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Bank of Baroda tops Business Today-KPMG study of India's Best Banks 2012

The 104-year-old public sector lender has, for the second year in a row, emerged India's best bank in the Business Today-KPMG study, ahead of all the seemingly more nimble and market savvy private banks that have sprung up in recent decades.

Bank of Baroda CMD Mangalore Devdas Mallya

Bank of Baroda CMD Mangalore Devdas Mallya. Illustration by Rajat Baran

Mangalore Devdas Mallya, 60, Chairman and Managing Director of Bank of Baroda (BOB), has just returned to Mumbai. He had been away at his son's wedding in his Karnataka hometown for a week.

"When I was there I just switched off from work," he says. "We have such a good system in place that the bank can run on auto-pilot." Mallya has the quiet confidence of a man used to his bank being rated the best.

Blog:Time old private banks got out of their comfort zones

13.8 billion
pieces of soiled bank notes were processed in 2011/12, which was 23.1% of the total money in circulation.

The 104-year-old public sector lender has, for the second year in a row, emerged India's best bank in the Business Today-KPMG study, ahead of all the seemingly more nimble and market savvy private banks that have sprung up in recent decades. The Union government holds a 54.31 per cent stake in BOB.

With his bank's achievement speaking for itself, Mallya can afford to be modest. "I was lucky to have taken over at a time when some policies of my predecessor were already in place," he says.

The predecessor is Anil Khandelwal, who ran BOB for three years from March 2005, and is widely credited with infusing it with a vigour uncommon to state-run banks. It brought immediate results. BOB's business doubled in those three years, with Khandelwal also launching a rebranding campaign, signing on cricketer Rahul Dravid as brand ambassador in 2005. He has since written a book, Dare to Lead, on his experiences at BOB.

"Mallya is unlike most chairmen, who reverse the decisions of their predecessors," says Khandelwal, "He has also kept up the pace. What has worked for BOB is the consistency in leadership."


Mallya, formerly with Bank of Maharashtra, joined BOB in May 2008. "Three things have contributed to our success," he says. "People, process and technology. We call it PPT." His top priority, he adds, has always been the bank's 43,000 employees. He claims to have met nearly half of BOB's workforce during town hall meetings he has attended and branch visits.

The bank has more than 4,000 domestic branches. The state-run bank added 540 branches in 2011/12 and has opened 180 of the targeted 500 for this fiscal year. "Our branches are focused on servicing the customer, be it selling insurance and mutual funds or recovery of loans," says R.P. Marathe, General Manager, Planning.

India's Best Banks 2012
BOB has also been simplifying processes to quicken the pace of time-consuming jobs, such as verifying documents before sanctioning loans. Such measures have helped to keep its cost-to-income ratio at 38 per cent, the lowest in the industry.

Besides being the overall winner in our study, BOB also topped three sub-categories: growth; productivity and efficiency; and consistent performance. The bank's assets climbed 144 per cent to Rs 4.47 trillion between 2007/08 and 2011/12 while net profit more than tripled to Rs 5,007 crore. It also has a sizeable overseas business, with the segment accounting for more than a fourth of its top line and profit. It has 57 branches overseas while its subsidiaries have 36.

Angel Broking analyst Vaibhav Agarwal says BOB's decision-making in the last few years has been spot on. "They went primarily for operational efficiency, and they have a strong return on assets," he says.


Still, BOB needs to work on some areas. Its fee income was only 6.35 per cent of total income in 2011/12, compared with 10.85 per cent at State Bank of India (SBI) and Punjab National Bank's eight per cent. "We don't see it as a concern, but as an opportunity. With the overall credit growth not being much, processing fees and commissions on letters of credit have not been high," says Mallya. Fee income includes commissions earned on sale of mutual funds and insurance products. BOB operates India First Life Insurance through a joint venture with Andhra Bank and the UK's Legal & General. Its mutual funds business, Baroda Pioneer Asset Management, is a joint venture with the Boston, US-based Pioneer Investments.

The bank is corporate-focused with loans to large companies accounting for 37.8 per cent of gross domestic credit as of September 2012. Though asset quality is a worry, BOB is the top state-run bank, and third overall, in terms of net non-performing assets (NPAs) as a percentage of net advances.

Bank of Baroda's restructured assets as a percentage of total average loans stood at 3.2 per cent, bettered only by SBI among large staterun lenders. Among all banks, Standard Chartered came out on top in this regard with just 0.03 per cent. "The sector is passing through challenging times. The pain will continue for some time but we are not worried about our asset quality," says Mallya.

3.2 per cent
BoB's restructured assets as share of total average loans. On this parameter Stanchart performed best, with 0.03 per cent.

Analysts are surprised by the rise in bad loans in BOB's portfolio in the July-to-September quarter. According to an October 22 report by Emkay Global Financial Services, the bank has reported higher slippages, or new NPAs, for four consecutive quarters. While slippages for July-September stood at Rs 1,470 crore, it restructured loans were Rs 930 crore, higher than expected.

"At two per cent annualised for the first half of 2012/13, the slippage rate now comes nearer to industry averages," note Kashyap Jhaveri, Pradeep Agrawal and Aalok Shah in the report. Angel Broking's Agarwal says asset quality concerns will remain. "These are sector-wide concerns and not unique to BOB, which is better off than other state-run banks," he says.

Though BOB's capital adequacy ratio dropped from 13.74 per cent as of June 30 to 12.91 per cent at the end of September, Mallya is not worried. "We don't have any immediate capital requirements. We are comfortable," he says.

Mallya believes BOB should embody not just the chairman's vision but a shared vision of all its employees. "Earlier, we sent our best-performing employees abroad on trips, but the response was not good. So then we said top performers will get to have dinner with the chairman. That has worked," he adds.
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