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Essay on the State Bank of India
Essay Contents:
- Essay on the Brief History of State Bank of India
- Essay on the Objectives of the State Bank of India
- Essay on the Capital and Management in State Bank of India
- Essay on the Functions of State Bank of India
- Essay on the Progress or Achievements of State Bank of India
- Essay on the Prohibited Business for SBI
Essay # 1. Brief History of State Bank of India:
The banking development in India has been divided into many stages. The period from A.D, 1806 to A.D. 1860 is known as the second phase of banking development. In the initial period of this stage three Presidency banks were founded in different periods by private shareholders. Bank of Calcutta (which became Bank of Bengal on 2nd January, 1809) was founded on 2nd June, 1806.
Similarly Bank of Bombay was founded on 15th April, 1840 and Bank of Madras on 1st July, 1843. Although all the three banks belonged to private shareholders, the government had some share in their capital. Hence, the government retained some control over these three banks.
These banks had all the privileges of a government banker, but the government withdrew the right to issue currency notes from these banks after 1862. Due to the increasing load of the government work, Imperial Bank of India was set up in 1921 by merging these three banks in 1921.
However Imperial Bank of India was a commercial bank; it worked as the Central bank before the foundation of Reserve Bank of India. So, it had an important position in the banking system of the country. For being the central bank of the country it retained all details of the governmental transactions and it also worked as the banker of banks.
But after the foundation of Reserve Bank of India in 1935 all the central banking jobs went to it and Imperial Bank of India started operating fully as a commercial bank. At the same time, it started working as agent of Reserve Banker of India at those places which did not have the branches of Reserve Bank of India. It was a strong commercial bank of the country due to its expanded work area.
Despite claiming deep faith of people and a wide area of responsibilities, the working of imperial bank had the following faults:
(1) The maximum share of the bank was retained by foreigners and so they had control over the management.
(2) Due to dominance of foreigners it didn’t have liberty in granting loans to Indian traders.
(3) It retained a competitive approach instead of a co-operative approach towards the Indian banks. It used to open its branches at those places which already had branches of Indian banks.
(4) Imperial Bank of India was not performing successfully the jobs of a central banking. So there was an increasing demand of a Central bank.
Due to the above mentioned demerits of Imperial Bank of India there were demands of its nationalisation from time to time. The Government of India had told Rural Banking Enquiry Committee to express its opinions regarding the proposed nationalisation in 1949. This committee had exposed many faults in the working system of Imperial Bank.
Some of these are as follows:
(1) There is no proper government control over Imperial Bank.
(2) A few people retained authority in it.
(3) There are maximum foreigners high officials.
Despite exposing these shortcomings, the committee did not find it proper to nationalise it. Reserve Bank of India established an All India Credit Survey Committee in August 1951 to look into the system of rural credit system. A.D. Gorwala was the chairman of the committee.
The report of this committee, published in December, 1954, recommended that a strong bank should be established to make proper arrangements for the rural credit in the country. This bank would be given the responsibility of expanding its branches in the rural areas of the country for arranging the essential agricultural credit and providing the benefits of banking facilities to the masses.
The Government of India accepted the recommendations of Gorwala Committee and presented the State Bank of India bill in the Lok Sabha on 16th April, 1955. After the passing of the bill Imperial Bank of India was nationalised and renamed as State Bank of India which started working properly on 1st July, 1955. On this very date all the assets and liabilities of Imperial Bank of India were transferred to State Bank of India.
With this, it was also decided to pay compensation to the shareholders of Imperial Bank of India. The rates of compensation were Rs. 1,765 and 10 annas for fully paid shares of Rs. 500 and Rs. 431, 13 annas and 4 paise for partly paid shares of Rs. 125. For the payment of compensation it was arranged that every shareholder would get a payment upto Rs. 10,000 in cash and the remaining would be paid with government securities having a 3.5 percent interest rate.
According to the Section 5(2) of the State Bank of India Act 1955, at least 55 percent of Issued capital of State Bank of India would stay with Reserve Bank of India and remaining would be issued to the old shareholders of Imperial Bank of India as well as new applicants. Besides, it was also arranged that nobody would be allowed to keep more than 200 shares.
