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Trends in the Banking Industry With the after effects of recessionary trends in North America and Europe refusing

to die down FY 2012 was a challenging year for the Indian banking industry. Indias Economic growth slowed down to 6.5% from the robust growth of over 8% achieved in the last few years. This coupled with high inflation forced the RBI to tighten its monetary policy which ultimately led to slowdown in growth. This coupled with rising risk aversion in the international markets saw a fall in the foreign capital inflows from $32.2billion in FY11 to $18.9billion inFY12. Fiscal slippage on account of high crude oil prices and continued spending on social welfare saw the rupee emerge as the worst performing Asian currency. India saw its foreign exchange reserves dwindle from $321 billion at the end of September 2011 to $295 billion by the end of March 2012. Indian Banks especially Public sector banks have been proactively restructuring their non-core expenditure such as technological implementation etc. They have also taken a cautious view on lending and have restructured loan and pruned their loss assets. Banks have also pruned their exposure to retail banking due to high risk weight associated with them. Banks however been successful in procuring low cost funds due to their penetration in rural areas thereby improving their net interest margins. RBI also recently freed up bank savings rate. However, only a handful of banks in the private sector have raised their rates. Banks have also started streamlining their processes through use of technology such as ATMs, Net banking, telephone banking. Also they have resorted to cross selling of products such as insurance, mutual funds etc. to augment their fee based income. They are also looking at capitalising on their position in rural areas through financial inclusion programmes.

PEST Analysis of banking industry Political aspects:There are concerns in the Indian banking industry about the ability of the government bring about fiscal discipline in its expenditure since this has an impact on the overall economic scenario. The Government must undertake effective steps to contain inflation as high inflation coupled with slow growth has endangered the long term growth prospects of the country. On a positive note governments thrust on financial inclusion has opened up new avenues for the banking sector in the thus far unbanked rural areas.

Economic aspect:The concerns of the Eurozone crisis have had their fair share of impact on the Indian banking sector. Banks are now concerned with the debt servicing ability of companies who have a large share of their revenue coming from these markets. Slowing economic growth rate has meant that bank shave to restructure the loan provided to various companies affected by the slow down Social aspect:Traditionally public sector banks in India have catered to the needs of lower end of the society and as such continue to do so. This has enabled more and more individuals to benefit by mainstream banking. Micro finance a concept that recently came under criticism for employing unfair recovery practice underlines the need for regulated and responsible banking at various levels in the banking industry. Technology:Indian banks have undergone a lot of change in the way they conduct business over the past decade or so. Development in technology have enabled banks to offer banking services through various new platforms like internet banking, mobile banking ATMs etc .Implementation of Core Banking Solution has enabled any branch banking services while at the same time helping banks to integrate their operations across branches. Other technologies such as Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT ) have enabled banks to enhance customer satisfaction by providing faster services. Bank of Baroda Competitive perspective
BANK OF BARODA Bank of Baroda (BoB) is among the top five banking entities in the country with a 4% share of the total credit disbursals at the end of FY11. After a branding and operating overhaul, the bank has witnessed accelerated growth in the last three fiscals, enabling it to position itself favourably amongst peers. Adequate capital (CAR of 14.5% in FY11), high NPA coverage and hedge against interest rate risks peg the bank amongst the frontrunners in the PSU banking space. Punjab National Bank Punjab National Bank (PNB) is the third largest banking entity in the country with 6.6% share of the total non-food credit disbursals at the end of FY11. Strong growth and stellar margins has pegged the bank amongst the frontrunners in the PSU banking space. This has helped it keep its neck above its peers and increase its market share

A comparison between Punjab National Bank(PNB) and Bank of Baroda(BoB)


