EVOLUTION OF SBI

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EVOLUTION OF SBI..

Answer / shinoj.k.s.

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.

Establishment

The establishment of the Bank of Bengal marked the advent

of limited liability, joint-stock banking in India. So was

the associated innovation in banking, viz. the decision to

allow the Bank of Bengal to issue notes, which would be

accepted for payment of public revenues within a restricted

geographical area. This right of note issue was very

valuable not only for the Bank of Bengal but also its two

siblings, the Banks of Bombay and Madras. It meant an

accretion to the capital of the banks, a capital on which

the proprietors did not have to pay any interest. The

concept of deposit banking was also an innovation because

the practice of accepting money for safekeeping (and in

some cases, even investment on behalf of the clients) by

the indigenous bankers had not spread as a general habit in

most parts of India. But, for a long time, and especially

upto the time that the three presidency banks had a right

of note issue, bank notes and government balances made up

the bulk of the investible resources of the banks

The three banks were governed by royal charters, which were

revised from time to time. Each charter provided for a

share capital, four-fifth of which were privately

subscribed and the rest owned by the provincial government.

The members of the board of directors, which managed the

affairs of each bank, were mostly proprietary directors

representing the large European managing agency houses in

India. The rest were government nominees, invariably civil

servants, one of whom was elected as the president of the

board.

Business

The business of the banks was initially confined to

discounting of bills of exchange or other negotiable

private securities, keeping cash accounts and receiving

deposits and issuing and circulating cash notes. Loans were

restricted to Rs.one lakh and the period of accommodation

confined to three months only. The security for such loans

was public securities, commonly called Company's Paper,

bullion, treasure, plate, jewels, or goods 'not of a

perishable nature' and no interest could be charged beyond

a rate of twelve per cent. Loans against goods like opium,

indigo, salt woollens, cotton, cotton piece goods, mule

twist and silk goods were also granted but such finance by

way of cash credits gained momentum only from the third

decade of the nineteenth century. All commodities,

including tea, sugar and jute, which began to be financed

later, were either pledged or hypothecated to the bank.

Demand promissory notes were signed by the borrower in

favour of the guarantor, which was in turn endorsed to the

bank. Lending against shares of the banks or on the

mortgage of houses, land or other real property was,

however, forbidden.

Indians were the principal borrowers against deposit of

Company's paper, while the business of discounts on private

as well as salary bills was almost the exclusive monopoly

of individuals Europeans and their partnership firms. But

the main function of the three banks, as far as the

government was concerned, was to help the latter raise

loans from time to time and also provide a degree of

stability to the prices of government securities.

Major change in the conditions

A major change in the conditions of operation of the Banks

of Bengal, Bombay and Madras occurred after 1860. With the

passing of the Paper Currency Act of 1861, the right of

note issue of the presidency banks was abolished and the

Government of India assumed from 1 March 1862 the sole

power of issuing paper currency within British India. The

task of management and circulation of the new currency

notes was conferred on the presidency banks and the

Government undertook to transfer the Treasury balances to

the banks at places where the banks would open branches.

None of the three banks had till then any branches (except

the sole attempt and that too a short-lived one by the Bank

of Bengal at Mirzapore in 1839) although the charters had

given them such authority. But as soon as the three

presidency bands were assured of the free use of government

Treasury balances at places where they would open branches,

they embarked on branch expansion at a rapid pace. By 1876,

the branches, agencies and sub agencies of the three

presidency banks covered most of the major parts and many

of the inland trade centres in India. While the Bank of

Bengal had eighteen branches including its head office,

seasonal branches and sub agencies, the Banks of Bombay and

Madras had fifteen each.

Presidency Banks Act

The presidency Banks Act, which came into operation on 1

May 1876, brought the three presidency banks under a common

statute with similar restrictions on business. The

proprietary connection of the Government was, however,

terminated, though the banks continued to hold charge of

the public debt offices in the three presidency towns, and

the custody of a part of the government balances. The Act

also stipulated the creation of Reserve Treasuries at

Calcutta, Bombay and Madras into which sums above the

specified minimum balances promised to the presidency banks

at only their head offices were to be lodged. The

Government could lend to the presidency banks from such

Reserve Treasuries but the latter could look upon them more

as a favour than as a right.