Section 4 of the State Bank of India Act, 1955 was amended in October, 1933 and marked price of equity shares was reduced from Rs. 100 per share to Rs. 10 per share. With it the limitation of holding a maximum of 200 shares by a person was removed. To strengthen its capital base, State Bank of India collected Rs. 3,206 crores by selling shares and bonds in the capital market in December, 1993. After this issue the issued and paid-up capital of State Bank of India increased from Rs. 200 crores to Rs. 473.83 crores.
The Rural Banking Enquiry Committee had also recommended that 10 native banks including Bank of Baroda and Bank of Rajasthan should be merged with State Bank of India. After the foundation of State Bank of India, the process of merging of these banks started. At first, Bank of Baroda did not agree for this merger and then 9 other banks also did not give their approval for merger.
After this unsuccessful attempt, it was proposed that these 9 banks should be made the associate banks of State Bank of India which was accepted by 8 banks excluding Bank of Rajasthan. Later an Ordinance was prepared for the Associate Banks also.
According to State Bank of India (Subsidiary Bank) Act, 1959 Bank of Hyderabad on 1st October, 1959, Bank of Bikaner, Bank of Indore, Bank of Jaipur and Bank of Travancore on 1st January, 1960, Bank of Mysore on 1st March, 1960, Bank of Patiala on 1st April, 1960 and Bank of Saurashtra on 1st May, 1960 were made associate (Subsidiary) banks of State Bank of India and the term ‘State’ was added before their names. Later State Bank of Bikaner and State Bank of Jaipur were merged together to form State bank of Bikaner and Jaipur on 1st January, 1963 for having uniformity in working area.
After this merging the number of associate banks of State Bank of India became 7. But in July, 2008 State Bank of Saurashtra was merged with State Bank of India. In October 2009, the Government of India gave approval to a merger agreement between State Bank of India and State Bank of Indore. On 15th July, 2010, the Cabinet cleared the merger. On 26th August, 2010, State Bank of Indore officially merged agreement into State Bank of India. Hence, now there are only 5 associate banks of State Bank of India.
Essay # 2. Objectives of the State Bank of India:
State Bank of India is also a commercial bank like other commercial banks, but it has been given some special rights. At those places where there is no branch of the Reserve Bank of India, State Bank of India acts as its agent. The Government has authoritative control over this bank.
The main objectives behind the foundation of this bank are as follows:
(1) In the proposal of the foundation of this bank it was said that State Bank of India should be founded as a powerful bank for the proper arrangement of rural credit.
(2) The objective of this bank is bringing the share of the government in the co-operative credit arrangement.
(3) Promoting the tendency of savings among the rural people along with the urban population establishing branches in the maximum parts of the country for being the largest bank of the public sector.
(4) Saving people’s money and time in transaction of money.
(5) Promoting the poorest people of the society and providing them a chance of development.
(6) Providing economic support to small and medium scale industries to encourage them.
(7) Working as the agent of Reserve Bank of India.
Essay # 3. Capital and Management in State Bank of India:
The authorised capital of State Bank of India was Rs. 20 crores on 1st July, 1955 which was raised to Rs. 200 crores on 1st July, 1985 and Rs. 1,000 crores on 1st July, 1990. At present also its authorised capital is Rs. 5,000 crores consisting of equity shares of Rs. 1 each.
The management of State Bank of India is run by a Central Board of Directors. This board of 20 members comprises of 1 Chairman, 1 Vice-chairman, 2 Managing Directors and 16 Directors. Out of these 16 directors, 6 are selected by private shareholders and 8 by government of India as per the advice of Reserve Bank of India. Out of the 2 remaining Directors one is appointed by Reserve Bank of India and the other by Government of India.
These two are the specialist of management co-operation, industries, commerce and finance. The maximum tenure of the Chairman, Vice-chairman and Managing Directors is 5 years but that of Directors is 4 years, although they can be reappointed or re-selected. The Central Board of Directors is time to time advised by the local boards also. The head office of State Bank of India is in Mumbai and 14 Local Head offices and 57 zonal offices are located at important cities spread throughout the country.
