decisions that ca&se damage to the Bank are essentiall) dealt as vigilance ones" ?hile vigilance aims at p&nishing the delin2&ent emplo)ees, it also protects the legitimate and bonaide b&siness decisions taken b) them and an) other action devoid o malaides" he Eigilance epartment in the Bank &nctions on these principles" Based on the principle KDrevention is better than .&reL, the Eigilance epartment is activel) involved in the preventive meas&res, which aim at taking steps, which are essential or avoiding rec&rrence o similar nat&re o ra&ds in the Bank" +t the same time, Eigilance department is taking proactive meas&res to prevent the incidences o ra&ds arising in .BS environment" .onsidering the size o the
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Merits of Control Processes 0- SBI
1. Im$ro2ed Coordination and Control 0et3een /arious &e$artments.
?ith vario&s committees and a&dit bodies having clear c&t roles and responsibilities to pla), it is eas) to coordinate and control the &nctioning o vario&s departments and branch &nits"
4. *uture5Oriented .ontrol s)stems adopted b) SBI are like -arket isk -anagement and +sset @iabilit) management are entr&sted with the :ob o anal)zing the balance sheets and predicting the &t&re liabilities which helps in taking the corrective meas&res or the bank and th&s helping in red&cing the risk associated with it and allows or ad:&stments to be made to get back on co&rse beore the control period ends"
6. Clear Management Roles and Res$onsi0ilities he organization str&ct&re at SBI is a b&rea&cratic set&p, with clear c&t roles and responsibilities or each post deined, th&s res<ing in lack o con&sion abo&t decision making and lack o con&sion o the epected standard o perormance rom each emplo)ee" 7. Re3ard and Recognition to em$lo-ees
ho&ght the organization is mostl) centralized in decision making and a&thorit) wise, b&t still there are a n&mber o small initiatives &ndertaken, s&ch as KBest >mplo)ee o the monthL and Kletters o appreciationL, which keeps emplo)ees motivated even in a p&blic sector :ob" 8. Ris# Management
Being a commercial bank, SBI aces several threats rom credit dea<s, hence making risk management a ver) important tool" Bank has taken several steps to ens&re the credibilit) o its clients, which is &tmost necessit) or SBI"
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&emerits of Control Processes 0- SBI
1. &ela-s in &ecision Ma#ing Process.
Since the organizational set &p o SBI is basicall) b&rea&cratic in nat&re, the decisions making process can be ver) time cons&ming as the iss&es will be transerred rom the branch manager to the assistant general manager to dep&t) general manager to the chie general manager" 4. No In2ol2ement of em$lo-ees in the &ecision Ma#ing Process.
In case o SBI we see that the :ob o raming the policies and strategies or the bank rest solel) in the hands o top management, with no involvement o the emplo)ees hence res<ing in lower emplo)ee motivation and morale" 6. %ac# of Room for Change and Inno2ation
igid ramework and g&idelines in the control s)stems o SBI leave no room or change and innovation" >ven the b&rea&cratic and centralized str&ct&re gives little incentive or new ideas and tho&ghts" 7. !oo man- rules and regulations
+s we can see, SBI has to compl) with all the r&les and reg&lations la) down b) eserve Bank o India" his is a set o ver) comprehensive r&les which leaves no scope i creativit)" 8. Centralized structure leading to 0ureaucrac-
he power in hands o the branch managers o SBI is ver) remote" 9owever the) are the people r&nning the branches" >ver) small decision has to be sanctioned b) the .entral -anagement .ommittee and hence this might lead to b&rea&crac)"
Suggestions and Recommendations Page | 13
1. Creation of Res$onsi0ilit- Centers
+ responsibilit) centre is an organization &nit that is headed b) manager who is responsible or its activities" .reation o responsibilit) centers will help in removing the b&rea&cratic set &p o the organization to some etent" his concept is based on delegating o responsibilit) or speciic assignments or pro:ects with speciic goals at s&ccessive levels o organization" Derormance o each member o the responsibilit) centre will be meas&res against the achievement o the speciied goal" 4. &i2isional autonom-
>ach divisional manger sho&ld be given libert) to take decisions which are in best interest o hisCher division" here sho&ld be no intererence in the decision making process b) other divisions" 6. m$lo-ee In2ol2ement in &ecision Ma#ing Process
ollowing a bottom &p approach will make the emplo)ees eel that the) are a part o the organization and the) are val&ed as emplo)ees, which will motivate the emplo)ees to make decisions and take actions which are in organizations best interest"
Bi0liogra$h-
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www"wikipedia"org www"statebankoindia"com www"mone)control"com www"scribd"com State Bank o India ; ransorming a State
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