SBI redevelops business models

State Bank of India is developing business models to take decisions on deploying funds and assessing the returns (yield) in various business segments, in an attempt to improve the quality of planning and make optimal use of resources.

"The feedback on performance, especially the rise in bad loans, has compelled us to think about closely monitoring the yield on resources across segments. Resources are costly. We hope to improve deployment by using models," a senior SBI executive said.

India's largest lender will carry out the exercise internally without assistance from any management consultancy firm. It has segmented its business into retail, small and medium enterprise, agriculture, mid-corporates and large companies.

The bank's gross non-performing assets (bad loans) rose to Rs 12,837 crore (3.04 per cent) as on March 2008 from Rs 9,998 crore (2.92 per cent) a year ago. There has been a rise in SME, retail and farm loans.

"The model will be initially applied for 2008-09, with the performance in 2007-08 acting as a base. With the accumulation of data, the bank may look at such an exercise for the long term," the executive said.

The Reserve Bank of India prescribes the capital adequacy norms under Basel II.

Moreover, through the internal capital adequacy assessment process (ICAAP), it gets banks to develop capacities and maintain capital for their business plans and attendant risks.

The process will take into account aspects such as size, complexity, risk profile and scope of operations.

While managing the capital adequacy ratio is a clear and simple equation, the ICCAP puts the onus on banks for making continuous assessments, identifying risks and setting aside capital.

The central bank would review the banks' ICAAP.