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Ravi Venkatesan

Dear Stakeholder,

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 after-thought.

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.

Ravi Venkatesan

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