State Bank of India

Dear Shareholders,
 
 I consider it an honour to place before you, your Bank’s Annual Report
 for the year 2008-09. I would also like to share with you some of the
 significant achievements and initiatives undertaken by your Bank during
 the year.
 
 During the year, India continued to remain the second fastest growing
 economy in the world, because of large domestic demand, especially from
 rural India, Govt. investments, a stable financial services sector,
 fall in inflation and prompt coordinated policy action on multiple
 fronts. This is despite the fact that the scenario of global economy
 during the year gone by was one of the most challenging. Its effects
 are not going to be completely wiped out even in the current year.  Its
 impact on India, however notwithstanding today’s globalised world, has
 not been very severe, though it did somewhat affect industrial
 production, GDP growth and exports.
 
 On the macro-economic front, we believe that the worst is over.  The
 Indian economy is showing signs of revival with growth reviving across
 sectors like cement, steel, auto, telecom, banking and FMCG.  Further,
 demand from the rural sector which was the mainstay of the economy last
 year is expected to continue to propel growth in the current year. With
 a new, stable Government in place, our expectation for the GDP growth
 in 2009-10 is in excess of 7%.
 
 Even in this slowdown, both global and domestic, your Bank has turned
 in a brilliant performance with a splendid growth of Rs. 3,30,404
 crores in total business, impressive rise in profits and containment of
 NPAs.  At the same time, your Bank continued to be on the growth
 trajectory during FY-09 in respect of branch expansion with as many as
 807 new branches being opened, a majority of which (481) were in rural
 and semi-urban areas. The Bank also increased its ATM network by an
 impressive 44% to 8581 by the end of FY-09. Another important milestone
 achieved by your Bank during the year was the extension of coverage
 under the Core Banking Platform to cover all its 11448 Branches. This
 is one of the largest core banking networks in the world and growing,
 and is no small achievement. Another significant event during the year
 was acquisition of State Bank of Saurashtra, a wholly owned Associate
 of your Bank, by your Bank.
 
 You will be happy to note that your Bank showed an impressive growth of
 35.55% in Net Profit from Rs.6,729 crores in FY-08 to Rs. 9,121 crores
 in FY-09. Operating Profits too posted a smart growth of 36.68% to Rs.
 17,915 crores in FY-09 on the back of a healthy increase of 22.63% in
 Net Interest income to Rs.20,873 crores in FY-09, driven by growth in
 advances and increase in yields as also an increase of 45.96% to
 Rs.12,691 crores in other income.
 
 Notwithstanding the economic slow down evidenced in the FY-09, your
 Bank registered an impressive increase in interest income which rose by
 30.31% as also a significant increase in core fee income which showed a
 growth of 28.7%. Even though operating expenses rose by 24.11%,
 attributable primarily to increase in staff costs on account of
 additional provisions for pension and wage revision and recruitment of
 additional staff during the year; cost to income ratio was brought down
 significantly (2.41%) from 49.03% in FY-08 to 46.62% in FY-09. Despite
 pressure on interest spreads and intense competition, your Bank could
 still record a Net Interest margin (NIM) of 2.93% in FY-09.
 
 During the year 2008-09, your Bank saw excellent growth in all
 businesses/market segments in which it operates. A significant feature
 during the year was your Bank’s high growth in both Advances and
 
 Deposits which exceeded the industry average, leading to a significant
 increase in its market share.
 
 Deposits of your Bank grew by 38.08% in 2008-09 against Other Scheduled
 Commercial Banks (OSCB) growth of 16.55%, leading to a spurt in its
 market share in deposits by 2.31% to 17.72% by March 2009. With
 continued focus on low cost CASA deposits which registered a growth of
 23% during the year, your Bank’s market share in demand deposits also
 rose sharply by 3.67% to 17.53%. As a part of strategy, your Bank
 reduced its reliance on bulk deposits as a percentage of total deposits
 to 10.81% from 14.13% in FY-08.
 
 Similarly, the Bank’s advances portfolio witnessed a robust growth
 (30.17%) of Rs.1,25,735 crores. This growth of 30.17% in advances as
 against OSCB growth of 16.13% pushed up your Bank’s market share in
 advances by 0.83 % to 16.03% by the year end. The growth in advances
 was well rounded with every Segment (Large advances  47%, Mid
 Corporate advances  23%, SME advances  20%, Retail advances  18%,
 Agri. advances  19%, International advances  54%), contributing to
 the overall growth in advances. Retail lending continued to occupy
 centre stage with a growth in Education Loans (50%), Auto Loans (36%)
 and Housing Loans (21%) during the year. This also helped improve
 market share from 17.48% to 19.74% in respect of Home Loans and from
 10% to 12% in respect of Auto Loans for new vehicles. To offer timely
 help to SMEs, which were reeling under the impact of slow down in the
 economy particularly exports, your Bank launched two new schemes  SME
 CARE and SME HELP  offering the affected SMEs, finance on liberalised
 terms at a concessional rate of interest of 8%.
 
 In advances to the Agriculture segment, your Bank continued to be above
 the 18% benchmark stipulated by RBI for the second time consecutively.
 It also surpassed the targets set by the Govt. of India in respect of
 credit flow by way of fresh disbursements as also the number of new
 farmers financed. In pursuit of its desire to be the Banker to every
 Indian, your Bank has gone in for aggressive expansion in the number
 of Customer Service Points/BCs/BFs to 17,979 which now cater to 52,782
 previously un-banked villages, with plans to cover additional 50,000
 un-banked villages in the current year.  Your Bank is firm in its
 resolve to achieve total financial inclusion through the use of the
 latest and best technology. As at the end of 2008-09, as many as 23.61
 lakh Smart Cards, which work on biometric validation of the customers,
 had been issued.
 
