Bank announces Financial Results for quarter ended, 30th September 2023.
Bank of Baroda (UK) Ltd announces its intention to wind down and close its UK retail banking activities
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" Sustaining Performance amidst Challenging Times"
Shri Ranjan DhawanManaging Director and CEO
I am pleased to report that during the year 2014-15 (FY15), Bank of Baroda not only displayed its resilience to challenges in the Indian economy, but also sustained its performance in these challenging times. With the help of well crafted business model, the Bank crossed the 10 trillion mark of business during the year by diversifying its operations across all the verticals and using technology to its advantage.
At this point, I deem it most appropriate to review the macroeconomic environment, within which Bank of Baroda operated during FY15.
During FY15, the Indian economy witnessed a gradual movement from stagflation, that is, stagnating growth and high inflation, to a phase of emerging green shoots of growth and sharp decline in inflation. The collapse of international commodity prices, in particular of crude oil prices, reduced political uncertainty, improved policy environment, increasing pace of reforms and fiscal consolidation have resulted in a better growth prospects for Indian economy.
The cyclical upturn signaling improvements in macro-economic stability showed up in lower than expected inflation, and manageable current account deficit with stable rupee and rising foreign exchange reserves. The CPI (combined) inflation slipped from 8.59% in April 2014 to 5.17% in March 2015, wholesale price index (WPI) dipped to (-) 2.33% by March 2015 on the back of sharp decline in fuel and food prices. Though, the exports and imports remained subdued due to weak domestic and global economies, the buoyant inflows driven by the sharp rally in stock market, kept the external sector stable. The current account deficit was at 1.6% in Q3 FY15 as against 2% in Q2, FY15. Also, foreign exchange reserves touched an all time high of US $343.0 billion during FY15.
Further, the Union Budget focused investment driven growth by increasing public expenditure on infrastructure especially roads and railways. Though, the Government achieved fiscal deficit target of 4.1% set for 2014-15, it adopted a moderate path for further fiscal consolidation by postponing the glide path to 3% from 2 years to 3 years. Moreover, the central government passed a number of key legislations relating to coal and insurance during FY15.
Even so, the macroeconomic environment remained weak during FY15 with agriculture being affected adversely both during the kharif and rabi season due to deficit and unseasonal rains. The Index of Industrial production which saw some better growth in the first quarter of FY15, slumped thereafter as structural constraints led to persistent decline in the production of core industries such as steel, natural gas and fertilizers. Also, capital goods production was marked by volatility due to stalled investments, risk aversion and weak demand. The consumer goods production was also affected by lower rural incomes and significant deceleration in corporate sales growth. The services sector growth remained mixed.
Amidst the weak operating economy, the deposit and credit growth of scheduled commercial banks remained lacklustre throughout the year. For banks, capital conservation and efficient utilization of capital has become an important challenge in view of stringent Basel –III capital norms, asset quality challenges and higher provisions. The asset quality was the major concern of the banking sector in view of subdued economic growth and worsened repayment capacity of the borrowers.
With the sharp fall in the inflation, the RBI reduced the SLR by 150 bps and benchmark repo rate was reduced by 50 bps during the year. The banks were in a position to reduce the deposit rates in the last quarter of the FY15.
Apart from this, the banking sector participated actively in the Pradhan Mantri Jan Dhan Yojana, the biggest financial inclusion initiative of the Central Government. As of March 31, 2015, the banks opened a record 14.7 crore accounts with a balance of Rs 15,670 crore in such accounts. Besides this, the banking space is set to widen with the introduction of newer market participants such as small banks and payment banks in near future.
However, banks with relatively stronger systems of credit monitoring and cash recovery were better equipped to cope with this challenge and delivered a sound performance during FY15 despite challenging macroeconomic environment.
During FY15, despite the macro headwinds, your Bank’s global businesses crossed the 10 trillion mark and touched Rs 10,45,625 crore by registering a growth of 8.25%. The domestic business grew at a higher rate of 8.43% in FY15 and reached Rs 7,06,148 crore. During the year, your Bank pursued the strategy of continuing to diversify its loan book in favour of retail, MSME and agriculture credit, as opportunities in large-sized corporate segment had dried up. Further, as a part of conscious strategy, your Bank shed bulk and high cost deposits significantly to contain the liability costs.
