India’s public sector banks are in the midst of a perfect
storm- at the center of not one 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 most banks. The second challenge is the
eroding competitiveness of our public sector banks relative
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 bad loans and
frauds. In recent months, the share of private sector lending
has temporarily risen to nearly half. What this means is that
public sector banks are systematically losing share and that
too of our most profitable and least risky customers. With the
entry of many new players who have gained banking licenses,
the competitive challenge is set to increase dramatically.
The final challenge is that of technology. Globally, venture
capital backed startups are using technology to provide the
services that were historically the remit of banks and are often
providing these services better, faster and cheaper than large
legacy banks. Payments, retail lending, advisory services,
are all being disrupted by “fin tech”. The risk for banks is
that unless they move quickly, their best customers and
most profitable businesses will be skimmed off leaving them
stranded with high cost infrastructure like branches and ATM
networks and the least profitable customers.
At the Bank of Baroda, we are not immune to these storms
but we are better positioned to weather these challenges
than many other banks. Management has taken decisive
steps to recognize stressed and non-performing assets and
aggressively deal with these. The main motivation is to put
this crisis behind us so that we can emerge stronger and be
able to focus on future rather than past. This is absolutely
critical so that management can deal with the challenges and
the many opportunities that lie ahead. The Board and I are
confident that the worst is behind us.
The Bank has also undertaken a comprehensive review of
all parts of the business and has 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 better controls and compliance. Non-core
assets will gradually be sold to raise capital. Management
has conducted a detailed review of our business portfolio
and intends to gradually exit unprofitable businesses and
segments; this will improve margins and free up capital that
can be deployed in pursuit of better quality customers and
many good business opportunities that exist. We can expect
to see the Bank rapidly return to historical levels of profitability.
Technology will play a critical role in revitalizing our Bank.
Information is the lifeblood of a bank and banks are
increasingly very sophisticated information processing units.
Our Bank has a solid technology foundation with good
infrastructure, core banking system and good software for
communication and collaboration. Importantly, the Bank has
also devoted significant attention to ensuring cybersecurity
and privacy. Over the next few quarters, there will be a
significant upgradation of capabilities in four areas. First, in
reengineering and automating core business processes to
enable speed, efficiency and control. Second, in closing
the gap in internet and mobile banking. Third, in improving
our capability in the vital area of big data and analytics. And
finally, in transforming into a more digitally savvy Bank where increasingly we are digital by default rather than digital by
Unquestionably, the most important transformation that we
will need to make is the transformation of our people and
organizational capability. This is central to the success of
everything else. This year, the Bank undertook an employee
engagement survey for the first time. The response has
been overwhelming and highlighted a number of critical
areas for improvement. The next three years will see a
massive investment in employee learning, in identifying
and accelerating the development of future leaders and in
building organizational capability in key areas.
Finally, this year we began the process of systematically
strengthening our Board and board governance. We are
fortunate to have a number of new Directors who bring much
needed skills in areas such as HR, IT, audit and compliance.
We are also augmenting expertise through the appointment of
globally respected experts as advisors to the Board in areas
such as IT, HR, Risk, and financial inclusion. We have radically
shifted our focus from transactional matters towards strategy,
risk and policy issues. I am optimistic that these changes
will gradually bring about a sustainable improvement in the
performance of the Bank.
The past year has been a year of dramatic change at our
Bank. It is a year which has witnessed 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 this proud 108 year old institution into
a contemporary Bank that uniquely combines the trust of
public sector banks with the innovation and performance of
the leading private sector banks. This is the mission that we
have undertaken and are focused on.