BANK OF BARODA
ANNUAL REPORT 2011-2012
CHAIRMAN`S REPORT
Dear Stakeholder,
I am pleased to report that the year 2011-12 (FY12) was your Bank`s fourth
consecutive year of record income and profits post the global financial
crisis. Once again, your Bank`s performance has shown its resilience to
economic volatility and proved the credibility of its business model and
strategies. It gives me immense happiness to present before you the Annual
Report and Financial Statements of Bank of Baroda for the year ended 31st
March, 2012.
It is appropriate at the outset to review the business environment within
which your Bank operated during the year under consideration.
Economic Review:
The year FY12 has been challenging for the Indian economy. After two years
of a fairly robust growth of 8.4%, India`s GDP growth is estimated at 6.9%
for FY12 by the Central Statistical Organization, Government of India.
While agriculture and services sectors maintained good growth momentum
during FY12, industrial sector slowed down sharply, led by the contraction
in mining and manufacturing segments. Capacity utilization rates in various
infrastructure industries, especially in cement and thermal power sectors
declined significantly during FY12.
The Reserve Bank of India`s (RBI) monetary tightening continued with full
vigour for most part of the year in response to the untamed inflationary
pressures. The headline (WPI) inflation averaged around 8.8% for the full
year. Gradually, high levels of inflation gave way to a slowdown in the
growth.
After the boom in capital inflows during FY11, rising global risk aversion
and certain domestic concerns reduced the flows of capital. For instance,
the portfolio inflows declined from US$ 32.2 billion in FY11 to US$ 18.9
billion in FY12. The rupee depreciated the most among major Asian
currencies during calendar 2011 partly contributed by India`s widened
current account deficit, primarily driven by high crude oil prices. India`s
foreign exchange reserve position dwindled to US$ 295 billion by end-Mar,
2012 from a high of US$ 321 billion in early Sept, 2011.
While the demand for non-food credit of scheduled commercial banks (SCBs),
especially term loans remained lacklustre for most part of FY12, the
deposit growth too decelerated in the fourth quarter of FY12 reflecting
tight liquidity conditions. After raising the policy rate by 375 basis
points, the RBI took a pause in Dec, 2011 citing rising downside risks to
growth.
Fragile economic environment, growing stresses on asset quality and
depleting capital adequacy made several SCBs prefer government securities
to commercial credit.
During FY12, India`s fiscal deficit increased to 5.9% of GDP, much in
excess of the targeted 4.6% due to increased fuel subsidies and employment
creation schemes.
In short, the year FY12 was marked by interplay of several external and
internal economic issues that impinged significantly on local businesses,
in general, and the banking sector, in particular.
Bank of Baroda: Again Proved the Resilience of its Brand in FY12:
Notwithstanding the challenging environment, your Bank was able to exploit
the opportunities within the given environment and sustain its
qualitatively superior performance during FY12.
Your Bank posted a very healthy growth of 25.9% in its global business -
way above the banking industry`s average performance. On the back of
healthy growth of 17.2% in its Net Interest Income, the Bank recorded Net
Profit growth of 18.0% despite adverse pressures on Net Interest Margins
(NIMs).
Your Bank`s Return on Average Assets (ROAA) at 1.24%, Capital Adequacy at
14.67% and Return on Equity at 19.04% again provided an eloquent testimony
to the financial soundness of your Bank.
Moreover, your Bank again proved its strength in the asset quality
management by restricting its Gross NPA ratio at 1.53% and Net NPA ratio at
0.54% during FY12 - one of the lowest in the large sized banking segment in
India.
Strategic initiatives during FY12:
With the aim to strengthen its business foundations, your Bank undertook
several strategic initiatives during FY12.
After successfully migrating Data Centre to a new Data Centre in the Bank`s
own premises, your Bank expanded its Disaster Recovery Centre during the
year to ensure uninterrupted banking services. Your Bank took various
technology initiatives like windows server virtualisation, desktop
virtualisation and backup consolidation as green initiatives and also to
improve Data Centre`s operational efficiency. Besides, your Bank`s wide
network was migrated to new technology based on Multiprotocol Label
Switching (MPLS) for improving uptime and on demand upgrade. The Enterprise
Management System too was upgraded and new modules were deployed to
effectively manage and monitor your Bank`s growing IT infrastructure.
