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P S Jayakumar
Managing Director and CEO

Dear Stakeholder,

I am humbled to have the opportunity to lead Bank of Baroda as MD & CEO and thank the Government of India for entrusting me the responsibility to lead this esteemed Bank in such challenging times. I am committed to lead this 108-year-old institution and take it to greater heights and make the Bank a modern and contemporary Bank committed to increase the value for all its stakeholders.

It is my pleasure to present the Annual Report and Financial Statement of Bank of Baroda for the year ended March 31, 2016.

Economic Overview

The financial year 2016 saw major realignments in the global economy having a far reaching impact on the growth prospects of advanced and emerging economies. The US Fed increased its benchmark policy rate due to improved growth indicators. Other advanced countries such as Japan and the European Union continued their accommodative stance due to weak growth prospects. The slowdown and rebalancing of the economic activity in China with the devaluation of Yuan had significant spill over across the global trade, financial markets and currency movements. Amidst these, the commodity markets, in particular, the oil prices remained subdued throughout the year. Overall, the global growth prospects are inclined towards increased downside risks.

Against this backdrop, India has emerged as the fastest growing economy among large economies of the world due to its intrinsic strengths such as strong domestic consumption, greater macroeconomic fundamentals and a reform oriented government. Crucial parameters such as current account deficit, fiscal deficit, inflation level, foreign exchange reserves and foreign direct investments have improved.

However, the domestic operating environment remained a cause for concern with the industrial, trade and agriculture sector reeling under pressure. In some sectors especially infra, power and steel, the corporate balance sheets are over leveraged and had low capacity utilization which weakened their earnings and profitability. Private investment climate continued to be weak with lower new projects being commissioned and slower completion of stalled projects.

Due to the challenging operating environment, the Indian banking industry faced relatively subdued deposit and credit growth, stressed asset quality, weakening profitability and deteriorating capital positions. The gross non-performing assets (GNPAs) of the banks have increased substantially in the last couple of years reflecting the challenges faced by industries. Though the stress is spread across diverse sectors, it can be predominantly seen in iron & steel, infrastructure, power, mining and textile.

The Government and RBI are taking proactive steps to address concerns confronting the banking sector. Some of the key actions of Government include capital allocation of Rs. 70,000 crore for PSBs during 4 years period FY’16 to FY’19, segregation of the position of Chairman and MD & CEO, formation of Bank Board Bureau, steps to resolve bad debt issues and the empowerment of management of PSBs etc. Further, the government passed the Bankruptcy Law, which I believe, would turn out to be a landmark decision in the long-term.

Similarly, RBI undertook a number of measures to improve the system’s ability to deal with the financial distress. These included the preparation of a corrective action plan by the Joint Lenders’ Forum (JLF) for distressed assets, periodic refinancing and fixing of a longer repayment schedule for long-term projects as part of the flexible structuring, strategic restructuring of debt involving the provision to convert debt into equity, issuance of guidelines about classification of willful defaulters and non-cooperative borrowers, among others. In addition, the RBI undertook special asset quality review (AQR) across the banking industry. As a result, the gross NPA of banks and provisioning requirements increased significantly affecting their profitability. RBI expanded the regulatory capital dispensation by including the revaluation reserves arising out of revaluation of fixed assets, balances held in Foreign Currency Translation Reserves and Deferred Tax Assets arising out of timing differences as part of CET-1 that supported the banks’ capital position.

Financial Performance

I would like to share with you some of the key performance highlights for the year. While terminal figures of the Balance Sheet give a picture on the end date of a quarter/year, the real performance of any bank is reflected in its average business figures. From FY 2015 -16, your Bank made strategic shift in its approach on allocation of business targets and review of performance of all operating units on the basis of average business figures (based on daily averages).


During FY16, your Bank consolidated its operations and focused on sustainable performance by taking steps to rebalance its portfolio towards reducing cost of its liabilities and improving yield on assets. Thus total deposits of the Bank were at Rs. 5,74,038 crores as on 31.03.2016 as compared to Rs. 6,17,560 crores last year. Your Bank continues to shed bulk preferential rate term deposits in favour of retail term deposits. Retail term deposit ratio (domestic) to total retail deposits improved to 73.96% as on 31.03.2016 from 62.79% last year. Domestic CASA ratio remained steady at 33.48% compared to 33.01% last year. Domestic Saving Bank deposits grew by 6.11% to Rs. 1,13,253 crores. Average deposits of the Bank (based on daily averages) increased from Rs. 5,34,470 crores as on 31.03.2015 to Rs. 5,78,317 crores as on 31.03.2016 registering a growth of 8.20%. Average Savings Bank deposits grew by 12.71% to Rs. 1,06,739 crores from level of Rs. 94,705 crores last year.