Bank of Madras

The decision of the Government to keep the surplus balances

in Reserve Treasuries outside the normal control of the

presidency banks and the connected decision not to

guarantee minimum government balances at new places where

branches were to be opened effectively checked the growth

of new branches after 1876. The pace of expansion witnessed

in the previous decade fell sharply although, in the case

of the Bank of Madras, it continued on a modest scale as

the profits of that bank were mainly derived from trade

dispersed among a number of port towns and inland centres

of the presidency.

India witnessed rapid commercialisation in the last quarter

of the nineteenth century as its railway network expanded

to cover all the major regions of the country. New

irrigation networks in Madras, Punjab and Sind accelerated

the process of conversion of subsistence crops into cash

crops, a portion of which found its way into the foreign

markets. Tea and coffee plantations transformed large areas

of the eastern Terais, the hills of Assam and the Nilgiris

into regions of estate agriculture par excellence. All

these resulted in the expansion of India's international

trade more than six-fold. The three presidency banks were

both beneficiaries and promoters of this commercialisation

process as they became involved in the financing of

practically every trading, manufacturing and mining

activity in the sub-continent. While the Banks of Bengal

and Bombay were engaged in the financing of large modern

manufacturing industries, the Bank of Madras went into the

financing of large modern manufacturing industries, the

Bank of Madras went into the financing of small-scale

industries in a way which had no parallel elsewhere. But

the three banks were rigorously excluded from any business

involving foreign exchange. Not only was such business

considered risky for these banks, which held government

deposits, it was also feared that these banks enjoying

government patronage would offer unfair competition to the

exchange banks which had by then arrived in India. This

exclusion continued till the creation of the Reserve Bank

of India in 1935

Presidency Banks of Bengal

The presidency Banks of Bengal, Bombay and Madras with

their 70 branches were merged in 1921 to form the Imperial

Bank of India. The triad had been transformed into a

monolith and a giant among Indian commercial banks had

emerged. The new bank took on the triple role of a

commercial bank, a banker's bank and a banker to the

government.

But this creation was preceded by years of deliberations on

the need for a 'State Bank of India'. What eventually

emerged was a 'half-way house' combining the functions of a

commercial bank and a quasi-central bank.

The establishment of the Reserve Bank of India as the

central bank of the country in 1935 ended the quasi-central

banking role of the Imperial Bank. The latter ceased to be

bankers to the Government of India and instead became agent

of the Reserve Bank for the transaction of government

business at centres at which the central bank was not

established. But it continued to maintain currency chests

and small coin depots and operate the remittance facilities

scheme for other banks and the public on terms stipulated

by the Reserve Bank. It also acted as a bankers' bank by

holding their surplus cash and granting them advances

against authorised securities. The management of the bank

clearing houses also continued with it at many places where

the Reserve Bank did not have offices. The bank was also

the biggest tenderer at the Treasury bill auctions

conducted by the Reserve Bank on behalf of the Government.

The establishment of the Reserve Bank simultaneously saw

important amendments being made to the constitution of the

Imperial Bank converting it into a purely commercial bank.

The earlier restrictions on its business were removed and

the bank was permitted to undertake foreign exchange

business and executor and trustee business for the first

time.

Imperial Bank

The Imperial Bank during the three and a half decades of

its existence recorded an impressive growth in terms of

offices, reserves, deposits, investments and advances, the

increases in some cases amounting to more than six-fold.

The financial status and security inherited from its

forerunners no doubt provided a firm and durable platform.

But the lofty traditions of banking which the Imperial Bank

consistently maintained and the high standard of integrity

it observed in its operations inspired confidence in its

depositors that no other bank in India could perhaps then

equal. All these enabled the Imperial Bank to acquire a pre-

eminent position in the Indian banking industry and also

secure a vital place in the country's economic life.