In order to provide superior internet banking experience to its customers,
your Bank migrated the Core Banking System (CBS) to higher version with
enhanced features. Additionally, various new modules like Fixed Assets
Maintenance, Sales Tracker Module, Centralized Service Tax, Bank
Realization Certificate (eBRC) Module, Account Number Portability and
Workflow Automation for New Pension Scheme, Swavalamban, were implemented
during the year under review. All CBS branches of your Bank are enabled for
interbank remittances through RTGS and NEFT which have also been interfaced
with your Bank`s internet banking portal.
Your Bank continued to add more facilities under its Internet Banking
channels. The Internet Banking -- Baroda Connect -- now provides speedy and
secured facility to transfer funds to self, third party (within the Bank)
and inter-bank. The SMS Alerts, RTGS/NEFT transactions are also provided in
your Bank`s internet portal. The ASBA (Application Supported by Blocked
Amount) functionality has been introduced in Baroda Connect for on-line
subscription to Initial Public Offers (IPOs) and Follow-on Public Offers
(FPOs) to facilitate application for equity shares.
Your Bank added more facilities to the Mobile Banking channel through
Baroda M-Connect viz. Balance Enquiry, Mini Statement, Linking of Multiple
Accounts, Fund Transfer, Bill Payments, Ticket Booking, Shopping, Feedback/
Complaints etc.
By 31st March 2012, your Bank`s ATM network expanded to 2,012. The ATM
switch is now integrated with seven interchanges viz. National Switch NFS
(NPCI), Visa, MasterCard, CBUAE (UAE), CBOMAN (Oman), Link (T&T), Paymark
(New Zealand) to provide convenience to customers by increasing delivery
points through ATMs. With a centralized depository application, your Bank`s
branches are now equipped to provide depository services for both NSDL as
well as CDSL. With On-line Trading System, your Bank will be able to
provide a complete suite of on-line services to customers for trading in
instruments like equities, mutual funds, bonds and initial public offering
(IPOs).
Additionally, your Bank took several other IT related initiatives such as
Internet Payment Gateway services for debit cards/credit cards, Cash
Management System covering services like Receipt Management (Collections),
Payment Management and Invoice Management (Receivable and Payable
Management), Payment Massaging Solution (PMS) {that was implemented in 20
overseas territories and all authorized branches in India}, a grid based
Cheque Truncation System (CTS) {implemented in NCR-New Delhi, Chennai,
Coimbatore and Bangalore}, and initiation of an Automated Cheque Processing
Centre (Inward & Outward) in Mumbai.
Your Bank also implemented the Human Resource Networking for Employees
Service with the objective of creating a central database of Bank employees
for facilitating speedy decision-making, promotion and selection exercise
as also for automating other HR process.
Moreover, your Bank undertook measures to create Data Warehouse for
providing flexible and interactive source of strategic information,
Customer Relationship Management for better customer insight and uniform
customer view across channels.
During the year FY12, your Bank took some major initiatives in its Retail
Banking segment. It launched the BarodaFirst Wealth Pack, a combo of two
products namely BarodaFirst Savings Bank and BarodaFirst Regular Deposit
jointly with two Insurance Products namely ULIP & Term Insurance Plan. It
also designed Baroda Samriddhi Quarterly Recurring Deposit and Baroda
Samriddhi Half yearly Recurring Deposit Schemes meant especially for
Agriculturists, Self Employed and Professionals.
A Sales Operating Model was rolled out at 163 Baroda Navnirman Branches
{i.e. your Bank`s project in Business Process Reengineering} for developing
Sales & Service culture to generate business leads through transitioning
service requests to sales conversation and data mining of existing/new
profitable customers.
To accelerate the pace of Savings Bank Deposits accretion - a tough
challenge in rising interest rate scenario - your Bank launched several
Savings Bank Deposit campaigns with incentives to the performing staff,
such as "Evening with CMD & Picnic with Staff" for award winning Branches
and Regional Offices.
Your Bank also launched a number of Retail Loan campaigns during the year
to augment its Retail Loan Book with a special focus on Home Loans and Car
Loans. Your Bank opened nine City Sales Offices one each at Haldwani,
Raebarely, Faizabad, Raipur, Bhopal, Indore , Bengaluru, Ghaziabad and
Rajkot. Going by the solid success of this lending model, three new Retail
Loan factories were opened at Haldwani, Dehradun and Nasik by your Bank in
FY12.