Equity share data :- While PNb had an average market capitalisation of Rs.336,636 million BoB followed in closely with an average market capitalisation of Rs.336,502 for the year 2011-12.As far as price-earnings ratio is concerned PNB trades at a PE multiple of 24.5 while BoB trades at a relatively modest ratio of 15.7. BoB employees close to 42,000 employees whose total remuneration works out to Rs.31,173 million (i.e. Rs.7.39 lakh per employee) who bring in average sales of Rs.72.29 lakhs resulting in a net profit of Rs.12.44 lakhs per employee .On the other hand, PNB employees around 62,000 employees whose total wages works out to Rs.47,751 Million(i.e. Rs.7.68 lakh per employee) who bring in average sales of Rs.60.27 lakhs resulting in a net profit of Rs.8.08 lakhs per employee. Income Data During the financial year 2011-12 Bank of Baroda has achieved Net sales of Rs.304,855 million and other income of Rs.41,004 million resulting in total revenue of Rs.345859 million this translates into Rs.52,486 million of profit after tax at a gross profit margin of 90.0% and net profit margin of 17.2 % During the financial year 2011-12 Punjab National Bank has achieved Net sales of Rs.374,473 million and other income of Rs.42,395 million resulting in total revenue of Rs.416,868 million this translates Rs.50,255 million of profit after tax at a gross profit margin of 90.5% and net profit margin of 13.4%. Balance sheet Data:Bank of Baroda has current assets of Rs.2,920,771 million at current ratio of 43.Bank of Barodas net working capital to sales ratio stands at 958%.Bank of Baroda has total assets worth Rs.4,574,120 giving it a net worth of Rs.285,163 million. Bank of Barodas return on assets stands at 5.5% while return on equity stands at 18.4% Punjab National Bank has current assets worth Rs.3,013,465 million at a current ratio of 43 Punjab national Banks net working to capital ratio stands at 804.7%.Punjab National Bank has total assets worth Rs.4,704,454 million giving it a net worth of Rs.426,454 million. Punjab National Banks return on assets stands at 6.1 whike return on equity stands at 17.2%. SWOT analysis Strength: Indian banking sector has performed better than banks in other emerging market economies on parameters of growth, asset quality and profitability The RBI has strengthened the banking sector to a great extent by introducing stringent norms with regards to capital adequacy. Banks in India have a vast network of branches and at ATMs Banks in India have led recruitment processes even during times of recession and thus enjoy a considerable amount of goodwill among employees.

Indian Banking system enjoys a high amount of integrity and this is one of the major reasons why they have remained stable even as other banks falter globally.

Weakness: Cost of customer intermediation in the Indian banking sector remains high and the percentage of banking transaction carried out on a walk-in basis is quiet high. Banking in India is mainly driven by trust and relationship with the bank, thus innovation at times tends to take a backseat. As government has controlling stake in a number of large banks in India decisions taken in such banks tend to be affected by the government of the day. Most major banking operation in India are only concentrated in the major cities. Operations of Indian banks are largely confined to the domestic market itself and thus their profits get limited to that extent. Opportunity: Indian banks have been unable to establish consistent growth model for services like credit cards, wealth management, consumer finance etc. A systematic and thoughtful approach to marketing and innovation can improve the profitability of banks Indian banks as well as their customers are yet to embrace technology fully. Banks need to put in place such approaches to customer servicing that will enable the use of low-cost internet banking, mobile banking etc. In terms of product range and flexibility Indian bank still continue to lag behind global peers. India as a nation still continues to be under-banked. Reaching out to such population by innovative means such as banking correspondent or Integrated Mobile Payment System can help banks achieve more business. Threat: Indian banks face competitive threats from global banks in the near future and they must be prepared to take on the expertise and experience that these banks will come with. With the government taking a favourable view on granting banking licenses to established business houses and NBFCs competition in the banking sector is likely to go up. Prolonged high interest rate may reduce the interest margin of operations for banks

