MINI PROJECT REPORT

ON

“RISK MANAGEMENT AT BANK OF

BARODA”

Report submityted in partial fulfilment of the requirement for the

degree of
MASTER OF BUSINESS ADMINISTRATION

Under the guidance of Submitted by

Laxmi Vachher Ravi Sagar Singh
Head of Department Roll No. 2008990700003
MBA 2nd Semester
 DECLARATION

I am Ravi Sagar Singh the undersigned, student of Shri Sharda Group of Institution,
Lucknow; declare that this project report titled “RISK MANAGEMENT AT BANK OF
BARODA” is submitted in partial fulfillment of the requirement for the summer internship
project during the course of Master in Business Administration. I also declare that this is
my original work and has not been previously submitted as part of any other degree, diploma
of another school or University. The findings and conclusions of the data in this report are
based on my personal study.

Ravi Sagar Singh

Roll No. 2008990700003
 Acknowledgement

The report has solely been prepared by me with the purpose of fulfilling the

requirements of the course of MBA (Masters of Business Administration,). There

are in numerous helping hands behind it who have guided me on my way.

I would like to give sincere thanks to Ms. Laxmi Vachheer (Assistant Professor-

SSGI Lucknow), who have supported me all through to make my study and

findings more accurate. Their contribution in stimulating suggestions and

encouragement helped me to coordinate my report writing. I am highly obliged to

them.

Ravi Sagar Singh

Roll No. 2008990700003
MBA 2nd Semester
 TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION

CHAPTER 2 INDUSTRY OVERVIEW

CHAPTER 3 COMPANY PROFILE

CHAPTER 4 CREDIT RISK MANAGEMENT AT BANK OF BARODA

CHAPTER 5 CONCLUSION & RECOMMENDATIONS

REFERENCES
 CHAPTER 1
INTRODUCTION
Emergence of Risk management in Banks
The banking environment consists of numerous risks that can impinge upon the profitability of
the banks. These multiple sources of risk give rise to a range of different issues. In an
environment where the aspect of the quantitative management of risks has become a major
banking function, it is of lesser importance to speak of the generic concepts. The different types
of risks needs to be carefully defined and such definitions provide a first basis for measuring
risks on which the risk management can be implemented.
There have been a number of factors that can be attributed to the stabilization of the banking
environment in nineties. Prior to that period, the industry was heavily regulated. Commercial
banking operations were basically restricted towards collecting resources and lending
operations. The regulators were concerned by the safety of the industry and the control of its
money creation power. The rules limited the scope of the operations of the various credit
institutions and limited their risks as well. It was only during the nineties that banks experienced
the first drastic waves of change in the industry. Among the main driving forces that played a
crucial role in the changes were the inflating role of the financial markets, deregulation of the
banking sector and the increase in the competition among the existing and emerging banks.
On the foreign exchanges front, the floating exchanges rates accelerated the growth of
uncertainty. Monetary policies favouring high levels of interest rates and stimulating their
intermediation was by far the major channel of financing the economy, disintermediation
increased at an accelerated pace. Those changes turned into new opportunities and threats for
the players.
These waves of changes generated risks. Risks increased because of new competition, product
innovations, the shift from commercial banking to capital markets increased market volatility
and the disappearance of old barriers which limited the scope of operations for the various
financial institutions. There was a total and radical change in the banking industry. Here it is
worth mentioning that this process has been a continuous
one and has taken place in an orderly manner. Thus it is no surprise that
risk management emerged strongly at the time of these waves of
transformation in the banking sector.
Banks Risks
As stated , risks are usually defined by the adverse impact on profitability of several distinct
sources of uncertainty. Risk measurement requires that both the uncertainty and its potential
adverse effect on profitability be addressed. Let us now try to focus on the risk framework
purely from the perspective of a bank