When India attained freedom, the Imperial Bank had a

capital base (including reserves) of Rs.11.85 crores,

deposits and advances of Rs.275.14 crores and Rs.72.94

crores respectively and a network of 172 branches and more

than 200 sub offices extending all over the country.

First Five Year Plan

In 1951, when the First Five Year Plan was launched, the

development of rural India was given the highest priority.

The commercial banks of the country including the Imperial

Bank of India had till then confined their operations to

the urban sector and were not equipped to respond to the

emergent needs of economic regeneration of the rural areas.

In order, therefore, to serve the economy in general and

the rural sector in particular, the All India Rural Credit

Survey Committee recommended the creation of a state-

partnered and state-sponsored bank by taking over the

Imperial Bank of India, and integrating with it, the former

state-owned or state-associate banks. An act was

accordingly passed in Parliament in May 1955 and the State

Bank of India was constituted on 1 July 1955. More than a

quarter of the resources of the Indian banking system thus

passed under the direct control of the State. Later, 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 (later

named Associates).

The State Bank of India was thus born with a new sense of

social purpose aided by the 480 offices comprising

branches, sub offices and three Local Head Offices

inherited from the Imperial Bank. The concept of banking as

mere repositories of the community's savings and lenders to

creditworthy parties was soon to give way to the concept of

purposeful banking subserving the growing and diversified

financial needs of planned economic development. The State

Bank of India was destined to act as the pacesetter in this

respect and lead the Indian banking system into the

exciting field of national development.

TRANSFORMATION JOURNEY IN STATE BANK OF INDIA

The State Bank of India, the country’s oldest Bank and a

premier in terms of balance sheet size, number of branches,

market capitalization and profits is today going through a

momentous phase of Change and Transformation – the two

hundred year old Public sector behemoth is today stirring

out of its Public Sector legacy and moving with an agility

to give the Private and Foreign Banks a run for their

money.

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.

The Bank is changing outdated front and back end processes

to modern customer friendly processes to help improve the

total customer experience. 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

clientele with its over 8500 ATMs, and other electronic

channels such as Internet banking, debit cards, mobile

banking, etc.

With four national level Apex Training Colleges and 54

learning Centres spread all over the country the Bank is

continuously engaged in skill enhancement of its employees.

Some of the training programes are attended by bankers from

banks in other countries.

The bank is also looking at opportunities to grow in size

in India as well as Internationally. It presently has 82

foreign offices in 32 countries across the globe. It has

also 7 Subsidiaries in India – SBI Capital Markets, SBICAP

Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards -

forming a formidable group in the Indian Banking scenario.

It is in the process of raising capital for its growth and

also consolidating its various holdings.

Throughout all this change, the Bank is also attempting to

change old mindsets, attitudes and take all employees

together on this exciting road to Transformation. In a

recently concluded mass internal communication programme

termed ‘Parivartan’ the Bank rolled out over 3300 two day

workshops across the country and covered over 130,000

employees in a period of 100 days using about 400 Trainers,

to drive home the message of Change and inclusiveness.

The CNN IBN, Network 18 recognized this momentous

transformation journey, the State Bank of India is

undertaking, and has awarded the prestigious Indian of the

Year – Business, to its Chairman, Mr. O. P. Bhatt in

January 2008

Hope it would be useful for all

Is This Answer Correct ?

25 Yes

6 No

EVOLUTION OF SBI..

Answer / remya

* Origin of SBI was on June 2 1806 with the establishment
of "Bank of Calcutta"
* It was reformed into "Bank of Bengal" on Jan 2 1809
* "Bank of Bombay" & "Bank of Madras" were established
respectively on April 15 1840 & July 1 1843
* Later on these 3 banks were merged to form "Imperial Bank
of India" on Jan 27 1921
* SBI was created on July 1 1955

Is This Answer Correct ?

16 Yes

3 No

EVOLUTION OF SBI..

Answer / ganesh

correct

Is This Answer Correct ?

6 Yes

2 No

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