Company Analysis
1. Company description (a brief introduction regarding what businesses the company is into) Bank of Baroda is the third largest public sector bank in India and also the highest profit making bank in the public sector in India. It also ranks at 715th position on the Forbes 2000 global list. Bank of Baroda has total assets in excess of Rs.3.58 lakh crores. Bank Baroda provides a whole range of service to its customers as listed below:Wholesale banking :- Wholesale banking basically caters to larger customers namely corporates for the sake of ease of service BoB classifies companies with turnover in excess of Rs.500 crores as large corporates those with turnover of between 100 to 500 crores as midcorporates. The main advantages of being a wholesale banking customer with BoB are :a) Single point of contact for all banking needs b) Speedier decision making and faster turnaround time for wholesale banking customers c) Availability of dedicated officers for wholesale banking who can customize existing products for customers as well as create new products. d) BoB branches 100% core banking solution linked an it provides world-class infrastructure e) Wholesale banking customers have dedicated Client service team (CST) comprising of Relationship Manager, Relationship officer, Product specialist and credit officer dedicated from corporate office. Rural/Agricultural Banking:Bank of Baroda realises that agriculture plays a very dominant role in supporting the livelihoods of a large number of number of people in India. With an aim of making India selfreliant through inclusive development Bank of Baroda offers credit facility various small and marginal activities like farming fishing, poultry, cottage industries. BoB a runs a CSR programme called Sarthi through Baroda Grameen Paramarsh Kendra Wealth Management:Bank of Baroda offers a whole lot of wealth management services in terms of Life insurance, Medi-claim, ASBA, Mutual Fund and has dedicated subsidiaries for this purpose like IndiaFirst life insurance Company, Baroda health and Baroda e-trading. Central Pension Processing Service: - As a part of this service bank of Baroda undertakes the calculation of pension for pensioners drawing pension from Bank of Baroda. Changes in pension paying parameters including revised DA, Arrears of DA etc. are also made centrally.

Bank of Baroda has a pool of specialized officers at Central Pension Processing Centre who have gain specific expertise in matters related to pension of all categories of pensioners as well as grievance of pensioners.

Baroda Health:Baroda health is a medi-claim offered only to the customers of BoB .Its salient features ar that it has very low premium .A member of the insureds immediate family can avail hospitalization benefit not exceeding the extent to which the insured is covered. BoB gift card:'Baroda Gift Card' is easy to carry and convenient to use at merchant outlets to purchase items of choice. The Baroda Gift card is backed by VISA and is usable at any of its network of shops in India. The Gift card gives you flexibility of multiple use any time and any location of your preference NRI Tax solution

2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Bank of Baroda was established on 20th, July,1908 under the Companies Act of 1897 with a paid up capital of Rs.10 lacs by great visionary Maharaj Sayajirao Gaekwad. It was his insight into the future that a bank like Bank of Baroda will serve as the engine of growth for development of industries and commerce of the erstwhile state of Baroda and neighbouring territories.

The Headquarters of Bank of Baroda is located at the following address: Baroda House, Mandvi, Vadodara Gujarat-390 006 While Baroda Coporate centre is located at C-26,G-Block,Bandra Kurla Complex Bandra (East),Mumbai-400 051 Tagline: Bank of Baroda uses the tagline Indias International Bank and has signed cricketer Rahul dravid as its brand ambassador.

Shareholding Pattern of the Company is as given below Description Govt. of India(promoter) Mutual funds/UTI Financial Institutions/banks Insurance Companies Foreign Institutional Investors Corporate Bodies Resident individuals Non resident Individuals Overseas Corporate bodies Trusts Clearing Members Total No.of shareholders 1 183 71 08 311 1701 169542 2847 3 20 177 174864 Shares 223279579 30891062 10011281 43393871 55666571 25634066 19599360 1935862 22000 53056 636675 411123383 % to equity 54.31 7.51 2.44 10.55 13.05 6.24 4.77 0.47 0.01 0.01 0.15 100.00

