India's public sector banks are in the midst of a perfect storm- at the center of notone but three storm fronts. The first one is the legacy of bad loans and stressed assets.The magnitude of this has completely consumed the attention of the management of mostbanks. The second challenge is the eroding competitiveness of our public sector banksrelative to private sector competitors. India's private sector banks account for about 25%of lending but over 50% of all profits and a disproportionately smaller percentage of badloans and frauds. In recent months the share of private sector lending has temporarilyrisen to nearly half. What this means is that public sector banks are systematicallylosing share and that too of our most profitable and least risky customers. With the entryof many new players who have gained banking licenses the competitive challenge is set toincrease dramatically. The final challenge is that of technology. Globally venturecapital backed startups are using technology to provide the services that werehistorically the remit of banks and are often providing these services better faster andcheaper than large legacy banks. Payments retail lending advisory services are allbeing disrupted by "fin tech". The risk for banks is that unless they movequickly their best customers and most profitable businesses will be skimmed off leavingthem stranded with high cost infrastructure like branches and ATM networks and the leastprofitable customers.
At the Bank of Baroda we are not immune to these storms but we are better positionedto weather these challenges than many other banks. Management has taken decisive steps torecognize stressed and non-performing assets and aggressively deal with these. The mainmotivation is to put this crisis behind us so that we can emerge stronger and be able tofocus on future rather than past. This is absolutely critical so that management can dealwith the challenges and the many opportunities that lie ahead. The Board and I areconfident that the worst is behind us.
The Bank has also undertaken a comprehensive review of all parts of the business andhas evolved a detailed set of plans to fundamentally reposition the Bank for the future.These plans are intended to create a more agile and capable organization with bettercontrols and compliance. Non-core assets will gradually be sold to raise capital.Management has conducted a detailed review of our business portfolio and intends togradually exit unprofitable businesses and segments; this will improve margins and free upcapital that can be deployed in pursuit of better quality customers and many good businessopportunities that exist. We can expect to see the Bank rapidly return to historicallevels of profitability.
Technology will play a critical role in revitalizing our Bank. Information is thelifeblood of a bank and banks are increasingly very sophisticated information processingunits. Our Bank has a solid technology foundation with good infrastructure core bankingsystem and good software for communication and collaboration. Importantly the Bank hasalso devoted significant attention to ensuring cybersecurity and privacy. Over the nextfew quarters there will be a significant upgradation of capabilities in four areas.First in reengineering and automating core business processes to enable speed efficiencyand control. Second in closing the gap in internet and mobile banking. Third inimproving our capability in the vital area of big data and analytics. And finally intransforming into a more digitally savvy Bank where increasingly we are digital by defaultrather than digital by after-thought.
Unquestionably the most important transformation that we will need to make is thetransformation of our people and organizational capability. This is central to the successof everything else. This year the Bank undertook an employee engagement survey for thefirst time. The response has been overwhelming and highlighted a number of critical areasfor improvement. The next three years will see a massive investment in employee learningin identifying and accelerating the development of future leaders and in buildingorganizational capability in key areas.
Finally this year we began the process of systematically strengthening our Board andboard governance. We are fortunate to have a number of new Directors who bring much neededskills in areas such as HR IT audit and compliance. We are also augmenting expertisethrough the appointment of globally respected experts as advisors to the Board in areassuch as IT HR Risk and financial inclusion. We have radically shifted our focus fromtransactional matters towards strategy risk and policy issues. I am optimistic that thesechanges will gradually bring about a sustainable improvement in the performance of theBank.
The past year has been a year of dramatic change at our Bank. It is a year which haswitnessed the induction of private sector executives into the roles of MD and Chairman.Our stakeholders expect not just an improvement in results but a metamorphosis of thisproud 108 year old institution into a contemporary Bank that uniquely combines the trustof public sector banks with the innovation and performance of the leading private sectorbanks. This is the mission that we have undertaken and are focused on.