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Asia-PacificAugust 3 2009

Bank of Baroda's chance to shine

Formerly constricted by its traditional public sector mould, India's Bank of Baroda has reinvented itself with a branding overhaul and a forward-thinking realignment of its business model. Writer Brian Caplen
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India's public sector banks used to be slow-moving bureaucratic behemoths, ripe for attack by up-and-coming private sector players. But now the sector has been shaken up by the competition and is producing its own examples of efficiency and progress.

Bank of Baroda, which is eighth in The Banker's ranking of Indian banks by Tier 1 capital, is one institution which responded positively to the new banking environment in India. It introduced a factory-type system of processing loans that pools expertise and cuts down decision-making times. Strong risk management has enabled it to navigate tricky areas such as real estate and consumer finance, while also keeping non-performing loans (NPLs) below the industry average. A branding initiative introduced a bright new logo and employed Indian cricket star Rahul Dravid as brand ambassador, helping to rid the bank of the stuffy image left from the old days of Indian public sector banking.

The bank's chairman and managing director, M D Mallya, agreed to be interviewed, appropriately enough, just prior to the Twenty20 Cricket World Cup match in June between India and England, which turned out to be one of those rare occasions when England triumphed. "The Indian private sector banks set up in the 1990s and initially took market share from public sector banks," says Mr Mallya, who joined the bank in 2008 from another state-owned institution, the Bank of Maharashtra. "At that stage, the public sector banks didn't have the technology, but now we are as good as everyone else and the market share we lost is coming back."

Bank of Baroda installed a new core banking system (Finacle from Infosys) in 2005 and adapted the platform to its specific requirements using Hewlett-Packard as its strategic IT partner. Having the latest technology has enabled the bank to organise itself in a centralised and more efficient way.

"We have introduced a centralised hub where we place people with specific expertise. We call it a 'factory' and we have 32 retail factories and 26 small and medium-sized enterprise [SME] factories. Most of the credit origination is done in these factories," says Mr Mallya. "It is like an assembly line and enables us to take credit decisions faster than the competition. Retail loans that used to take three to four weeks to sign off now take six days. SME loans used to take a month to six weeks and now take 14 days."

"Credit origination has been a strong point for the bank. We have a dedicated team in the branches using software integrated with the core banking system, giving them a continuous flow of information," he adds.

Controlling risk

Normally in banking the large loans get monitored and the small loans may be ignored, but with Bank of Baroda's approach to risk management NPLs have been kept at 1.27% against an industry average of 2%. The bank has very high capital ratio of 14%, sufficient to allow it to keep up with credit growth of 25% a year.

"The bank has a strong risk management department which enables us to identify industries under stress, allowing us to restrict our exposure. A couple of years back it was clear that real estate faced stress [and we cut back our exposure] but many banks didn't take this [threat] seriously. It was a very important decision that we took," says Mr Mallya. "When all the banks went into consumer loans, we went ahead, but more slowly. At some stage we downsized the portfolio, whereas competitors built theirs up and then watched as many of the loans went bad."

The bank is modelled around four vertical businesses - retail, SMEs, corporates and rural and agricultural. "This is different from how most banks do it, with every branch doing everything, whereas we created specialised branches for corporates and for retail and so on. The number of branches has stayed the same but this allows us to develop expertise and move ahead faster than our peers," says Mr Mallya.

As well as its domestic business, Bank of Baroda has an extensive network of international offices - 75 in 25 different countries - producing 25% of total profits. The bank has had a business in the UK for more than 50 years and is the only Indian bank operating in the Gulf and serving a large expatriate population.

Raising one's game is not completely effective, however, without an image overhaul. Bank of Baroda was a leader among Indian banks in rebranding, introducing the sun logo and bringing Rahul Dravid on board as brand ambassador. "At any time of the day in the branches of Bank of Baroda, the sun is always shining," says Mr Mallya.

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Read more about:  Asia-Pacific , India