Your Bank’s international business grew at 7.88% (y-o-y) to reach Rs 3,39,477 crore in FY15. Healthy mobilization of domestic CASA deposits at the rate of 13.60% (y-o-y) and shedding of high-cost preferential deposits helped your Bank to improve its NIM in domestic operations at 2.91% in FY15 as against 2.87% in FY14.
Your Bank posted Operating Profit of Rs 9,915 crore (up 6.01%, y-o-y) supported by healthy Net Interest Income (at Rs 13,187 crore), Core Fees (Rs 2,200 crore), Treasury Gains (Rs 2,013 crore) and Recoveries from Written-Off Accounts (Rs 188.54 crore) combined with prudent control over Total Expenses. However, due to higher tax and non-tax provisions, your Bank posted Net Profit of Rs 3,398 crore (down 25.16%, y-o-y) during FY15.
Due to continuous stress in the economy and slow recovery, the banking industry continued to face the challenge of maintaining asset quality during the year under review also.Asset Quality therefore continued to show increased stress during the year. However, asset quality saw some improvement between the third quarter and the fourth quarter of FY15, wherein the Gross NPA declined from 3.85% at end-December, 2014 to 3.72% at end-March, 2015 and Net NPA declined from 2.11% to 1.89%. For the full year, the Gross NPA and Net NPA were at 3.72% and 1.89% in FY15 as against 2.94% and 1.52% in FY14, respectively. The Bank’s Provision Coverage Ratio (PCR) remained at 64.99% in FY15 as against 65.45% in FY14.
Your Bank’s Capital Adequacy Ratio continued to reflect its capital strength. The CRAR was healthy at 13.33% in terms of Basel II and 12.60% in terms of Basel III at end-March, 2015, with Tier 1 capital ratios at 10.14% and 9.87%, respectively. Common Equity Tier 1 was at 9.35% as per Basel III norms.
The year FY15 was marked by low credit appetite by the corporate sector on account of weak investment sentiment and issues relating to infrastructural and other bottlenecks. Your Bank thus adopted a cautious approach towards corporate credit growth. As a result your Bank has relatively lower credit growth of 7.82%.During the year your Bank introduced the system of “Online loan application tracking” to facilitate knowing status of loan applications. Through this, the applicant would be able to track the status of his application by logging through ‘loan tracking’ link provided on your Bank’s website.
To promote Forex business and increase fee based income, your Bank added 3 more “Authorised ‘B’ Category” Branches to deal in Forex Business directly.
Your Bank strengthened its retail portfolio by placing special emphasis both on asset as well as on the liability side so as to increase customer satisfaction and also to generate synergy in its retail business model. On the liability side, with the formation of a special vertical of Deposit Resources, focus was placed on garnering higher share of retail term deposits while continuing to shedding the high cost bulk deposits. A number of initiatives were undertaken during the year for strengthening and reviving the relationship with existing customers for improving CASA deposits and promoting debit cards. Furthermore, some special drives were launched for activation of dormant accounts and funding of zero balance accounts to widen the active customer base.
From the assets side, your Bank placed added thrust on retail business to make its loan-book more balanced. To achieve this, your Bank introduced special measures to increase the attractiveness of its products. Under Home Loans, new schemes were introduced such as linking of Home Loan Advantage scheme with SB accounts, for funding premium for home loan borrowers a personal loan scheme was introduced, and a pre-approval home loan scheme was also introduced. Also, modifications and improvement to education loan schemes were also effected keeping in view the needs for higher education. Also, various campaigns were carried out to place targeted focus on retail business.
Your Bank has now extensive presence of 60 RLFs in FY15 catering to the retail sector across the country.
To give a boost to the MSME business as well as its employment generating potential, your Bank undertook a number of initiatives during the year under review. With the purpose to effectively finance the micro enterprises, your Bank established Baroda Micro Enterprise Cell to facilitate focused attention on financing of Micro Enterprise. As at end March, 2015, your Bank operationalised 80 such cells. Your Bank introduced new schemes such as Integrated Development of leather sector (IDLS) scheme, promoted by Footwear Design & Development Institute, Baroda, self employment programme for individuals and group enterprises/SHGs (Restructured SJSRY scheme) and new schemes were designed for chemical and pharmaceuticals sector in Bharuch Region. Also, many area specific schemes were introduced given the demand and business potential. Apart from this, your Bank organized campaigns and celebrated MSME festivals to increase the awareness among borrowers. Moreover, to reduce the turnaround time, your Bank rolled out Lending Automation Processing System (LAPS) in all SME Loan Factories.