Advances of your Bank were at Rs. 3,83,770 crores as on 31.03.2016 as compared to Rs. 4,28,065 crores last year, in line with approach to consolidate and re-balance the portfolio. Bank remained cautious in lending to large corporate and SME segment. On average basis (based on daily averages) gross advances of the Bank increased from Rs. 3,83,313 crores as on 31.03.2015 to Rs. 4,05,126 crores as on 31.03.2016 registering a growth of 5.69%. Retail loan portfolio of your Bank was at Rs. 50,868 crores as on 31.03.2016.

International business

International business of your Bank continued to support significantly to the total business. As on 31.03.2016, it contributed 31.3% of global business. Of the total International loan-book, 47.92% comprised of Buyer’s Credit/BP/BD portfolio where the exposure is on the banks. Exposure to India related corporates and non-Indian entities by way of syndicated loans/ECBs was at 22.03% and 4.30% respectively. Remaining 25.75% exposure was by way of local credit

Stressed Assets

The magnitude of problem of stressed assets in banks particularly in public sector banks has increased significantly in recent past on account of multiple reasons like weak macro-economic conditions, stalled projects, over-leveraged balance sheets of corporates, lower utilization of capacity and stressed cash flows etc. Accordingly Gross Non-Performing Assets (GNPA) of the Bank increased from Rs. 16,261 crores as on 31.03.2015 to Rs. 40,521 crores as on 31.03.2016. During the year, asset quality review by RBI identified certain assets which were classified as NPAs besides a comprehensive review of the loan book carried out by the Bank. As on 31.03.2016, the Gross NPA and Net NPA ratios were at 9.99% and 5.06% respectively. The Bank’s Provision Coverage Ratio (PCR) was at 60.09% in FY16 as against 52.70% in Q3FY16. Your Bank made extra provisions of Rs. 2,954 crores; higher than the regulatory requirements to strengthen the provision coverage ratio to this level.

The Standard Restructured Advances of the Bank reduced to Rs. 13,735 crores as on March 16 from a level of Rs. 25,905 crores in March 15.


Your Bank posted lower Operating Profit of Rs. 8,816 crores (last year Rs. 9,915 crores) on account of increased slippages leading to lower Net Interest Income of Rs. 12,740 crores (last year Rs. 13,187 crores). However total revenue increased to Rs. 17,739 crores (last year Rs. 17,589 crores) led by 13.56% increase in other income. During the year, Bank provided Rs.13,766 crores towards NPAs (last year Rs. 3,998 crores). As stated above, these provisions were higher than the regulatory requirements by Rs. 2,954 crores to improve the provision coverage ratio and to strengthen the balance sheet. Further, during the year, your Bank provided Rs. 1,564 crores on account of pension liability arising due to moving to mortality table from LICI 1994-96 to IALM of 2006-08. Your Bank has provided for all known liabilities to ensure that entire focus from now onwards is increasing the earnings to provide returns to our shareholders. On account of all these factors, Bank posted net loss of Rs. 5,396 crores (last year net profit Rs. 3,398 crores).


The earning power of your Bank continues to be strong on the back of strong franchise which your Bank enjoys with its customers and stakeholders. Despite weak financials, Capital Adequacy Ratio of your Bank as per Basel III continues to be healthy at 13.17% as of March, 2016, with Tier 1 capital ratio at 10.79% and Common Equity Tier 1 (CET-1) at 10.29% Consolidated group capital adequacy ratio stood at 13.63% at end March 2016. Your Bank is confident that it would be able to meet credit growth requirements of its customers without needing any capital infusion in 2016-17 from its majority promoter i.e. Government of India. We have advised GOI about this and thus our share holders do not carry risk of equity dilution on account of this.

In nutshell, your Bank has weathered the difficult times and has utilized this opportunity to focus on building its internal strength.

New initiatives undertaken

During the year, your Bank has started a major transformation initiative that would encompass changes in its products, processes and business strategy. This transformation includes identification of target markets, re-alignment and re-balancing of business to further improve Bank’s customer franchise, leverage technology to optimize the banking operations, digitization of the processes to improve value of its services to customers, improve fee based income, strengthen internal controls and improve the compliance culture in your Bank. The underlying goal of these transformation initiatives is to make the Bank a modern and contemporary Bank committed to add value for all its stakeholders.

Some of the important new business initiatives are as below:

Overall Business Strategy: Your Bank has undertaken a comprehensive review of the business strategy for domestic as well as international segments, including the identification of target markets with a proactive focus on enhancing customer franchise and an alignment of its products offering to market needs. The strategy also involves the strengthening of recovery and collection mechanism, enhancing credit quality and improving core profitability. The Bank has carried out a review of its credit portfolio and is taking steps to rebalance the portfolio towards more revenue earning segments besides exiting segments which do not add value to the franchise.

