Risk Management for SBI

Gayatri Karulkar (72), Kirti Sonawane (77), Neha Nashirabadkar (85), Neha
Sonawane (86), Raj Vaidya (103)
Significant - Interest Rate risk - Liquidity issue - Credit Risk
- Credit market slow - Cyber crime
down
Moderate - Reputation risk - Too many accounts - Home loans rate
to handle higher than other
banks.
Minor - GDP slow down - Operational risk
Low Medium High

1. Interest Rate risk

The bank in its statement last month said that in view of adequate liquidity in the system,
interest rates on savings accounts with balances up to Rs 1 lakh would be lowered by 25
basis points. It may be noted that SBI, the largest commercial bank in terms of assets,
deposits, branches, customers and employees, has a deposit base of over Rs 28 lakh crore.
The one-year MCLR was reduced to 8.05% from 8.15% with effect from October 10. The
bank has also slashed the interest rates on bulk term deposits by 30 basis points for a tenure
of one to two years. Now, accounts with deposits of over Rs 2 crore fetch an interest rate of
6% compared to the earlier rate of 6.3%.
This will increase the net interest income of the bank providing higher profits, but loses
customer base to other banks with higher interest rates.
2. Liquidity risk
State Bank of India has initiated the process to sell 14 per cent stake in SBI Cards and is
looking to raise Rs 8,000 crore through the public issue, valuing the company at Rs 57,000
crore.
This is done by the bank’s other subsidiary company so as to increase its liquidity in the
market, and also its valuation of the subsidiary company.
3. Credit Market Slow down
The Indian Credit market has been squeezed to such an extent that banks need to make
their counter moves with new products as much as possible.
4. Credit risk
Non recovery of loans and increased NPAs in the financial statements show the increased
credit risk of the bank. They need to stricken their norms for the loan applicants also they
general loan procedure needs to be reviewed over once again.
5. New age Cyber
The digital India drive has been taken up very much over the country and being the largest
bank on the market share ratio SBI needs to be very much up to date with its online service.
The website and app of the bank are flawless due to which it is regarded highly amongst the
nationalised banks. The firewall used by SBI is updated regularly and is kept on a check very
closely, this allows them to fight the cyber-crime easily.
6. Reputation risk
The Reserve Bank of India Monday said it has slapped a penalty of Rs 7 crore on the
country's largest bank SBINSE 0.71 % for non-compliance with norms related to NPA
identification and fraud risk management, among others. This leads to a huge loss of its
reputation amongst its customers.
Another such loss is that its rating was sent to negative by Moody’s rating agency.
SBI needs to come out of its shelter of the Indian Government and take up the charge to
save its reputation from plunging more.
7. Too many accounts to handle
SBI opened too many accounts for them to handle. In order to get the situation under
control, SBI has started the Minimum Average Balance of each savings account holder.
Failure to maintain an average balance as prescribed by India's largest bank SBI will attract a
penalty, which varies depending upon where the customer holds the account. State Bank of
India (SBI) has divided the penalty applicable in case of non-compliance with its minimum
balance or "monthly average balance (MAB)" requirements into four categories of savings
bank accounts - rural, semi-urban, urban and metro. SBI has said its savings bank account
holders in rural, semi-urban, urban and metro branches need to maintain an average
balance of Rs. 1,000, Rs. 2,000, Rs. 3,000 and Rs. 5,000, respectively.
8. Home loans rate higher than other banks.
Many home loan customers of the State Bank of India are still paying higher interest rates
on home loans even as better options are available. A quarter of SBI's home loan customers
in terms of the total home loan portfolio of Rs 3.72 lakh crore has clung to the old 'base rate'
regime that charges higher interest rate. SBI charges an average interest rate of around
9.40% on 'base rate' home loans. SBI's almost Rs 1 lakh crore home loan portfolio is locked
in the old base rate regime. The base rate is much higher than the average rate of 8.85%
that the SBI charges under the marginal cost of lending rate (MCLR) regime.
9. GDP Slowdown
According to a report given by SBI, GDP may dip below 5% and fiscal by 6%. This indicates
that extend of demand slowdown in the economy is still significant and would take longer
time to recover. This will result in the slowdown of the credit market which in turn will
result into a liquidity crisis.
10.Operational Risk
Operational risk mainly refers to business risk, or in other words the risk that arises from
errors that occur on a day to day basis.