Bank of Baroda's new chief looks to reduce cost-to-income ratio to 40%

Bank of Baroda’s (BoB’s) new chief has stressed on managing costs for a healthy bottom line and ensuring high compliance standards while growing the book, which will drive business at the bank.

Soon after taking charge as managing director and chief executive on July 1, Debadatta Chand, in a webcast to employees, articulated his thought to reduce cost-to-income ratio (C/I ratio) to around 40 per cent.

This is expected to happen over the medium term (about three years), when the benefits from digitisation are expected to trickle down.

The lower the C/I ratio, the higher the efficiency and profitability of a bank.

 

BoB’s C/I ratio stood at 47. 72 per cent at the end of March 2023, down from 49.24 per cent in FY22. It was over 49 per cent in FY20 and FY21.

The ratio saw an uptick after two public sector lenders — Dena Bank and Vijaya Bank —merged with BoB from April, 2019.  

Senior bank executives said while Chand moved to the corner office over the weekend, he has a fair grasp of the situation since he has been around with the bank as executive director since 2021.

The rise in net interest income definitely helped in improving the C/I ratio.

Also, digitisation — moving process-intensive work to digital platforms as a step to manage cost has begun to produce results. 

But these gains will only be gradually spread over a period. Hence, it is a medium-term trend, bank executives pointed out.

According to BoB research, the C/I ratio of public sector banks as a group, including BoB, was 50.42 per cent in FY22, 50.9 per cent in FY21 and 50.8 per cent in FY20.

The C\I ratio of private banks is much lower at 44.12 per cent in FY22, 41.1 per cent in FY21 and 44.2 per cent in FY20.