Your Bank has a set up of 54 SME Loan Factories (SMELFs) as of March 2015 across the country.
Your Bank has always focused on rural areas with its wide network of 1,912 rural branches and 1,386 semi-urban branches as on March 31, 2015. In order to tap emerging opportunities, your Bank undertook various initiatives during the year under review. With the purpose of increasing awareness among farmers, your Bank undertook two special campaigns viz., Joden Kisan and investment credit. Given the area specific needs, your Bank formulated tailor made schemes to address their unique requirements and also concessional rate of interest were offered to them to enhance its attractiveness.
Furthermore, your Bank launched Agriculture Loan Factories for better customer service and improving the volume and quality of the agriculture advances. Three such factories are functioning in Mehsana in Gujarat, Bareilly in U.P and Muzaffarpur in Bihar.
Your Bank strongly supported the growth and development of social sectors through its various outfits like Baroda Swarojgar Vikas Samsthan (BSVS), Baroda R-Seti Centres, Financial Literacy Centres and Micro Loan Factories.
With the launching of Pradhan Mantri Jan Dhan Yojana (PMJDY) during FY15, the financial inclusion received a massive impetus wherein its coverage and ambit was enlarged as compared to the earlier initiatives and it is operating under defined timelines in a mission mode. As always, your Bank has been a frontrunner even in this initiative as it looks at it not just as a social commitment but as an effective and profitable business proposition. Your Bank has achieved all the targets set under PMJDY well ahead of its timelines. As on 31.03.2015, your Bank has mobilized deposits of Rs 1,101 crore in PMJDY accounts with average balance per account above Rs 2500. Moreover, the share of Bank of Baroda in opening PMJDY account is at 5.7% of the total accounts opened by all banks and share in deposits mobilized is at 7.86%.
Apart from this, your Bank continued its pursuit of achieving the targets set under disaggregated Financial Inclusion Plan (FIP) 2016. Your Bank surpassed the target of covering 22,030 villages as against the target of 16,324. Similarly, your Bank surpassed its targets for opening of “Basic Savings Bank Deposit Account” and opening of urban kiosk, and opening of accounts through BC mode.
Given the importance of financial literacy in achieving meaningful financial inclusion, your Bank undertook Financial Literacy campaigns to educate villagers on various banking facilities and particularly, the benefits of savings, Aadhaar seeding, maintaining minimum balance, eligibility for availing Overdraft, use and safekeeping of RuPay cards, USSD facility, eligibility of availing accidental & life insurance, lodgment of claim under insurance, micro insurance products, pensions, benefits of KCC, GCC, prompt repayment, and availability of other retail and SME loans to them. Your Bank has set up a proper institutional structure for this purpose in the form of Baroda Sawarojgar Vikas Sansthan (Baroda RSETI). It is a trust formed by the Bank way back in 2003 for undertaking skill building activities for unemployed rural youth and providing hand holding support to them till their settlement in their respective venture. Further, there are Financial Literacy & Credit Counseling Centres (FLCCs) “SAARTHEE” that are operational across the country and Baroda Grameen Paramarsh Kendra that facilitate financial education, credit counseling, information sharing and problem solving on technical issues, synergy & liaison with other organizations for value added services and development activities in rural areas.
Due to continuous stress in the economy and slow recovery, the banking industry continued to face the challenge of maintaining asset quality during the year under review also. Asset Quality therefore continued to show increased stress during the year leading to increase in gross NPA level to Rs 16,261 crore during FY 15 (3.72% of gross advances) from level of Rs 11,876 crore (2.94% of gross advances) last year. Similarly, total restructured advances of the Bank increased to Rs 31,572 crore in FY 15 as against Rs 26,537 crore in FY 14.