Understanding the need to redesign business strategies to incorporate
specific plans to promote financial inclusion of low income group, treating
it both as business opportunity as well as corporate social responsibility,
your Bank made use of available resources including technology and business
expertise and took concrete steps to promote the causes of Financial
Inclusion during the year under review. The Financial Inclusion (FI) data
and transactions were integrated to the CBS through an FI Server/Gateway of
the service provider, kept in the Data Centre of the Bank. Your Bank issued
Smart Cards to customers after uploading their accounts in CBS and
effecting KYC verification by the link branches.
Your Bank tied-up with National Institute of Rural Development (NIRD),
Hyderabad for designing and conducting special training program for its
officers on FI. For increasing the pace of FI, your Bank introduced Mobile
Banking vans, having connectivity to CBS through CDMA technology. Five such
Vans (1 in Gujarat, 2 in UP, 1 in Bihar and 1 in Goa) have been made
operational, which are covering 41 villages. Your Bank has already covered
100.0% villages allotted to it under the FI project. More than 7.61 lakh FI
accounts were opened in these villages as against the target of 7.10 lakh.
To ensure adequate contribution of the Bank in meeting farmers` demand for
agricultural credit and other financial needs of rural India, your Bank
designed various products and business strategies during the year under
Rural and Agriculture lending. It identified 450 Thrust Branches across
India to enhance Agriculture lending. As many as 22 area specific schemes
were formulated to increase agricultural lending.
During FY12, your Bank opened ten more Baroda Swarojgar Vikas Sansthan
(BSVS), the institutes for training the youth and imparting knowledge and
skills required for taking up self-employment ventures, taking the total
number of BSVS to 46. Thus, each of the Bank`s Lead Districts has now a R-
SETI as per the government guidelines. Moreover, Ajmer BSVS centre has been
exclusively developed for women entrepreneurs. During FY12, 42,786 youth
beneficiaries were trained out of which 25,791 have established self-
employment ventures. Out of the total 1,22,228 beneficiaries trained by
these centers so far, 75,050 have established their self employment
ventures. Your Bank opened 21 new Financial Literacy & Credit Counseling
Centres (FLCC) christened as "SARATHEE" during the year under review,
taking the total number of FLCCs to 39 as on 31st March 2012.
The Micro, Small and Medium Enterprises (MSME) segment is a key source of
economic growth and employment in India as in other parts of the world.
Your Bank took several initiatives under MSME Business during the year
under review. It opened ten New SME Loan Factories and eight New SME
Specialized Branches during FY12. Also, your Bank introduced five new
customer-centric area specific products to suit the local cluster needs.
Bank introduced a new asset side product named as "Baroda Channel
Financing" on a pilot basis.
Your Bank sponsored workshop on "Management Skills to Source Financing and
Management of Technology by SMEs" for entrepreneurs arranged by All India
Management Association (AIMA) at Hyderabad, Ahmedabad and Jaipur. Your Bank
even introduced "Baroda Entrepreneur Awards" for Micro & Small enterprises.
Additionally, your Bank released a Booklet named as "Practical guide to
Becoming An Entrepreneur", inter alia, giving information on the Bank`s SME
products and "Frequently Asked Questions" on Credit Guarantee Fund Trust
For Micro And Small Enterprises (CGTMSE) scheme. Your Bank also signed a
MoU with four different Credit Rating Agencies during FY12 for rating of
SME accounts.
Business and Financial Achievements in FY12:
As described earlier, your Bank delivered another cheery performance during
FY12 despite difficult economic environment. As in the past three years,
your Bank`s performance on the business front was comfortably above the
banking industry`s average performance.
Your Bank`s Global Business touched the mark of Rs 6,72,248 crore in FY12
posting a growth of 25.9% (y-o-y). In its Indian operations, its Deposits
and Advances increased healthily by 20.1% and 19.3%, respectively. Your
Bank`s Domestic Low-cost or CASA deposits grew by 15.9% (y-o-y)
notwithstanding higher interest rates on retail term deposits and formed
33.2% share of the total Domestic Deposits in FY12.
Your Bank`s Priority Sector Credit too recorded a decent growth of 19.5%
during FY12 and formed 43.37% of its Adjusted Net Bank Credit (ANBC),
comfortably surpassing the mandatory requirement of 40.0%. Your Bank posted
a growth of 26.1% in its SME credit, 18.4% in Farm credit, 24.9% in Direct
Agriculture credit and 10.0% in Retail credit reflecting a well-balanced
growth across different sectors in tune with opportunities available within
the system.