Essay # 4. Functions of State Bank of India:
The functions of State Bank of India can be clarified under the following two titles:
(1) Central Banking Functions:
However the central banking functions are performed by Central Bank of the country and State Bank of India is not the central bank of the India, at places where there are no branches of Reserve Bank of India it performs the Central banking functions as the agent of Reserve Bank of India.
State Bank of India performs the following two functions as the agent of Reserve Bank of India:
(i) It collects deposits from people as a banker of the government and repays them according to the instructions of the government.
(ii) It works as the bank of banks and accepts deposits of other commercial banks and also grants them loans and advances as per their needs. Moreover, it also does the rediscounting of trade bills and arranges the clearing houses.
(2) Ordinary Banking Functions:
Under the ordinary banking functions, State Bank of India performs all those functions which are performed by other commercial banks.
Under this category following functions are performed:
(i) Accepting Deposits:
Like other commercial banks State Bank of India also accept deposits from people through various accounts. Besides this, it also accepts deposits from other commercial banks. On 31st March, 2015, the total deposits with it were Rs. 15,76,793 crores.
(ii) Investment:
To increase its income, State Bank of India invests its surplus money in different kinds of securities. Its investments are in securities of the government of India, securities of state government and securities of railway etc. On 31st March, 2015 its total investment was Rs. 4,64,670 crores.
(iii) Loans and Advances:
State Bank of India grants a big part of its deposits as loans and advances. The interest earned on these loans and advances is a major source of the income of the bank. By 31st March, 2015, a total of Rs. 13,00,026 crores were granted by the bank as loans and advances.
(iv) Foreign Banking Functions:
State Bank of India has expanded its branches in foreign countries too. The numbers of foreign offices of State Bank of India were 156 by 31st March, 2011, which grew to be 191 on 31st March, 2015. These 173 offices are spread across 36 countries. The offices are comprised of 69 branches, 8 Representative offices, 110 offices of seven foreign banking subsidiaries and 4 other offices.
Out of these 50 branches, the maximum numbers are in U.K. which has 10 branches. Besides it, 7 branches are in Singapore, 6 in Sri Lanka, 9 in Bangladesh, 4 in USA, 2 in Japan, 2 in China, 3 in Maldives, 4 in Behrin and one each in Belgium, France, Germany, Israel, Oman, Bahamas Island and the UAE.
(3) Other Functions:
The other functions of State Bank of India are:
(i) Mutual Funds:
Mutual Funds are such a medium of investment in which people’s money is invested in the capital market to give them maximum return. Many commercial banks and financial institutions have set foot in this field. In this process State Bank of India has launched its Magnum Scheme.
(ii) Housing Finance:
In this scheme of granting financial assistance, loans are not granted for commercial purposes but providing financial assistance for housing facilities is included considering the difficulties of housing in the country. Like other commercial banks, State Bank of India too grants housing loans.
(iii) Social Welfare Functions:
State Bank of India takes interest in Social Welfare also. On different occasion the bank performs the function of arranging blood donation camps, plantation programs, blanket distribution in winter, arranging medical check-up, helping the handicaps, providing educational commodities to institutions, such as providing computers etc.
(iv) Other Commercial Banking Functions:
Besides the above mentioned functions, State Bank of India performs all those functions which are performed by other commercial banks.
Some examples of such functions are:
Smooth transaction of money, locker facility, selling gold, making employment scheme for the educated unemployed youths etc.
Essay # 5. Progress or Achievements of State Bank of India:
State Bank of India has made a good progress in the field of economic development. With it, the social responsibilities too have been met successfully.
The progress of the bank can be clarified under following titles:
(1) Expansion of Branches:
State Bank of India has expanded its branches in non-banking areas. The number of its branches kept on increasing year after year. The total numbers of branches of SBI group were 20,193 including 5096 branches of its 5 associates. The numbers of branches of SBI group were 19027 in March 2011 and 18240 in March, 2010. The number of domestic branches of only SBI on 31 March, 2015 was 16,333 and its foreign branches were 191.