Your Bank has developed a comprehensive structure for recovery and credit monitoring function at the Branch, Region, Zone and Corporate levels. From day one of FY15, your Bank kept a close watch on potential stress accounts. Apart from large accounts, , your Bank laid specific focus on recovery of small accounts by organizing Lok Adalats and Recovery Camps at village/town level. Moreover special Schemes called Bhagirath Prayas were also launched during first half of the FY15. Your Bank also launched an incentive linked recovery scheme called “Sankalp-VII”, to enlist personalized attention of each and every staff member in pursuing recovery efforts.
Your Bank is highly responsive to the needs and satisfaction of its customers, and is committed to the belief that all technology, processes, products and skills of its people must be leveraged for delivering superior banking experience to its customers. To improve the customer convenience further, your Bank introduced SMS alerts, missed call facility, comprehensive information about cheques for inward clearing and removal of maintenance charges on inoperative accounts. To get feedback on Bank’s services, your Bank undertook online customer satisfaction survey to know about the customer’s views / problems faced by customers and to take remedial measures.
Your Bank has been using Information and Communication Technology (ICT) not only to improve its own internal processes but also to increase facilities and services for its customers.
With the purpose to enhance the customer experience in alternative delivery channels, your Bank introduced new facilities in its internet Banking viz., Baroda Connect channel.
The new enhanced features includes such as online e-banking registration, view and deposit to PPF accounts, Salary upload facility, Mobile OTP generation through smartphone, Tax payments of various States, and IMPS (Immediate Payment services), etc. Moreover, Internet Banking facility is made available on all Smart-phones/tablets offering comfort of anywhere banking to its customers. Internet Banking has been implemented in total 16 overseas territories viz. Tanzania, Uganda, Kenya, Mauritius, Seychelles, Botswana, New Zealand, UAE, Fiji, UK, Oman, Ghana, Australia, Trinidad & Tobago, Guyana and USA. Internet banking is also provided in all the RRBs sponsored by Bank.
Mobile Banking - one more alternate delivery channel that offers various facilities to your Bank’s customers was completely revamped by enhancing its look and feel, user-friendliness and user experience for technology savvy customers. The Mobile Banking platform offers many features and facilities to customers, viz., icon based user interface, balance enquiry, mini statement, fund transfer, stop payment, cheque status, and other services. Mobile banking application is made available in all i-Phones, Blackberry, Android, Windows devices. Through mobile banking it is facilitated to make payments for Mobile topup / DTH top-up, Insurance premium payment, Online shopping, Over-the counter payments, fees payments to schools/colleges/ universities, Utility Bill payments, Travel & Ticketing, Temple Donations, and Non internet based railway ticket booking through mobile phones using IMPS – IRCTC.
During the year FY15, your Bank launched the first Cash Recyclers in the country on July 20, 2014. The unique aspect of Cash Recycler is that, it is enabled to accept cash as well as dispense cash apart from balance enquiry, mini statement and PIN change facilities. These have found good response from retail as well as business customers with ease of operation and 24x7 availability. As of end March 2015, your Bank has installed 390 Cash Recyclers. Moreover, your Bank installed 1,776 new ATMs and opened 106 NonStop e-Lobbies equipped with Five Self Service machines viz. Cash Recycler, ATM, Multi Function Kiosk, Passbook Printer and Digital Signage System for providing 24x7 routine banking services during the year. Your Bank also provided self service passbook printers to all Metro and Urban branches apart from select high footfall semi-urban and rural branches. In short, IT has made a visible difference in the functioning of your Bank and conduct of its banking operations.
Your Bank has adopted a very balanced people strategy to create a composite and responsible Human Resource in the Bank that can drive growth and also adequately meet the various challenges of the current times, viz, the large retirements, massive induction of talent, huge training requirements and challenges of successions.
During FY15, your Bank undertook automation and centralization of various routine HR activities such as claims and reimbursements, thereby achieving faster turn around time in settling of claims. Further, your Bank has put in place a manpower planning tool which determines manpower required for different Branches / units on a scientific basis. The output from the manpower planning tool facilitates various manpower planning related decisions, that is, recruitment, new hire allocation, transfers and promotions. Even the performance management for your Bank’s officer has been completely automated making the system more robust, objective and quicker.
To enhance the “Employee Engagement”, your Bank undertook various initiatives like conduct of satisfaction surveys and workshops for interaction between juniors and seniors. These workshops were conducted to improve the employee connect with HR and top management. Furthermore, to reward the top performers, your Bank has performance linked incentive scheme for its employees.
