The State Bank of India (SBI) is India's largest commercial bank and occupies a unique position in the country's modern commercial banking system. It is a Fortune 500 company, an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai. SBI's rich heritage and legacy of over 200 years establishes it as the most trusted bank among Indians across generations.

SBI, India's largest bank, serves over 45 crore customers through its vast network of over 22,000 branches, with an unwavering focus on innovation and customer-centricity stemming from the bank's core values of Service, Transparency, Ethics, Politeness, and Sustainability.

Historical Background

• In 1921, the Imperial Bank of India was formed by the merger of the three Presidency Banks of Madras, Bombay, and Bengal.
• Until the establishment of the Reserve Bank of India in 1935, the Imperial Bank of India performed certain central banking functions in addition to its normal commercial banking functions.
  • It used to serve as the government's banker, as a banker's bank, and as a clearinghouse.
• Following the establishment of the Reserve Bank of India, the Imperial Bank of India relinquished its central banking functions but continued to act as the Reserve Bank's agent in areas where the latter did not have branches.
• On December 20, 1954, the government made the historic decision to nationalise the Imperial Rank.
• This decision was made based on the recommendations of the R.B.I. appointed Committee on All India Rural Credit Survey.
• The government accepted the recommendation and nationalised the Imperial Bank of India on July 1, 1955, to establish the State Bank of India.
• The State Bank of India (Subsidiary Banks) Act was passed in September 1959, and over time, eight major State associated banks were merged with the main bank as subsidiary banks. These were:
• Bank of Saurashtra, Bank of Patiala, Bank of Bikaner, Bank of Jaipur, Bank of Rajasthan, Bank of Indore, Bank of Baroda, Bank of Mysore, Hyderabad State Bank, and Travancore Bank.

Reasons for Nationalising Imperial Bank

• One of the main reasons for nationalising the Imperial Bank was to spread banking facilities by establishing a large network of branches all over the country.
  • According to the State Bank of India Act, the bank had a statutory obligation to open 400 new branches in the rural, semi-urban and unbanked areas during the first five years of its existence or such extended period as might be permitted by the bank.
  • In this connection, the bank created a special fund known as the Integration and Development Fund, which would be utilised for meeting partially the losses attributable to the additional branches established in pursuance of the Act and such other losses or expenditure as might be approved by the Central Government in consultation with the Reserve Bank of India.
• The State Bank of India was expected to operate its activities in conformity with the broad economic policies of the government.
• Another important objective of the bank was to promote agricultural finance and to solve the problems of the existing system of agricultural finance.
• In addition, the bank aimed at providing special facilities for the training of the personnel of the bank and imparting knowledge on cooperative principles.
• The SBI was also expected to help the Reserve Bank of India in its credit policies and in helping the RBI in checking any monetary disequilibrium in the money market.

State Bank of India – Objectives

• To act in accordance with the government's broad economic policies.
• To encourage and mobilise savings through the establishment of branches in rural and semi-urban areas, as well as to promote rural credit.
• To form a governmentpartnership in the provision of cooperative credit;
• Financial assistance will be provided for the establishment of licenced warehouses and cooperative marketing societies.
• To provide financial assistance to small and cottage industries.
• To provide banking institutions with remittance services.

Subsidiaries of State Bank of India

• SBI Capital Markets Limited (SBICAP)
• SBI DFHI Limited (SBI DFHI)
• SBI Cards & Payment Services Ltd (SBICPSL)
• SBI Life Insurance Company Limited (SBILIFE)
• SBI Funds Management Private Limited (SBIFMPL)
• SBI Global Factors Limited (SBIGFL)
• SBI General Insurance Company Limited (SBIGIC)
• SBI SG Global Securities Services Private Limited (SBI-SG)
• SBI Pension Funds Private Limited (SBIPF)
• SBI Infra Management Solutions Private Limited (SBIIMS)
• SBI Foundation

State Bank of India – Functions

As an Agent of Reserve Bank

• It serves as the government's bank, collects money, makes payments on behalf of the government, as well as manages public debt.
• It serves as a bank for bankers. It accepts deposits from commercial banks and makes loans to them.
• It also serves as a clearinghouse for commercial banks, rediscounts commercial banks' bills of exchange, and provides remittance services to commercial banks.

Banking Functions

• It accepts deposits from the general public.
• It makes loans and advances against eligible securities such as goods, bills of exchange, promissory notes, fully paid shares of corporations, immovable property or title documents, debentures, and so on.
• It invests its surplus funds in government securities, railroad securities, corporate securities, and treasury bills.

