The Hindu Business Line : New initiatives to usher in best practices

One of the first things Dr Anil K. Khandelwal did soon after he became the Chairman and Managing Director of Bank of Baroda in 2005 was to adopt a new logo for the bank –The Rising Sun in vermillion, which he called the Baroda Sun.

Dr Khandelwal felt the sun is an ideal representation of what the bank stands for. At the launch of the new logo, he had said: “The Sun is the single most powerful source of light and energy – its far reaching rays dispel darkness to illuminate everything they touch. At Bank of Baroda, we seek to be the source that will help all our stakeholders realise their goals. To our customers, we seek to be a one-stop, reliable partner who will help them address different financial needs.”

Among his other initiatives were bringing in cricketer Rahul Dravid, known for his dependability and ability to perform under pressure, as the bank’s new ambassador.

The bank has expanded core-banking network, started eight-to-eight and 24-hour banking, opened Gen Next branches and SME and Retail Loan Factories and adopted a district in Rajasthan for financial inclusion. BoB has also tied up with overseas partners for insurance and mutual fund businesses.

On the eve of this year’s annual Banker’s Conference, which is being hosted by Bank of Baroda, Dr Khandelwal, who is also the Deputy Chairman of Indian Banks’ Association, spoke to Business Line on the significance of this year’s conference, on how the banking industry is gearing up to face new challenges and also about his own initiatives to bring in best global practices in Bank of Baroda. Excerpts:

The theme of this year’s BANCON is “Indian Banking -Towards Global Best Practices”. What are the best practices that Indian banks can adopt?

Indian banking sector has come a long way from high NPAs to low NPAs, from zero technology to online banking.

Yet, there are things that we can learn and adopt from our foreign counterparts such as practices in risk management, capital management, customer services, IT operations and credit and treasury products.

So it is the right time for Indian banks to transform themselves further and to move towards global best practices.

Do you think credit and capital management assumed greater significance in the context of recent global developments?

Yes. The recent liquidity crises in some developed countries bring forth the fact that liquidity management is the most crucial aspect of any bank’s survival.

This assumes special significance in today’s world of highly leveraged business models, complex product portfolio and the volatile economic environment, characterised by supply side shocks like high oil prices, resulting in inflationary pressures.

The cost of transactions for Indian banks is said to be higher compared to developed countries. Do you think this is an area where you can learn from global practices?

The cost of transactions is higher for Indian banks for a variety of reasons. It is due to our orientation. Rural transactions and rural banking add to our cost. In a developing country, we have social commitments. But we have better margins in some areas.

In which areas do you think Indian banks need to improve customer service?

Indian customer has not been getting 365x24x7 services, while banking is a necessity.

Banking is a service industry. We have to attract newer and younger customers and at the same time retain our old customers. In this regard, customer service is very important for the banking industry.

We, in Bank of Baroda have achieved this through several initiatives like eight-to-eight banking, 24-hour banking, changing our logo and having a brand ambassador like Rahul Dravid. Now our logo and colour are very popular.

We have also introduced Gen Next branches, Retail Loan Factories, SME Loan Factories, which have helped reduce the processing time and also in reducing NPAs in these segments.

As these are dedicated centres for retail and SME products, it frees up staff at branches for other kind of marketing work. Technological innovations like online banking, ATMs also help in enhancing customer service. Today 1,300 branches are on core banking solution, 85 per cent of banking is online and we have over 1,000 ATMs.

Where do you see the future growth for Bank of Baroda coming from?

We are focusing on SME and retail with some caution. Although the Retail Loan Factories have helped in reducing NPAs, in the home loan segment NPAs are still at around three per cent. This is the case for both BoB and the industry. This is not good. This is also because lot of growth happened initially and as a result some frauds also.

How do you maintain profitability and growth?

We are maintaining our Net Interest Margins at three per cent. We are also refinancing our credit portfolio and not rushing in to merely expand our balance sheet at the cost of profitability.

We have always maintained a fine balance between growth and profitability. We have also grown at 30 per cent and yet maintained our profitability. For instance, we have minimum exposure to sensitive sectors such as real estate and capital market, at less than 2 per cent.

Do you see your overseas operations growing in proportion to the bank’s total balance sheet?

Foreign operations now contribute 20 per cent to the bank’s total business and about 21 per cent to the net profit. We can maintain the share of business because we are growing domestically as well. But NIM from overseas operations is going down because overseas operations don’t contribute much to the interest income. If we can maintain this, it will be very good.

How did you motivate the staff to change the image of Bank of Baroda?

You need to engage staff because they give the service. You cannot write off staff. We have to encourage and motivate them. We have a large heart for business mistakes, but zero tolerance for mistakes hurting customers.

How much capital do you plan to raise to meet your growth requirements?

We are raising Rs 2,000 crore by January and we will be comfortable. We have done calculation up to 2010 and at this rate of growth we will be comfortable. We have set a target of 25 per cent growth in credit this fiscal, which we are confident of achieving.

Which way do you think interest rates would move from now on?

I think interest rates would get stabilised but not come down immediately. Deposit rates have come down by 50 bps and to that extent we have been able to absorb the CRR shock and not increased the credit rates.