Board of Directors:Shri M.D.Mallya Shri Rajiv Bakshi Shri N.S.Srinath Shri Alok Nigam Shri Sudarshan Sen Shri Vinil kumar Saxena Shri VB Chavan Shri Ajay Mathur Dr.(Smt) Massarad Shahid Shri Satya Dev Tripathi Shri Maulin Arvind Vaishnva Chairman and Managing Director Executive Director (Executive) Executive Director (Executive) Director(Non-Executive)(Representing Central Government) Director Non Executive (Recommended by RBI) Director Non Executive (Representing workmen) Director Non Executive (Representing Officer employees) Director Non Executive Director Non-executive Director Non-executive Director Non-Executive(elected from shareholders other than central government)

Shri Surendra singh Bhandari

Director Non-Executive(elected from shareholders other than central government)

Shri Rajib Shekhar Sahoo

Director Non-Executive(elected from shareholders other than central government)

Financial Performance of the company for past 1 year Details Number of employees Number of branches Business per employee Average business per employee Gross profit per employee Net Profit per employee Business per branch Gross profit per branch Net profit per branch 2012 42175 3959 14.66 crores 13.15 crores 20.35 lakhs 11.87 lakhs 169.80 crores 2.17 crores 1.26 crores 2011 40046 3418 12.29 crores 11.26 crores 17.43 lakhs 10.59 lakhs 156.27 crores 2.04 crores 1.24 crores

Particulars Return on Average Assets (ROAA) (%) Average Cost of Funds (%) Average Yield (%) Average Interest Earning Assets (Rs crore) Average Interest Bearing Liabilities (Rs crore) Net Interest Margin (%) Cost-Income Ratio (%) Book Value per Share (Rs) EPS (Rs) Return on Average Assets (ROAA)

FY12 1.24 5.64 8.55 7.76 3,47,223.21 3,43,397.26 2.97 37.55 637.37 127.84 1.24

FY11 1.33 4.67 7.76 2,82,109.79 2,80,098.94 3.12 39.87 504.43 16.37 1.33

SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strength:Improved funding mix:Bank of Baroda enjoys a good funding mix with a portfolio of deposits, borrowings from other financial institutions and reserves and surplus accrued. Out of a total of Rs.3.8 lakh crores, deposits demand deposits contribute a total of Rs.28,944 crores; term deposits contribute a total of Rs.74,579 crores while savings bank deposit account for Rs.2.81 lakh crores. Capital adequacy:Bank of Baroda has reported a capital adequacy ratio of 14.67% which indicate that the bank is well positioned to absorb the losses should some of its assets turn bad. This is favourable as compared to state bank of Indias CAR of 11.98% Punjab National Banks CAR of 12.42% and Bank of India CAR of 12.17 %. Consistent operational results:Bank of Baroda has maintained consistent standards of operational results recording a healthy growth of 25.9% in its global business. On the back of Net Interest margins of 17.2% BoB has posted an increase of 18% on its net profit. Very Low NPA among large size banks:Bank of Baroda has also proved its strength in asset quality management by restricting its gross NPA to 1.53% and net NPA to 0.53% in FY12 which is one of the lowest among large sized banks in India. Weakness:High Loss Provision:Bank of Baroda has maintained loan loss provisioning ratio at higher levels than those mandated by the Reserve Bank of India which was at 80.05% as on 31st Mar, 2012 after taking into account the
Prudential/ Technically Written-off advances.

Increased Pension liability:The bank has experienced a considerable increase in pension liability from Rs.6654 crores for the financial year 2011 to Rs.7033 crores for financial year 2012.This is relatively higher as compared to similar sized banks in India. Opportunities:Growing international presence Bank of Baroda takes pride in positioning itself as Indias international bank .The total international assets of the bank increased from Rs.91,273 crores as at the end of March 2011 to Rs.1,28,398 crores at the end of March 2012.