Risk Framework
The various risks associated with the banking may be defined as below and these definitions
have the advantage of being readily recognizable to bankers.
(i) Credit Risk : Risk of loss to the bank as a result of a default by an obligator. (ii) Solvancy
Risk : Risk of total financial failure of a bank due to its chronic inability to meet obligations.
(iii) Liquidity Risk : the risk arising out of a bank‟s inability to meet the repayment
requirements.
(iv) Interest Rate Risk : Volatility in operationd of net interest income, or the present values
of a portfolio, to changesin interest rates.
(v) Price Risks : Risk of loss/gain in the value of assets, liabilities or derivative due to market
price changes, notably volatility in exchange rate and share price movements. (vi) Operational
Risk : Risks arising from out of failures in operations, supporting systems, human error,
omissions, design fault, business interruption, frauds, sabotage, natural disaster etc.
Credit Risk:
Credit risk with respect to bank is most simply defined as the risk of a borrower‟s payment
default on payment of interest and principal due to the borrower‟s unwillingness or inability to
service the debt. The higher the credit risk an institution is exposed to, the
greater the losses may be. For banks and most other credit institutions, credit risk is considered
to be the form of risk that can most significantly diminish earnings and financial strength . The
effective management of credit risk is a critical component of a comprehensive approach to risk
management and essential to the long-term success of any banking organization. Banks should
also consider the relationships between credit risk and other risks.
Need to Manage Credit Risk
For most banks loans are the largest and most obvious source of credit
risk; Loans and advances constitute almost sixty per cent of the assests side of the balance sheet
of any bank. As long as the borrower pays the interest and the principal on the due dates, a loan
will be a performing asset. The problem however arises once the payments are delayed or
defaulted and such situations are very common occurances in any bank. Delays/defaults in
payments affect the cash forecasts made by the bank and further result in a changed risk profile,
as the bank will now have to face an enhanced interest rate risk, liquidity risk and credit risk.
Banks are increasingly facing credit risk in various financial instruments other than loans, which
include interbank transactions, trade financing, foreign exchange transactions, financial futures,
swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the
settlement of transactions.

BIS Risk-Based Capital Requirement Framework

The current BIS regime has been described as “ one size fits all‟ policy; virtually all loans to
private-sector counterparties are subjected to the same 8% capital ratio (or capital reserve
requirement ), not taking into account the different impacts of the size of the loan; the maturity
of the loan; the maturity of the loan; or most important, the credit quality (rating) of the
borrowing counterparty. Under current capital requirement terms, loans to a firm near
bankruptcy are treated in the same fashion as loans to a AAA borrower or the government.
Further , the current capital requirement is the additive across all loans; there is no allowance
for lower capital requirements because of a greater degree of diversification in the loan
portfolio.
In 1997, the European community was the first to give certain large banks the discretion to
calculate capital requirement for their trading books – or market risk exposures – using internal
models rather than the alternative regulatory (standardized) model. Internal models are subject
to certain constraints imposed by regulators and are subjected to backtesting verification. They
potentially allow the following revisions:
• Vaue at Risk of each tradable instrument to be more accurately measured (for example, based
on its price volatility, maturity etc)
• Correlations among assets (diversification effect) to be taken into account.
• The current regulatory framework is additive and does not
consider diversification in the loan portfolio to allow lower capital
requirements.

Internal models require additional enhancements before they can replace the 8% rule, especially
because of the non tradability of some types of loans compared to marketable instruments, and
the lack of deep historic databases on loan defaults. However, the new internal models offer
added value to financial organizations, regulators and risk managers. Specifically, internal
model approaches potentially offer better insight on how to how value and manage outstanding
loans and credit risk-exposed instrument such as bonds (corporate and emerging market ) as
well as better methods for estimating default risk probabilities regarding borrowers and
derivative counterparties. Moreover, internal models have the following advantages :
• In many cases they allow a better estimation of the credit risk of portfolio of loans and credit
risk-sensitive instruments.
• They enhance the pricing of new loans, in the context of bank‟s risk adjusted return on capital
(RAROC) and of relatively new instrument in the credit derivatives markets (such as credit
options, credit swaps, and credit forwards). The models provide an alternative opportunity to
measure the optimal or economic amount of capital a bank should hold as part of its capital
structure.
Traditional Credit Risk Measurement ApproachesIt is hard to draw a clear line between
traditional and new approaches, as many of the superior concepts of the
traditional models are used in the new models. One of the most widely
used traditional credit risk measurement approaches is the Expert
System.

