The Government of india began the process of reforming Public sector Banks (PsBs) undermission "indradhanush" in 2015. Over the past three years Bank of Baroda hasundertaken a comprehensive transformation to not only deal with the legacy of bad loansbut to create a modern and competitive Bank. although this transformation is very much awork in progress i would like to share some of what has been accomplished.
What has been done to fundamentally reduce the risk of bad loans and frauds?
Japanese companies like Toyota taught the world that quality must be prevention-drivennot inspection-driven. a similar revolution is needed within PsU banks. Public sectorbanks are accident-prone by design and can only be fixed by making fundamental changes tothe architecture process controls and culture. Frauds and bad loans cannot be reducedsimply by fear of staff accountability and ex-post investigations. Over the last threeyears there has been a massive effort at Bank of Baroda to redesign processes and tostrengthen controls and compliance. The Bank has moved to a modern frontend/backenddecision architecture. account opening processing and approval of retail loans forex andtrade finance transactions have been moved from branches to a centralised back office.This ensures that there is a clear segregation of duties. Branches are only servicingcustomers; transaction processing is done at shared services Center in Gift CityGandhinagar. all processes are being digitized to provide greater transparency andcontrol. a dedicated and independent Fraud risk Management Unit has been setup to monitorand mitigate fraud risks proactively and an enterprise fraud risk management system isbeing deployed which is integrated to Bank's overall risk management platform. a web basedcompliance management has been implemented across india. With a high degree ofdigitization the Bank increasingly has access to enormous transaction data and this isenabling the audit paradigm to evolve from manual decentralized transaction driven andex-post to being preventive analytical intelligent and real time. such a transformationwill take time because it requires a change of mindset and capability.
To reduce the risk of bad loans the Bank has moved to a new risk based pricing forretail customers leading to a sharp improvement in risk profile. The percentage ofcustomers with credit bureau score < 725 is down from 19% to 1% and those with scoresabove 725 has increased from 41% to 63%. This approach along with a strong centralizedcollections team is crucial to being able to rapidly expand our retail lending. On thecorporate side public sector banks have been plagued by an "adverse-selection"problem where the least desirable customers target the banks rather than the bankstargeting the most desirable customers. Bank of Baroda has shifted to a "targetcustomer driven approach" where we proactively reach out to the most desirablecustomers with differentiated value propositions. The identification of target customershas been completed along with the establishment of risk based credit limits. account plansare in place at major metro centres covering 80% of corporate credit and these accountsand plans are owned and executed through dedicated relationship Managers (rMs). This hasresulted in a significant change in the risk profile of our corporate customers. Nowtwo-third of customers are above investment grade up from a 44% three years ago. These arebut a few examples of the paradigm shift in lending practices at our Bank.
What has been done to make Bank of Baroda more competitive?
Public sector banks have been hemmorhaging market share to their private sectorcompetitors for some years. With many banks already under Prompt Corrective action thisshare erosion is likely to accelerate. Margins and profitability are also undersignificant stress. These are predictable outcomes; banking is becoming a moresophisticated game where technology analytics and expertise are becoming ever more vital.Public sector banks have to make the shift or lose out. Over the past three years Bank ofBaroda has been able to make significant strides in becoming competitive and improvingmarket share and profitability. The Bank has added more than 23mn customers over a span of36 months with the customer base now at 78mn. Casa deposits have been growing with theCasa ratio rising by 8% to 41.2% over the period. During this year retail lending hasgrown by 42% and corporate lending by 16%. MsME and agricultural lending has also grown.These results are the consequence of several underlying initiatives.
On the consumer front the Bank has invested massively in technology to improve thecustomer experience. For instance new savings accounts now can be opened in a few minutesin a paperless format through Tablets. significant improvements have been made to internetand mobile banking applications. Customer service is improving although there is a longway to go yet; service levels in the Bank's call centre operations have now improved tomore than 93% compared with sub-60% earlier. Turnaround time in closing customercomplaints satisfactorily has come down substantially; 74% of customer complaints areclosed within 7 working days. Customer service has been included as a kra at the branchlevel. Besides process revamping new product innovation has also been a big focus andcompetitive products have been launched across all segments. These include supply ChainFinancing Cash Management (Baroda DigiNext) Trade Finance platform- BarodaiNsTa (Barodaintegrated solution for Trade Finance access) customised products such as gold loanshorticulture loans wealth management services educational mortgage and automotiveincluding commercial vehicle financing.