Other Functions

• It buys and sells precious metals such as gold and silver.
• It acts as a representative for cooperative banks.
• It underwrites issues ofstock, share, debenture, and other securities in which it is permitted to invest funds.
• It administers estates, either alone or jointly, as executor, trustee, or otherwise.
• It issues bills of exchange and letters of credit payable outside of India.
• With the Reserve Bank's approval, it purchases bills of exchange payable outside of India.
• It subscribes to, buys, acquires, holds, and sells shares in the capital of banking companies.

Prohibited Functions

• Loans against stocks and shares cannot be granted by the State Bank for more than six months.
• Other than its own offices, it has no ability to purchase immovable property.
• It cannot rediscount or lend against the security of exchange bills with maturities longer than six months.
• It is unable to rediscount bills that do not have at least two good signatures.
• It cannot discount bills or extend credit to individuals or businesses in excess of the sanctioned limit.

State Bank of India – Achievements

• The State Bank of India has been mobilising deposits at an increasing rate.
• Over the years, there has also been significant progress in the field of credit expansion.
• The State Bank of India's branch network has expanded dramatically since its inception. The bank had 497 branches in 1955; by 1969 and 2001, the number had increased to 1673 and 9078, respectively. Currently, it has more than 22000 branches.
• The SBI's performance in terms of profits, efficiency, and capital adequacy has continued to improve.
• Higher interest income from advances and investment operations, lower operating costs, and improved foreign performance were the major contributors to improved net profits.
• Currently, the SBI has a network of 229 overseas offices with operations in 31 countries. These foreign offices primarily serve the needs of the country's foreign trade and provide Indian corporations with foreign currency resources.
• The State Bank of India (SBI) has taken significant steps toward improving technology and customer service.
• The State Bank had made remarkable strides in rural credit. Since its inception, it has made significant efforts to develop rural credit by providing credit to cooperative institutions and agriculturists.

Agricultural Lending

• The Bank has aided in the spread of minor irrigation schemes.
• To increase farm productivity, the Bank provides production finance directly to farmers.
• To promote dryland farming, the Bank makes loans for agricultural development in dryland areas, and plans and finances dryland farming projects in watershed-based compact areas.
• Farmers in Karnataka, Tamil Nadu, and Maharashtra are being helped by the bank to install drip irrigation systems.
• The Bank assists farmers in taking up cultivation on waste lands through social forestry schemes for raising nurseries and planting trees for fuel, fodder, and other purposes.

Village Adoption Scheme

• The State Bank has launched a village adoption programme.
• A village is chosen for development under this scheme bymeetingall of its financial needs, including those of farmers, artisans, and others.

Integrated Rural Development Programs

• The integrated rural development scheme aims for all-around and integrated development of rural areas (i.e., economic, social, cultural, and so on).

Regional Rural Banks

• Regional rural banks have been established with the goal of providing credit to small and marginal farmers, as well as other vulnerable members of society.
• These banks are receiving financial assistance from the State Bank.

Agricultural Development Branches

• The expansion of special agricultural development branches by the State Bank is an important feature in the field of agricultural financing by the State Bank.
• With the aim of financing all-round development of agriculture, these branches work in close collaboration with National Bank for Agriculture and Rural Development (NABARD).

Remittance Facilities

• The State Bank offers liberalised remittance services to rural institutions such as state and central cooperative banks, land development banks, and so on.
• With the implementation of the branch expansion programmes, the State Bank is now in a position to more effectively extend these liberalised remittance facilities to rural and semi-urban areas.

Short-term Credit to Cooperative Banks

• The State Bank has been providing short-term credit facilities to state and central cooperative banks in exchange for government securities at a rate half a percentage point lower than its usual rate.

Assistance to Land Development Banks

• The State Bank also lends money to land development banks, which provide long-term credit to farmers.
• The State Bank purchases debentures issued by land development banks.
• The State Bank makes advances on such debentures as collateral. This increases the debentures' marketability and popularity in the money market.
• The State Bank lends and advances money to cooperative central land development banks.

Finance for Marketing and Processing Societies

• In areas where central cooperative banks are unable to assist, the State Bank provides direct financial assistance to marketing and processing cooperative societies.
• Marketing societies can get ahead by pledging their produce at low prices.
• The State Bank of India also provides similar credit facilities to processing cooperative societies such as cooperative sugar mills, cotton ginning and pressing societies, and so on.

Warehousing Finance

• Warehousing is essential for the development of agricultural marketing because it aims to store products in a scientific manner.
• The State Bank has been an active participant in the warehousing development scheme, providing advances against warehousing receipts.
• It has also worked to improve its procedures and terms in order to promote and popularise the warehousing scheme.
• Furthermore, the State Bank has allowed its officers to serve on warehouse advisory committees.

State Bank and Industrial Finance

• The State Bank of India has been providing financial assistance to the economy in order to promote industrial growth.
• In line with the country's rapid industrial growth, the State Bank's loans and advances to the industrial sector have increased significantly over the years.