During FY12, the Total Business of your Bank`s Overseas branches registered
a robust growth of 44.6%. In Overseas Operations, your Bank`s Customer
Deposits increased healthily by 40.4%, Total Deposits by 45.2% and Advances
by 43.9%. Supported by steady and better than industry average spreads and
a good pool of fee-based income, your Bank`s Gross Profit in Overseas
operations posted a healthy growth of 48.5%.
It may be noted that your Bank`s Overseas Business contributed 28.3% to its
Global Business, 20.7% to Gross Profits and 34.0% to Core Fee-based Income.
Besides, the Total Assets of the Bank`s Overseas Operations increased from
Rs 91,273 crore to Rs 1,28,398 crore registering a growth of 40.7% during
the year FY12.
For the Bank as a whole, Gross Profits recorded a healthy growth of 23.6%
to Rs 8,630.37 crore. Despite increased provisions, a stable momentum in
Net Interest Income (NII), a good traction in non-interest income and a
controlled growth of operating expenses raised your Bank`s Net Profit in
FY12 by a rich 18.0% (y-o-y) to Rs 5,007 crore, much above the street
expectations. While, NII increased by 17.2% (y-o-y), Other Income (or Non-
Interest Income) grew by 21.8% (y-o-y), primarily driven by impressive
treasury gains and strong recovery from the written off accounts.
Despite an ongoing cyclical downturn, your Bank maintained one of the best
asset qualities in the banking arena by the end of FY12. In line with its
past record, your Bank succeeded in restricting its Gross NPAs to 1.53% and
Net NPAs to 0.54% during FY12. The Bank`s Loan Loss Coverage Ratio
(including technical write-offs) too stood at the pristine level of 80.05%
as on 31st March 2012.
In the domain of shareholders` return and liquidity ratios, your Bank
delivered better than its market guidance and maintained Return on Average
Assets (ROAA) at 1.24%, Earnings per Share (EPS) at Rs 127.84 and the Book
Value per Share (BVPS) at Rs 637.37. Furthermore, your Bank`s Cost-Income
ratio sharply declined from the previous year`s level of 39.87% to 37.55%,
reflecting its consistently improving earnings profile and a prudent
control over operating expenses. Your Bank`s Capital Adequacy Ratio under
Basel-II reached a sound level of 14.67% comprising 10.83% as Tier-I
capital ratio as on 31st March 2012 - again one of the highest in the
state-owned banking segment.
Looking Forward:
While India`s growth remains relatively high in the global context, various
factors, including the unsettled global outlook and domestic policy
concerns, have weighed on investment. Inflation has started moderating
primarily on account of a favourable statistical base giving way to a
modest decline in lending rates. Growth for FY13 is projected between 7.0%
and 7.3% by various noted agencies, while risks from slow progress on
policy front, high & volatile inflation and the global situation - remain
on the downside.
While your Bank`s overall business strategy during FY13 will evolve in
response to the emerging macroeconomic environment, your Bank`s well
capitalized balance-sheet and robust business model would, no doubt, enable
it to sustain its consistent performance in the coming years also.
During FY13, your Bank will continue to expand its market share in both
deposits and advances by exploiting its geographic & strategic advantages
and capital strength. As in the past, your Bank will focus on maintaining a
high growth in domestic CASA deposits. Your Bank will leave no stone
unturned in maintaining its asset quality in terms of low NPA ratios. Your
Bank`s policy of maintaining healthy Provision Coverage Ratio year after
year will certainly help it face any adverse economic situation with
strength.
It may be noted that for maintaining and further improving the asset
quality of the credit portfolio, your Bank has put in place an effective
mechanism for ensuring expeditious review of accounts, compliance of terms
and conditions and up-gradation in credit ratings in high value advance
accounts.
Aided by its sustained high profitability, your Bank will continue to
maintain sufficiently high CRAR and Tier 1 ratios in the coming years also.
As your Bank has been maintaining healthy Capital Adequacy Ratio with
common equity constituting around 93% of Tier I Capital as at end March
2012, its transition to Basel III regime would be extremely smooth.
Human Resource strategies have been a key component of your Bank`s overall
efforts for business transformation. Your Bank is already endowed with a
competent and highly motivated employee base, yet it has initiated an
innovative resourcing channel with Manipal Global Education Services. A
newly set up Baroda Manipal School of Banking is expected to provide
trained officers to your Bank, who shall be deployed against its specific
requirements.