With a view to identify and groom young potential leaders, your Bank has implemented a well orchestrated Talent Management System that proactively identifies future potential leaders based on various criteria and also grooms them through a systematic developmental plan for each of the identified future leader.
Against the backdrop of massive recruitments in view of large retirements, training and developments of new recruits has assumed significant importance. Further, training has now emerged as a critical function in the organizational endeavour to compete and keep the workforce fit enough to take on the competition. Your Bank has instituted learning systems through Baroda Academy which consists of series of innovations and path breaking initiatives to groom staff in key banking areas like credit, forex, core banking etc. apart from on boarding new recruits. During FY15, your Bank rolled out state of the art Learning Management System for e-learning courses which are available on the internet providing the convenience of time and place. Your Bank is the first Bank to launch ‘Mobile Snippets’ a Mobile App for the benefit of employees. This enables the employees to access daily banking news, gist of important BOB / RBI circulars, in-house publications, announcements for upcoming events and video messages. Moreover, Baroda Apex Academy has a Facebook page for informal learning. Further, to broad base learning, your Bank organized events such as motivational speeches, video shows and group activities etc under the name Mind Gym Series. Apart from this, your Bank also sought to engage in external trainings so as to widen the knowledge base of its employees. In recognition of the efforts towards learning practices, your Bank received a number of awards from prestigious organization such as Golden Peacock, IBA and others.
Risk is inevitable in the banking business and hence, a sound risk management framework is the touchstone of an efficient bank. Your Bank has robust architecture to address various risks inherent in its business viz – Credit Risk, Market Risk, Operational Risk, Liquidity Risk, Interest Rate Risk etc. The architecture includes mechanism of defining risk appetite, its monitoring, reporting and review. The objective of the architecture is to ensure that the asset quality is sustained against economic shocks and sufficient capital buffers are available to withstand them. The prudent risk taking culture revolves around continual and optimal enhancement in our systems, process, awareness and skill sets, so that a balance of support and control functions is achieved.
Few of the testimonies of enhanced risk management practices are that the Reserve Bank of India has permitted bank for a parallel run under Foundation Internal Rating-based (FIRB) Approach in respect of Credit Risk. For Market Risk, your Bank has set up Global Mid Office in Mumbai, which facilitate cost-efficient and more effective way of measuring, monitoring and reporting the Market Risk positions in its global operations. The systems to operationalise the Global Mid Office, compliant with Internal Model Approach of Basel II norms are in advance stage of implementation. In respect of Operational Risk, your bank has implemented a web based sophisticated Operational Risk Management solution, which is one of the best available solution in the industry. Similarly for Asset Liability Management, Fund Transfer Pricing and Profitability Analysis, Oracle Financial Services Analytical Application Infrastructure has been deployed.
Your Bank has successfully implemented Basel III norms pertaining to capital quantity and quality, Leverage Ratio and Liquidity Coverage Ratio with the transition rules specified by the Reserve bank of India.
Despite, the weakness in the global economies across advanced and emerging economies, the overseas business of your Bank continued to contribute significantly to its overall (global) business. Your Bank’s wide-spread overseas presence provides it with significant risk diversification benefits across the globe. Your Bank’s large network of branches in overseas territories and its continued thrust on overseas expansion helped exploit rich business opportunities even during FY15. As of 31st March 2015, it had operations in 24 countries with 104 offices. These 104 offices comprised of 60 overseas branches of your Bank, 43 branches of its overseas subsidiaries and one representative office. During the year under review, your Bank opened two new branches at Meru in Kenya and Mwanza in Tanzania.
In spite of the challenging business environment, your Bank ended the year under review with a satisfactory set of results.
During the year FY15, your Bank received several awards for its noteworthy performance across various business and financial parameters. The major ones were as follows.
These awards and recognition are particularly valuable, as they acknowledge the merits of your Bank’s successful business model that made a difference to the nation’s progress.
From the macroeconomic stability perspective, Indian economy has been witnessing lower inflation, lower current account deficit, robust foreign exchange reserves, contained fiscal deficit, momentum in reforms and therefore, improved growth prospects. Hence, Indian economy is better placed to withstand the challenges emanating from the possible interest rate reversal in United States and its implication on the domestic economy and weakening external demand.