Expert Systems
In an expert system, the credit decision is made by the local or branch credit officer.
Implicitly, this person‟s expertise, skill set, subjective judgement and weighting of certain key
factors are the most important determinants in the decision to grant credit. The potential factors
and expert systems a credit officer could look at are infinite. However, one of the most
common expert systems, the “five Cc” of credit will yield sufficient
understanding. The expert analyzes these five key factors, subjectively
weights them, and reaches a credit decision:
• Capital Structure : The equity-to-debt ratio (leverage) is viewed as a good predictor of
bankruptcy probability. High leverage suggests greater suggests greater probability of
bankruptcy than low leverage as a low level of equity reduces the ability of the business to
survive losses of income.
• Capacity : The ability to repay debts reflects the volatility of the borrower‟s earnings.
If repayments on debt contracts prove to be a constant stream over time, but earnings are volatile
(and thus have a high standard deviation ), its highly probable that the firm‟s capacity to repay
debt claims would be risk.
• Collateral : In event of a default a lender has claim on the collateral pledged by the
borrower. The greater the propagation of this claim and the greater the market value of the
underlying collateral, the lower the remaining exposure risk of the loan in t he case of a default.
• Cycle/Economic Conditions : An important factor in determining credit-risk exposure
is the state of the business cycle, especially for cycle-dependent industries. For example, the
infrastructure sectors (such as the metal industries, construction etc.) tend to be more cycle
dependent than nondurable goods sectors, such as food, retail, and services. Similarly,
industries that have exposure to international competitive conditions tend to be cycle sensitive.
Taylor, in an analysis of Dun and Bradstreet bankruptcy data by industry (both means and
standard deviations),
found some quite dramatic differences in US industry failure rates during the
business cycle.
• Character : This is measure of the firm‟s reputation, its willingness to repay, and its
credit history. In particular, it has been established empirically that the age factor of an
organization is a good proxy for its repayment reputation.
Another factor, not covered by the five Cs, is the interest rate. It is well known from economic
theory that the relationship between the interest-rate level and the expected return on a loan
(loss probability) is highly non-linear. At low interest-rate levels, an increase in rates may lower
the return on a loan, as the probability of loss would increased.
This negative relationship between high loan rates and expected loan
returns is due to two effects :
i. Adverse selection
ii. Risk shifting

When loan rates rise beyond some point, good borrowers drop out of the loan market, preferring
to self-finance their investment projects or to seek equity capital funding (adverse selection).
The remaining borrowers, who have limited liability and limited equity at stake – and thus lower
rating –have the incentive to shift into riskier projects (risk shifting). In upside economies and
supporting conditions, they will be able to repay their their debts to the bank.
If economic conditions weaken, they will have limited downside loss from a borrower‟s
perspective.
Although many financial institutions still use expert systems as part of their credit decision process,
these systems face two main problems regarding the decision process:
Consistency : what are the important common factors to analyze across different types of
groups of borrowers? Subjectivity : What are the optimal weights to apply to the factors
chosen?

In principle , the subjective weights applied to the five Cs derived by an expert can vary from
borrower to borrower. This makes comparability of rankings and decisions across the loan
portfolio very difficult for an individual attempting to monitor a personal
decision and for other experts in general. As a result, quite different processes and standards
can be applied within a financial organization to similar types of borrowers. It can be argued
that the supervising committees or multilayered signature authorities are key mechanisms in
avoiding consistency problems and subjectivity, but it is unclear how effectively they impose
common standards in practice.

Management Information Systems – Management of Credit Risk

Banks must have information systems and analytical techniques that enable management to
measure the credit risk inherent in all on- and off-balance sheet activities. The management
 information system should provide adequate information on
the composition of the credit portfolio, including identification of any
concentration of risk. Banks should have methodologies that enable them to quantify the risk
involved in exposures to individual borrowers. Banks should also be able to analyse credit risk
at the product and portfolio level in order to identify any particular sensitivities or
concentrations. The measurement of credit risk should take account of:

i. The specific nature of the credit (loan, derivative, facility, etc.) and its contractual and
financial conditions.
ii. The exposure profile until maturity in relation to potential market movements iii. The
existence of the collateral or guarantees iv. The potential for default based on the internal risk
rating. The analysis of credit risk data should be undertaken at an appropriate frequency with the
results reviewed against relevant limits. Banks should use measurement techniques that are
appropriate to the complexity and level of the risks involved in their activities, based on robust
data and subject to periodic validation
Importance of Credit Risk Assessment