During FY12, your Bank took several steps to revamp its existing HR
processes, structures and policies in order to support its technology-led
business transformation.
A focused HR transformation project - ``SPARSH" has been introduced to
achieve this goal. Various initiatives taken by your Bank such as Talent
Management, Succession Planning, Creating a Scientific Staffing Model &
Manpower Planning, Development & Capability Building and Performance
Management will produce substantial results going forward enabling your
Bank to successfully address tough business challenges.
Today, the major differentiator amongst the banking service providers is
the quality of customer service. Your Bank enjoys the patronage of over 45
million global customers. Your Bank is committed and focused towards
providing excellent Customer Service through all delivery channels and has
been making continuous efforts for enhancing the level of customers`
satisfaction by leveraging technology to provide e-products and alternative
delivery channels best suited to the diverse needs of different customers.
The varied interests and expectations of customers will be taken care of by
further improving upon the various processes and procedures.
Bank`s Corporate Goals and Strategy:
Your Bank has articulated "Business Growth through Higher Productivity,
Efficiency and Profitability" as the motto for the year FY13.
During the year FY12, your Bank introduced its Brand in Sonic Medium by
launching a "Signature Tune" on the occasion of its Bank`s Foundation Day
on 20th July, 2011. The prime purpose was to highlight the spirit of the
Bank as a vibrant and energetic organization complementing the Logo. Your
Bank will draw its mileage in positioning it strongly in the global market.
Your Bank`s Project Navnirmaan has various components covering both
Business Process Re-engineering and Organization Re-structuring, aimed at
transforming the Bank`s branches into sales and service centres through
sustained centralization. This is expected to make achieve sound sales
growth, superior customer experience and alternate channel migration. Your
Bank has plans to convert all its metro and urban branches into BarodaNext
(i.e. a branch where BPR is rolled out) within a stipulated timeline. The
initial impact of BarodaNext migration has been found to be rewarding both
in terms of increased customer satisfaction and CASA growth. Creation of
automated and lean Back Offices like City Back Office and Regional Back
Office on a wider scale will certainly improve the efficiency and
productivity of the Bank`s human resources. Your Bank has already
established two Contact Centres (i.e., Call Centres) one each at Lucknow
and Baroda.
To sustain sales growth, a new Sales Operating Model has been rolled out in
certain identified branches of your Bank.
Your Bank has started opening Mid-corporate branches to ensure focused
credit dispensation to this specific segment of wholesale business. Further
centralization initiatives are going to be piloted soon to enable these
branches to become a "Sales-cum Service Outlet".
Your Bank`s consistent and stable performance across all business and
financial parameters and superior leadership has earned it the approval of
various national and international organizations during FY12.
Amongst several awards, in particular, your Bank has received the awards
like Best Public Sector Bank (PSB) by CNBC-TV18 & MCX; the Golden Peacock
Award for Excellence in Corporate Governance by the Institute of Directors
& World Forum for Corporate Governance in London; the Dainik Bhaskar India
Pride Award for 2011; the Most Efficient Bank in Kenya; the Best
Initiatives in Inclusive Banking - FIBC Banking Award; the Dun &
Bradstreet`s Leading PSB in "Global Business Development Category", the
National Award for Performance under the SME Business; the Award for Best
Utilisation of Intellectual Resources; the Best Growing Large Bank by the
Business World-PWC; the Business Leadership Award by NDTV- Best PSB in
2011; the Award for Excellence in Financial Reporting by the ICAI in PSB
category; the Fastest Growing Large Bank by Business World-PWC; the UTV-
Bloomberg Financial Leadership Award and the FM Stars Industry Brand
Leadership Award.
Furthermore, your Bank`s Brand Ranking increased by 47 notches in just a
year`s time in the Top 500 Banking Brands by The Banker, London during
FY12.
Your Bank wishes to protect its superior performance in the year FY13 also
to earn awards for exceptional performance. So, it will try to maintain its
position in terms of sound financial health, service excellence, strong
corporate governance, desirability as an employer and solid contributions
to national development.
In all its core businesses, your Bank has put strategies in place that seek
both to address near-term challenges and to seize opportunities to
strengthen its platform for the future.
In this exciting journey of your Bank, I solicit your continued support and
patronage.
M. D. Mallya
Chairman & Managing Director |