In March 2015, the IMF has raised its forecast for India for 2015 to 7.5% from 6.3% projected earlier in response to the revision of its methodology for estimating GDP. Moreover, the IMF considers that Indian economy will be the fastest growing emerging market economy in the world driven by stronger investment following improvements to business climate. However, it is with a broad based recovery, the banking industry would see better credit demand as well as improvement in asset quality. Further, Moody’s upgraded India’s sovereign rating outlook to ‘positive’ from ‘stable’ in April 2015.
Even so, the growth in FY16 may be moderate given the uncertainties pertaining to monsoon as there are forecast of a less than normal monsoon, geopolitical risks surrounding oil prices, the uneven effects of currency and commodity prices and any unforeseen natural disaster.
During FY15, Bank of Baroda made significant progress towards building a preferred bank for its stakeholders. Despite challenging environment, its earnings remained resilient; its fresh slippages started easing and its strong funding position enabled it to continue to support its borrowers.
During FY16, Bank of Baroda will continue to focus on further strengthening its capital and funding position so as to grow its business sustainably with better profitability. Your Bank is confident that with its strategic focus on people, processes and technology, it will remain in the leadership position in the emerging business environment.
Supported by its achievements during FY15, your Bank has chosen to continue its motto of “Race Ahead” with addition “From Good to Great” to consolidate the synergy generated last year amidst emerging economic and banking scenario and by transforming from being a Good Bank to a Great Bank. Hence, the Bank has identified “RACE AHEAD” from Good to Great as its motto for FY16. The word RACE denotes the following:
In FY16, your Bank would consolidate the progress made so far and would focus on improving profitability and profitability ratios at a much faster pace by leveraging its vast technological advantage and extensive alternate delivery channel network. However, the movement from Goodness to Greatness involves considerable hard work and consistency in its performance in all spheres of activities to touch the hallowed goal of Greatness.
To strengthen the approach towards Retail Leaning, your Bank will emphasize on aggressively canvassing low-cost current and saving deposits plus retail term deposits as against the high-cost bulk deposits. Simultaneously, the focus will be on Retail Credit, MSME and Agriculture credit to make the loanbook more diversified. Further, your Bank plans to utilize its technological advantage to its benefits by extensive use of alternate delivery channels such as ATMs, internet banking, mobile banking, usage of cards (credit, debit and gift), and POS machines to garner more retail business.
Similar to its efforts to improve Asset Quality in FY15, your Bank will focus on credit appraisal including stringent KYC and documentation, and monitoring, NPA recovery and upgradation in a big way and further arrest the fresh slippages. Moreover, with better regulatory environment in terms of new bankruptcy code and commercial courts augurs well for maintaining better asset quality. Your Bank also plans to include sector specific focus to ensure better recovery, for instance, in case of agriculture, added focus would be laid on financial literacy and educating borrowers about benefits of timely repayment.
Capacity Building is another area where your Bank has been investing significantly. During FY15, your Bank opened 351 new Branches, installed 1,776 new ATMs, opened 106 NonStop e-Lobbies and provided a number of Bunch Note Acceptors, Self-service Pass book Printers, Cash Recyclers etc. to its branches. Your Bank will accord high priority to generate benefits from this extensive network and efficient alternate delivery channels spread across the country and globe during FY16.
To respond to increasing competition and other challenges, your Bank will make its business model more cost-efficient and try to improve its Earnings through an optimum mix of interest income and non-interest income. To achieve this, it will optimize the use of technology as the change agent. Your Bank will not only focus on traditional business unit but also non-interest income sources and fee income from various avenues. Your Bank will continue to focus on improving its return ratios.
Additionally, your Bank will continue to harness its advantage of its wide overseas presence by widening its geographical presence as well as initiate measures and products so as to increase attractiveness of its products as also cater to diverse population across the globe.
With its intrinsic strengths in the form of capital, human resources, technology and iconic brand, your Bank is well positioned for growth during FY16. In the current economic environment, your Bank will consolidate its positions by preserving its healthy ratios and building on it further to ensure buoyant growth in its profitability and return ratios.
We are encouraged by and grateful for the ongoing support of all our shareholders. I solicit your continued cooperation and patronage in future also.
Ranjan Dhawan Managing Director & CEO
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