Finance to Small Scale Industries

• The State Bank of India's lending to small businesses has also increased significantly over the years.
• The Bank provides technical and financial consulting to the units on its books in order to help them overcome problems such as technological obsolescence, marketing, management, and so on.
• Under its Equity Fund Scheme, the Bank provides equity assistance to needy entrepreneurs in the form of interest-free loans repayable over a long period of time to help them establish new small-scale units.
• The Bank runs Entrepreneurial Development Programs to encourage entrepreneurship in the development of ancillaries near large project areas and high-tech industries such as electronics, computer peripherals, and so on.
• The Bank provides financing to small business enterprises in order to increase opportunities for self-employment in the tertiary sector.

Conclusion

The State Bank of India has made significant strides in the right direction. It has made remarkable progress in expanding banking facilities in rural and semi-urban areas, as well as providing financial assistance to agriculture, cooperative institutions, and small-scale industries.

FAQs 

MCQs

1. When was the State Bank of India formed?

A. 1947
B. 1950
C. 1955
D. 1969

Answer: (C) See the Explanation

2. Which of the following is a major function of the State Bank of India?

A. Issuing currency
B. Promoting financial inclusion
C. Formulating monetary policy
D. Regulating non-banking financial companies

Answer: (B) See the Explanation

3. What is the role of SBI in the Pradhan Mantri Jan Dhan Yojana (PMJDY)?

A. Formulating guidelines
B. Providing basic banking services
C. Regulating digital payments
D. Implementing economic policies

Answer: (B) See the Explanation

4. Which country does NOT have an SBI branch?

A. USA
B. UK
C. Japan
D. Canada

Answer: (C) See the Explanation

5. What is the main regulatory authority governing SBI?

A. Securities and Exchange Board of India (SEBI)
B. Reserve Bank of India (RBI)
C. Ministry of Finance
D. Indian Banks' Association

Answer: (B) See the Explanation

GS Mains Questions and Model Answers

Q1: Discuss the role of the State Bank of India in promoting financial inclusion in India. How has SBI contributed to government initiatives like PMJDY and Digital India?

Answer: The State Bank of India plays a pivotal role in promoting financial inclusion by extending banking services to underserved areas, especially in rural India. SBI has been instrumental in implementing the Pradhan Mantri Jan Dhan Yojana (PMJDY), under which it opened millions of zero-balance accounts for individuals. Additionally, SBI is a key player in the Digital India initiative, promoting the use of digital payments and providing easy access to banking services through mobile banking, ATMs, and internet banking. Through these efforts, SBI has contributed significantly to bringing more people into the formal banking system.

Q2: Evaluate the significance of the State Bank of India in financing infrastructure projects in India.

Answer: The State Bank of India is one of the largest lenders in India, playing a critical role in financing infrastructure projects like roads, ports, airports, and power plants. As a public sector bank, SBI supports government initiatives aimed at improving the country's infrastructure. Its involvement in long-term financing and syndicated loans has helped in the timely execution of large-scale projects. The bank's ability to mobilize resources at lower interest rates allows it to offer competitive financing options, making it a key partner in India’s infrastructure development agenda.

Q3: Analyze the evolution of the State Bank of India from the Imperial Bank of India to its current role as the largest public sector bank.

Answer: The State Bank of India (SBI) was established in 1955 after the reconstitution of the Imperial Bank of India, marking a significant transformation in the Indian banking sector. Initially focused on commercial banking, SBI expanded its services to include rural banking, agriculture loans, and infrastructure financing, aligning itself with the economic development needs of post-independence India. Over the decades, SBI has grown into the largest public sector bank with a vast branch network and a global presence. Its role in implementing government schemes like PMJDY and Digital India has solidified its position as a key player in India’s financial system.

Previous Year Questions on State Bank of India (SBI)

1. UPSC CSE Prelims 2018

Question: Which of the following is a key initiative undertaken by SBI to promote financial inclusion?
A. Zero Balance Savings Accounts
B. Fixed Deposit Schemes
C. Foreign Exchange Services
D. Trade Financing

Answer: A

Explanation: SBI promotes financial inclusion by offering zero-balance savings accounts as part of the Pradhan Mantri Jan Dhan Yojana (PMJDY).

2. UPSC CSE Mains 2020 (GS Paper 3)

Question: Discuss the role of public sector banks like SBI in supporting government-led financial reforms in India.

Explanation: Public sector banks like the State Bank of India (SBI) are key players in supporting government-led financial reforms, including financial inclusion, agricultural credit, and MSME financing. SBI’s wide branch network and participation in schemes like PMJDY, Digital India, and Atmanirbhar Bharat enable it to reach underserved populations and provide essential financial services. Its support for large-scale infrastructure projects and social welfare programs helps in accelerating economic growth and meeting the government’s development objectives.