Dr.LR/BRM/MBA II Sem CASE::Bankings badshah of Bank of Baroda.

Bank of Baroda was awarded Best Public Sector Bank by CNBC TV18 - India Best Banks and Financial Institutions Awards 2012. The award recognizes and honors the ability of financial bodies to manage risk, retain strong fundamentals, to create wealth and contribution in heightening India Inc presence on the global stage. The award was presented to Shri M. D. Mallya, Chairman & Managing Director of Bank of Baroda at an award function held in Mumbai recently. Bank of Baroda was awarded 2 awards at Dun & Bradstreet Polaris Financial Technology Banking Awards 2012 in the following category: Best Public Sector bank under the category Global Business Development Overall Best Public Sector Bank

Dun & Bradstreet (D&B), the worlds leading provider of global business information, knowledge and insight, announced and presented the Dun & Bradstreet - Polaris Software Banking Awards 2012 in Mumbai. For taking charge of the bank just as the global financial meltdown started, and managing to keep the banks performance stable in that period. And for being able to compete effectively despite being in the public sector. As you read this, the first batch of newly minted students from the Baroda Manipal School of Banking are preparing to begin their innings in various branches of Bank of Baroda (BoB) across the country. And even before theyre on board, branch managers at BoB have begun scrambling to snag them. The internal feedback is that students who have done a three-month internship in the branches are highly productive, says Joydeep Datta Roy, Assistant General Manager, Human Resources, BoB. It isnt entirely surprising. Apart from the internships, every aspect of their classroom on campusincluding the colour of the walls and the layoutis simulated to create the same look and feel of a typical BoB branch. Even the computers are connected to the training servers of the bank so that the students get a sense of the real-time environment of a bank branch inside their classroom. The result: The students are able to start performing on the job as soon as they step into a branch. Creating a new cadre of battle-ready professionals is the brainchild of MD Mallya, the chairman and managing director of Bank of Baroda. And it could well be an important part of his legacy too. Mallya retired this November, ending his successful four-and-a-half-year tenure, during which both the banks profits and employee productivity more than doubled. It has been a sterling performance. During his chairmanship, hes tackled every aspect of the

banks operationsfrom re-organising the backend operations and modernising branches to training staff and upping the levels of customer service. But his biggest, and perhaps most lasting contribution, could well be his copybook formula to a problem that is endemic to every public sector bankan ageing workforce. Across public sector banks, nearly 50 percent of officers are slated to retire in the next five years. However, at Bank of Baroda, the problem is less severe: Around 25 percent of its officers end their tenure over the next four years. Beyond the numbers, though, these officers arent easily replaceable. After all, many of them have years of experience and domain knowledge. HR is the biggest challenge for banks in India. That is why Mallya is spending most of his time in this area to put the right person in the right job. We know that a lot of people will leave in the coming years, and we have put robust systems to replace the outgoing officers, says SK Das, who now heads human resources at BoB. The Manipal experimentthe first by a public sector bankis only the tip of the iceberg. The school will provide 180 people every quarter and, over a period of time, this number will touch 340. The plan is to add almost 1,000 employees every year, depending on the requirements of the bank. Whats more, the senior management takes time out of their schedule to be with the students and that builds a healthy relationship for the future, says S Vaitheeswaran, MD & CEO, Manipal Global Education Services in Bangalore, who helped design the schools charter. In the past, like every other public sector bank, Bank of Baroda would hire probationary officers through the exam conducted by the Institute of Banking Personnel Solutions. But they realised it takes a lot of time for a probationary officer to become productive. Also, the bank needs to invest heavily before they would yield actual results. So what did Mallya do? He followed a simple recipe: Instead of reinventing the wheel, he looked for ideas that others had already perfected. Thats how he reached out to Manipals Vaitheeswaran, who had created a similar school for ICICI Bank and knew exactly what Mallya was looking for. (Since then, two other PSU banksPunjab National Bank and Andhra Bankhave followed in their footsteps.) When the school opened admissions this year, nearly 60,000 students applied for the exam. Eventually, 1,500 students were chosen, many of them from Tier II and Tier III towns, where banking is considered to be a stable profession and, therefore, attrition levels tend to be much lower than among city dwellers. Mallyas common-sense approach was apparent right from the very start. When he started his assignment, he seemed to have his long-term goals sorted in his head. On the very second day at work, while travelling from Pune to Mumbai, he said something to Das, then the Pune divisional zonal head, that became the mission statement for the

42,000 employees of the bank. Our growth should be in such a way that we should endeavour to converge the annual profit in the year 2007-08 to a quarterly profit within the shortest possible time, he said. Mallya was also clear that this growth in profits would have to come on the back of higher employee productivity something that had stagnated for some years prior to his joining. To drive that transformation, the first step was to get employees on his side. In 2008, the hostile macro-economic environment meant that almost all banks seemed a bit wobblyand employees were uncertain about the future. In his very first week at work, Mallya sent a letter to his staff, sharing his philosophy. He seemed to hit all the right notes. His letter spoke about his policy of employee first. He made it clear that every employee was an asset to the bank, irrespective of their designation or geographical location. The banks customers would be happy only if the employees were happy. 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." Questions:: 1) What do you think are the reasons for the success of Bank of Baroda ? 2) Examine the coping strategies to be undertaken by other PSU banks to stay in the globalised competition . 3) What are the exceptional leadership qualities displayed by Mr.MD Mallya in this case? 4) Design the future plan of action for Bank of Baroda.

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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. 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. 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 staterun 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.