Risk Based Pricing: With the aim of effective capital deployment and optimization, your Bank has taken steps to implement the Risk Adjusted Return on Capital (RAROC) framework for credit exposures under the corporate portfolio which will be extended to other segments of credit. To enhance the expertise in different sectors, your Bank has initiated process of building a team of sector specialists. The Bank is also working with a leading credit rating agency to review and enhance the its internal credit rating systems.

Recovery and Collections: A dedicated team has been put in place to strengthen recoveries and collections in the Bank. Further, the collection responsibility for all accounts has been allocated to Relationship Managers. Bank is also in process to put in place an organized collection engine. To strengthen the recovery and collections process, your Bank has engaged reputed, high quality legal firms and appraisers.

Products & Channels: Your Bank has carried out a detailed exercise on benchmarking its products to the best in class in the industry and identified gaps to improve its offerings. In mortgage business, the Bank opened its first Specialized Mortgage Store (SMS) in Mumbai. Four more stores have since been rolled out in Mumbai alone. Your Bank has also under taken branch remodification exercise which has been completed on a pilot basis in Mumbai.

Consolidation of processing: Your Bank has undertaken full review of work and processes undertaken at branches with the aim of keeping only the essential activities at branch level and release of more sales time for the employees. It is moving towards the consolidation of operations and various processes to two shared services centers. In addition, the organization structure of the Bank is being reviewed to increase productivity and effectiveness of the operations of Bank.

Digital Initiatives: Hitherto your Bank had been focusing on building alternate delivery channels like ATMs, cash recyclers, internet-banking, mobile banking, 24x7 nonstop lobbies, contact centre etc. Bank has now undertaken a host of initiatives to improve quality of mobile banking, internet banking, debit and credit cards services to increase the ease of banking. The digital access to customers has increased through the expansion in touch-points. To enhance the productivity, key processes have been identified for digitization. The testing of a work-flow based solution is underway. These changes when completed would enhance ease of carrying the transactions and processes by the customers as well as employees.

Social Media: In order to reinforce the brand, your Bank moved to a higher ladder of social interaction by launching its presence on the social media viz. Facebook and Twitter on 01.01.2016. Through this, your Bank is connected with individual customers across demographics and geographies. The social media would be a platform for product promotion and customer education as well as deeper relationship. Your Bank organized OneInALeap, a social media contest on the Facebook and Twitter, to enhance the brand visibility in the digital space and increase awareness among the desired target segments. Baroda Specialized Mortgage Store (SMS) Campaign was executed with the dual objective of Brand & Product awareness for newly launched One Stop Store. A dedicated platform for exchange of views and information amongst employees has been created by a separate group on Facebook. It is being actively used for sharing of views and knowledge by the employees.

Financial Inclusion: Your Bank is committed to bring financially excluded citizens under the gamut of formal banking. Bank has undertaken a number of FI initiatives that would ease the convenience of banking such as instant account opening at BC point. E-KYC has been implemented at branches and BC points. Your Bank has made a number of changes which have facilitated easy opening of accounts, easier compliance of KYC guidelines, Aadhar seeding through multi channels. Mobile banking facility such as balance enquiry, money transfer, mini statements etc has been made available on basic mobile handsets wherein the routine information is readily made available.

Training & Capability building: To develop in-house skills, your Bank has undertaken process of revamping its training and learning systems to make them best in class. It has tied up with leading Credit Rating Agencies and Business Schools to provide training to the Bank staff. Further, various training programs by experts internally or externally are undertaken which help in upgrading the skill set across the cadre in the Bank. To supplement the skills in specialized areas and functions, your Bank has also undertaken external talent hiring. Further your Bank has undertaken enterprise wide employee engagement survey with 85% completion rate and results are being analyzed.

Employee friendly organization: Your Bank has taken measures towards capacity building and retaining of the talent to ensure that its human power is well-equipped, motivated and actively participates in the massive transformation that is underway in the Bank. Apart from up skills building amongst employees, your Bank also ensures that its employees are physically fit and health conscious. Your Bank has undertaken a number of initiatives to inculcate health awareness among employees by forming Marathon Club and Yoga classes. Your Bank celebrates Women’s Day to recognize and appreciate the contribution of women staff members. Further, to increase the interaction between management and employees, a two-way webcast of internal events has been started.

Looking Forward

As we embark on new transformation phase with the Indian economy on the cycle of recovery, we are confident of generating higher RoE and RoA. Our focus is to make the Bank ready for sustainable growth with improved quality of earnings. We are confident that our strategic focus on people, processes, products and technology will help us retain the leadership position in the emerging business environment.

We believe that our strategy will provide a strong foundation for our growth in years to come. We look forward to continued support and goodwill of all our shareholders.

P S Jayakumar

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