 In the international arena too, your Bank, despite the global meltdown,
 achieved a significant growth of 17.7% (in USD terms) in credit to USD
 17.07 billion and continued to focus on its core strategy of capturing
 India related business in high potential countries. While two of the
 Bank’s subsidiaries in Mauritius were merged during the year to create
 a new entity called SBI (Mauritius) Ltd., your Bank along with its
 subsidiaries and Joint Ventures abroad opened 9 new offices, including
 full-fledged retail operations in Singapore, taking the total network
 of overseas offices to 92 spread over 32 countries.  Amidst turmoil in
 global markets, your Bank’s foreign offices maintained a comfortable
 liquidity position and could raise US $ 686 million under Bank’s Medium
 Term Notes (MTNs) programme and bilateral loans.
 
 Another noteworthy feature of your Bank’s performance during the year
 2008-09 has been in the area of controlling NPAs. While Gross NPAs
 declined marginally to 2.84% in FY-09 from 3.04% in FY-08, Net NPA
 level too was practically stable at 1.76% as against 1.78% in FY-08.
 Similarly, your Bank’s Capital Adequacy Ratio (CAR) in terms of
 prescriptions of BASEL-II increased to 14.25% in FY-09. This healthy
 ratio not only meets the requirements of the regulators worldwide but
 is also comparable to the best banks globally.
 
 You will be happy to know that the performance of the Associates of
 your Bank during FY-09 has also been noteworthy with an increase of
 24.7% in net profit to Rs.2774 crores and 18.95% in total assets.  The
 non-banking subsidiaries, too, put up a good show with consolidation of
 their position/ranking in their space in the financial services arena.
 
 Your Bank embarked on several new business initiatives during the last
 two years which have started bearing fruit.  During the year 2008-09,
 your Bank’s wholly owned subsidiary  SBI Pension Fund Pvt. Ltd. 
 started functioning to manage pension funds under New Pension System
 (NPS). A Joint Venture formed with Societe Generale Securities Services
 for undertaking custodial services business is likely to commence
 business during the second quarter of 2009-10. Similarly, another Joint
 Venture with Insurance Australia Group (IAG) established by your Bank
 in November 2008 to undertake business of General Insurance is likely
 to commence business in the last quarter of 2009-10.
 
 Your Bank has already received all regulatory approvals for
 establishing a US $ 3 Billion Private Equity Fund jointly with
 Macquarie Capital Group of Australia and IFC, Washington. The Fund will
 be investing primarily in infrastructure assets in India. Some other
 funds with Middle East countries are also in various stages of being
 set up.  Your Bank is also working on new initiatives in the area of
 Mobile Banking as also consolidation of Payment Solutions business to
 achieve efficiency in operations, reduce costs and avoid duplication of
 efforts.
 
 As always, customer service and customer satisfaction remains at the
 core of our efforts. In this direction, your Bank unveiled on the 1st
 July 2008, its new Vision, Mission and Values statements, which were
 based on views of the Bank’s staff. The vision statement  My SBI, My
 Customer First, My SBI: First in Customer Satisfaction  vividly
 describes its customer centric focus and shall be the guiding principle
 for your Bank’s plans, activities and strategies in future.  Our mass
 international communication programme Parivartan was extended during
 the year to cover all Associate Banks as also 44,000 subordinate staff
 of your Bank. A new programme named Citizen SBI, which envisages deep
 routed multilevel attitudinal change and transformation in the
 organization through waves of HR intervention, is proposed to be rolled
 over in next two years. Your Bank also opened a contact centre for
 providing to customers on a toll free number, information on products
 and account enquiries on 24x7 basis.
 
 Your Bank recruited 33,703 staff during FY-09 which was the largest
 such recruitment exercise in the banking sector anywhere in the world.
 This will help your Bank to maintain its marketing thrust, extend
 efficient customer service and reduce the age profile of its staff.
 
 I am happy to announce that the Board of Directors of your Bank
 declared a dividend of 290% for the year ended 31st March 2009.
 
 It is but natural that the efforts and initiatives undertaken by your
 Bank are recognized by Society. Your Bank was the proud recipient of
 many recognitions/awards during the year, the notable among them being
 Bank of the Year 2008 - India - by the Banker Magazine, Most Admired
 Infrastructure Financier Award by KPMG, Top Public Sector Bank under
 SME Financing by Dun and Bradstreet and Best Executive Award to the
 Chairman by Asia Money. Your Bank also improved its ranking in
 Fortune 500 Global List, Forbes list of 2000 largest companies in
 the world, Banker list of top 1000 world banks, Brand Finance 
 Global 500 Financial Brand recognition, to name a few.
 
 Today, India remains among the fastest growing countries of the world
 and is poised to play a greater role in the global economy in the year
 to come. Your Bank sees this as an opportunity and a challenge.  I wish
 to assure you that your Bank will try to capitalize on this and blaze a
 new trail of growth in future.
 
 With warm regards,
 Yours sincerely,
 
 (OM PRAKASH BHATT)