I am delighted to join Bank of Baroda as Chairman of the Board ofDirectors and it gives me pleasure to put my thoughts before you. In the last 112 yearsfrom the time the Bank of Baroda was set up it has been pioneer in the banking field andhas a rich legacy of serving the society and the nation. As Chairman of the Bank I remaincommitted to nurturing and furthering this legacy.
The Banking Landscape
A robust financial sector is essential for the growth of economy. Weneed to grow at 8-9% consistently over years to catch up with China and other developedeconomies. Achieving this requires a concerted effort that maintains the reform momentumand widens its scope for arriving at a durable solution to banking sector issues. TheGovernment has adopted a multi-pronged strategy to improve the health of the Indianbanking system. It announced a recapitalization plan of Rs. 2.11 lakh crore in October2017. As part of the above program the government infused the second tranche of Rs. 1.06lakh crore in Public Sector Banks (PSBs) in FY 2019. Capital infusion by the governmenthas helped in improving the health of the Indian banking system and has led to animprovement in credit growth of SCBs to 13.2% in FY 2019 from an average of 10% over thethree previous years.
Indian banks had seen a large increase in non-performing loans over theyears. In order to ensure a faster resolution of non-performing loans the governmentimplemented a new Insolvency and Bankruptcy Code (IBC). Under this mechanism there havebeen a marked improvement in cash recoveries of the banking system at Rs. 98493 crore inthe period April to December 2018. The IBC process has resulted in structural changes suchas faster resolutions; higher recoveries and improving credit culture which is positivefor the banking system in the long-run.
The strategy adopted by the Government RBI and PSBs for recognitionprovisioning resolution and recovery of non-performing assets has commenced to yieldresults in the form of declining stressed asset ratios and improvement in cash recovery.The gross NPAs for PSBs are now beginning to see a decline. RBI has projected that thegross NPA ratio for the SCBs would fall to around 10.3% in March 2019 from 11.5% in March2018. The slippage ratio has declined from 7.6% in March 2018 to 4.1% in September 2018.The Provision Coverage Ratio (PCR) has also increased significantly from the levels inMarch 2018.
Consolidation in Indian Banking Industry
Despite being the sixth largest economy in the world India'sfinancial institutions lack scale and size on global scale.
To be globally competitive we need banks that are bigger and stronger.Large financial institutions have the ability to weather economic shocks and benefits ofscale help them to provide banking services at a relatively lower cost. Over the yearsvarious committees on the financial sector such as the Narasimham Committee (1998) theLeeladhar Committee (2008) and the Nayak Committee (2014) have recommended consolidationamong banking sector and that of PSBs. During the year the government announced firstthree-way amalgamation of Vijaya Bank and Dena Bank with Bank of Baroda as a step towardsachieving the above objectives. In terms of scale the combined bank which came intooperations from April 1 2019 is now the second largest PSB in India. The consolidatedbank has over 120 million+ customers across the globe through its network of 9500+branches and 13400+ ATMs and 84000+ employees. Our combined business mix now stands atRs. 15+ lakh crore with market share of 6.4%. The amalgamation has provided an opportunityto build a world class banking institution for our stakeholders and we are determined toseize it.
Bank of Baroda The Continuing Transformation
The Bank has undertaken a comprehensive transformation journey centeredaround processes products platforms building people capabilities and improvingcompliance. The details of the actions taken have been detailed out in last years'annual report. Given that the technology evolution is an ongoing process thetransformation has to be a continuing journey to ensure that the Bank remains competitivein the market place.
The Bank therefore continues to make significant investments inenhancing its IT backbone and creating cutting-edge digital platforms. The Bank has set-uptwin state-of-the-art Centers of Excellence for IT and Analytics & ArtificialIntelligence. The future of banking lies in leveraging power of analytics digitizationand technology to provide world class banking services to clients. As we build a Bank offirst choice for the customers we are also creating a learning organization and ourinvestment in enhancing the skills of our workforce continues. The government'sreform agenda for PSBs Ease of Access and Service Excellence (EASE) program is alsoin-line with this approach. I am happy to state that the Bank has been ranked 2nd in theimplementation of the EASE reforms agenda of the Government. The result of above strategyare reflected in the operating performance of the Bank. Our domestic credit growth at14.2% is higher than the industry average. This has been achieved while ensuringimprovement in operating efficiency and the margins. The provision coverage ratio with andwithout Technically Written Off (TWOs) accounts at 78.68% and 67.64% respectivelycontinues to be the highest amongst public sector banks. The capital adequacy ratio at13.42% is above the regulatory requirements.
Given the transformation undertaken by the Bank over the years to builda Bank that is future ready the amalgamation ensures that the benefits of scale and sizeare available to wider set of customers and stakeholders. With amalgamation becomingoperative the integration process is underway with a detailed plan on customer employeeIT and process integration. We foresee this as an opportunity to build a world classinstitution for our customers employees and other stakeholders. As the Chairman of theBank I am happy to be a partner in driving these efforts.