(2) Loans and Advances:
State Bank of India and its associates have taken a good interest in advancing loans and advances to various sectors. A total of Rs. 12,09,829 crores were granted by SBI in the financial year 2013-14 which was raised to Rs. 13,00,026 crores in the financial year-2014-15. The advances granted by its associates are not included in this sum. This way State Bank of India has contributed a lot in the economic development of the country.
(3) Increase in Deposits:
The deposits with the State Bank of India and its associates have also increased considerably. The deposits with the State Bank of India on 31st March, 2005 was Rs. 3,67,048 crores which got increased to Rs. 4,35,521 crores on 31st March, 2007 and Rs. 7,42,673 crores on 31st March, 2009 and Rs. 10,43,647 crores on 31st March, 2012. Similarly the deposits on 31 March, 2014 was Rs. 13,94,408 crores which got increased to Rs. 15,76,793 crores on 31 March, 2015.
(4) Agriculture Development Branches:
State Bank of India has taken praiseworthy steps for making very fine arrangement of credit for the agricultural sector. Particularly, it has helped Indian farmers very much by founding Agricultural Development Branches for the agricultural development. Through these branches farmers are given short and medium term loans.
(5) Increase in the Number of Employees:
State Bank of India has increased and expanded not only its branch offices but also the number of employees and this way provided employment opportunities all over the country. The total number of its employee on 31st March, 2012 was 2,15,481 while on 31st March, 2011 it was 2,22,933 but it was 2,05,896 on 31st March, 2009. Similarly on 31st March, 2015 number of employees were 2,13,238.
(6) Increase in Investment:
State bank of India has increased its investment every year. Its investment in 2013-14 was Rs. 3,74,540 crores which became Rs. 4,64,670 crores in 2014-15.
(7) Industrial Finance:
However there are many development banks to give financial aids to big industries. State Bank of India has paved the way for the industrial development of the country by giving financial aids to small, medium as well as large scale industries. Construction industries, Consumer industries and basic industries have been helped in the process of development by it through financial assistance.
(8) Development of Backward Areas:
State Bank of India has launched the lead Bank scheme in 94 districts for the development of backward areas. Out of these 82 are industrially backward districts. These areas are now experiencing development due to this initiative of State Bank of India.
(9) Involvement in Government Plans:
Many Schemes are announced by the government from time to time for the benefits of the nation. State Bank of India plays a leading role in the implementation of these schemes.
(10) Arrangement of Foreign Exchange:
The trade has become global today. The payment for imports has to be made in foreign currencies. State Bank of India sells and purchases 20 important currencies of the world. It helps a lot in making foreign payments. Besides this, State Bank of India also grants convenient leans to exporters to promote export.
(11) Increase in Net Profit:
State Bank has registered a good growth in acquiring of net profit. In 2008-09 financial years its net profit was Rs. 9,121 crores, in 2009-10 Rs. 9,166 crores in 2010-11 Rs. 8,265 crores and in 2014-15 Rs. 13,101 crores.
(12) Increase in Rate of Dividend:
State Bank has declared dividend to its shareholders at the rate of Rs. 35 per share (350%) in the year 2011-12 as against at the rate of Rs. 30 per share (300%) in the previous year 2010-11. In 2014-15 a dividend of Rs. 3.50 per share is declared for the face value of Rs. 1 per share i.e., 350%.
Thus, it is clear that State Bank of India has shown much progress in a short time. This is why; it is the biggest commercial bank of the country at present.
Essay # 6. Prohibited Business for SBI:
Following are the prohibited businesses for SBI:
(1) State Bank of India can’t grant loans for a period of more than 6 months on the collateral of shares. But it can grant loans to trade and industries for a period of 7 years on the basis of their assets.
(2) State Bank of India can’t purchase any immovable assets excluding the needs of its offices.
(3) State Bank of India can’t do the rediscounting of bills having a maturity period of more than 3 months, but it can do the rediscounting of agricultural bills up to the period of 15 months.
(4) State Bank of India can’t do the rediscounting of those bills which don’t have at least two prestigious signatures.
(5) State Bank of India can neither grant loans beyond a pre-decided limitation nor can do rediscounting of their bills.