Bank of Baroda is rightly called "india's international Bank". however asthe global order readjusts there is a need to rethink on the Bank's internationalfootprint. The Bank has undertaken a comprehensive strategic reassessment of itsinternational presence based on business potential and risks. This has resulted in adecision to exit a number of countries including Bahrain Guyana Bangkok and southafrica. Discussions are underway with other PsBs for further consolidation of territories.in the future the Bank will focus on the Us UaE and Uk and develop stronger ties withJapan and korea to take advantage of rapidly growing commerce with these countries.
Banking is rapidly becoming a technology driven business and consequently the Bank hasinvested massively in upgrading its technology capability. The Bank's main core bankingplatform has been upgraded; this has enabled customer-friendly internet and mobile bankingand the seamless integration of many digital applications that work across variousdevices. Nearly 40+ new enterprise applications including a supply Chain Financingsolution Cash Management system Trade Finance Portal Loan Management system FraudManagement system Central
Compliance Management system Digital Document Management system have been implemented.When these are fully deployed and integrated by the end of Fy 2019 Bank of Baroda willhave world class iT capability. Our Bank is amongst the first to establish a"Fintech" vertical; with over twenty partnerships delivering significantbusiness already BOB is seen as an emerging leader in this vital new arena. impressive asour catch-up has been technology is a rapidly evolving arena. To ensure that Bank ofBaroda remains at the leading edge of banking technology an iT subsidiary has beenestablished with partnerships with world class companies like iBM and accenture for iT andanalytics respectively.
People & Organization
Public sector banks face a significant shortage of talent especially more seniorleaders who are able to drive performance and change. There is also an acute shortage ofexpertise in areas like technology risk management and fraud control. To address thisour Bank has made very significant investments in improving leadership and peoplecapabilities. One of the most important is a comprehensive leadership developmentinitiative called We lead' with the objective of building a strong and sustainablepipeline of leaders for our Bank. Over 2700 high potential managers from scale i to scaleVii have been carefully identified and are being developed into future leaders through avariety of intense interventions over the span of a year. This program is also integratedwith succession planning.
To become a learning organization employees are encouraged to continuously acquire newskills through a new "life cycle concept of training". alternate learningchannels such as the Baroda academy mobile application and Baroda radio try to makelearning fun and encourage learning on the go providing bite sized content videosaudios quizzes and games. On the Bank's e- learning platform our Baroda Net academy nowhosts more than 230 modules and more than 7 lakh courses were completed by employeesduring year Fy 2018. investments in internal talent development have been selectivelyaugmented by hiring experts from the market with specialised knowledge and skill sets on acontract basis. striking an appropriate balance between talent promoted from within andselective assimilation of expertise from outside will be a critical success factor forpublic sector banks.
The Bank introduced a new Performance Management system for employees called BarodaGEMs (Growth & Empowerment Management system). Baroda GEMs is a state of the artmobile-accessible system which enables individual goal setting continuous feedback andcoaching. a business analytics back-end gives management unprecedented drill-downcapability. GEMs is expected to deliver a big leap in transparency accountability anddevelopment.
Bank of Baroda has a committed and highly engaged Board. in Fy 2018 the Board met 13times for 15 days; median attendance was 92% with half the Directors having 100%attendance. in addition the Management Committee met 37 times and the audit Committee 15times. in Fy 2018 the Board consciously spent over half of its time on business strategyand execution and risk mitigation. in order to strengthen the Board we have inductedexpert advisors onto Committees of the Board particularly in the areas of risk ManagementiT hr and Financial inclusion. This has been very helpful.
This is the second consecutive year when an independent review of Board effectivenesswas conducted by an external agency and this has further strengthened processes and boarddynamics.
The consequence of Bank of Baroda embarking on a fundamental transformation exercise in2015 is that it has emerged as one of the strongest large banks in india. Earlyrecognition and cleaning of books has resulted in a provision coverage of 67.21% which ishighest amongst public sector banks. Capital adequacy ratio of 12.13% remains aboveregulatory requirements. Credit growth has been accelerating. Net interest Margin has beenimproving and operating profits have grown 24% in Fy 2017 and 9% in Fy 2018. i amconfident that as the economy strengthens as credit offtake improves as the NPas getresolved Bank of Baroda will be able to grow profits strongly.
Finally i would like to thank our employees for their hard work and commitment andalso thank our customers extended partners and all stakeholders for your trust andsupport during this critical phase of Bank of Baroda.