Financial inclusion participation Bank of Baroda has under its aegis 5 sponsored Rural Regional Banks namely,baroda UP gramin bank,Baroda rajasthan gramin bank,Baroda Gujarat gramin bank,Nainital-Almora Kshetriya Gramin bank and Jhabua dhar kshetriya gramin bank; thus with growing government thrust on inclusive banking Bank of Baroda can effectively use its reach to further its position in the banking business. It has alos set up micro loan factory at sultanpur and rae bareily dedicated to self help group financing using a mobile van equipped with all documents and stationery to disburse loans upto Rs.25,000 on the spot at the customers doorstep Strategic agreements:With its wide spread presence across both international and domestic locations Bank of Baroda is well placed to leverage its position by entering into strategic tie-ups with Indian as well international banks and financial institutions. Threat:Global Economic imbalances:With global economy still experiencing the after effects of the global economic meltdown of 2008, Bank of Baroda is exposed to the risk of global financial businesses as it has substantial exposure to business in International markets. Increasing competition Competition in banking space in increasing both globally as well as domestically thus it is likely to put pressure on the margins and profitability for Bank of Baroda. Changing banking policies:The regulatory framework of banking in India is undergoing a continuous change as such it is imperative for any bank to tweak its business model accordingly. However, there may be some hiccups that banks may experience in the short to medium term while adapting to such changes in policy. Various Strategies applied by the bank in the course of conducting business:a) During the financial year 2012 a proposal to increase the maximum limit under home loan for Resident Indian , NRI, PIO customers in all metro and major urban centre was increased from 100 lakhs to 300 lakhs Possible reason:-The property prices in all parts of India are increasing as such customer requirement for housing loan has gone if the bank werent to increase this limit it would have lost high customers to competition. Also increased property prices means bank gets additional security to disburse increased loan amount. b) prepayment charges were completely waived from 15,th dec,2011

Possible reason :- Compliance with RBI guidelines c) Savings bank deposit campaign was launched by the bank twice in the year, first on 1st june 2011 and second on 2nd June 2012 besides evening with the CMD picnic with staff scheme was launched for award winning branches and regional offices. Possible reason:Savings bank deposits provide the bank with low cost funds for operation this helps bank to improve its Net Interest margins. Recognising staff efforts helps to keep their motivation levels high. d) Retail Loan Campaign Given the high demand for retail loans during festive season the bank launched a retail loan campaign on 26 September 2011 that continued till 31 March 2012 with special focus on home loans and car loans. Rate of interest concession was given during the campaign beginning with 0.25% which was further increased to 0.5% Possible reason:Given that demand during the festive season for retail loans is high the bank made good use of its funds to promote its retail loans portfolio. e) Opening of nine city sales office at haldwani, rae bareily, faizabad,Raipur Bhopal, indore,benagluru,Ghaziabad, Rajkot was done by the bank in FY 2011-12 Possible reason:This would help the bank to increase its sales and thus at to the overall profitability and brand visibility. f) Three new retail loan factories were opened at haldwani, Dehradun, nasik. Retail loan factories comprises of twin units of sales team and central processing cell manned by bank employess Possible reason:-

Faster disbursal of credit , under the model, the sales executive will visit potential clients, while a team of tele-callers and other functionaries work to sanction the loan. The bank also plans to reach out to customers through SMS and Internet, builders tie-ups and Employee Referral Scheme. The central processing cell shall have simple processes powered by the use of technology to ensure sanction of loan within the set timelines. g) Bank empowered its zonal heads to approve upto 100 bps of concession on the applicable rate of interest on Baroda Trade loan
Possible reason:-

This was done to mobilize fresh business, speed up the credit process and to augment retail loan book during FY2012

The bank has undertaken a number of strategic business initiatives such as migrating its data centre to a new data centre within the banks premises. Thus, strengthening its disaster recovery centre to ensure uninterrupted banking services. The bank has also switched its entire network to Multi Label protocol switching(MLPS) for improving uptime and on demand upgrade.