Effective credit risk assessment and loan accounting practices should be performed in a
systematic way and in accordance with established policies and procedures. To be able to
prudently value loans and to determine appropriate loan provisions, it is particularly important
that banks have a system in place to reliably classify loans on the basis of credit risk. Larger
loans should be classified on the basis of a credit risk grading system. Other, smaller loans, may
be classified on the basis of either a credit risk grading system or payment delinquency status.
Both accounting frameworks and Basel II recognise loan classification systems as tools in
accurately assessing the full range of credit risk. Further, Basel II and accounting frameworks
both recognise that all credit classifications, not only those reflecting severe credit deterioration,
should be considered in assessing probability of default and loan impairment.
A well-structured loan grading system is an important tool in differentiating the degree of credit
risk in the various credit exposures of a bank. This allows a more accurate determination of the
overall characteristics of the loan portfolio, probability of default and ultimately the adequacy
of provisions for loan losses. In describing a loan grading system, a bank should address the
definitions of each loan grade and the delineation of responsibilities for
the design, implementation, operation and performance of a loan
grading system.
Credit risk grading processes typically take into account a borrower‟s current financial
condition and paying capacity, the current value and realisability of collateral and other
borrower and facility specific characteristics that affect the prospects for collection of principal
and interest. Because these characteristics are not used solely for one purpose (e.g. credit risk
or financial reporting), a bank may assign a single credit risk grade to a loan regardless of the
purpose for which the grading is used. Both Basel II and accounting frameworks recognise the
use of internal (or external) credit risk grading processes in determining groups of loans that
would be collectively assessed for loan loss measurement.
Thus, a bank may make a single determination of groups of loans for
collective assessment under both Basel II and the applicable accounting
framework.
Credit Rating is the main tool to assess credit risk, which helps in measuring the credit risk and
facilitates the pricing of the account. It gives the vital indications of weaknesses in the account.
It also triggers portfolio management at the corporate level. Therefore, banks should realize the
importance of developing and implementing effective internal credit risk management. It
involves evaluating and assessing an institution‟s risk management, capital adequacy ,and asset
quality. Risk ratings should be reviewed and updated whenever relevant new information is
received. All credits should receive a periodic formal review (e.g. at least annually) to
reasonably assure that credit risk grades are accurate and up-to-date. Credit risk grades for
individually assessed loans that are either large, complex, higher risk or problem credits should
be reviewed more frequently.

To ensure the proper administration of their various credit risk-bearing portfolio the banks must
have the following:
a. A system for monitoring the condition of individual credits, and determining the
adequacy of provisions and reserves,
b. An internal risk rating system in managing credit risk. The rating system should be
consistent with the nature, size and complexity of a bank‟s activities,
c. Information systems and analytical techniques that enable the
management to measure the credit risk inherent in all on- and
off-balance sheet activities. The management information system should provide
adequate information on the composition of the credit portfolio, including identification
of any concentrations of risk,
d. A system for monitoring the overall composition and quality of credit portfolio.

In addition while approving loans, due consideration should be given to the integrity and
reputation of the borrower or counterparty as well as their legal capacity to assume the liability.
Once credit-granting criteria are established, it is essential for the bank to ensure that the
information it receives is sufficient to make proper credit-granting decisions. This information
will also serve as the basis for rating the credit under the bank‟s internal rating system.
Internal credit risk ratings are used by banks to identify gradations in credit risk among their
business loans. For larger institutions, the number and geographic dispersion of their borrowers
makes it increasingly difficult to manage their loan portfolio simply by remaining closely
attuned to the performance of each borrower. To control credit risk, it is important to identify
its gradations among business loans, and assign internal credit risk ratings to loans that
correspond to these gradations. The use of such an internal rating process is appropriate and
indeed necessary for sound risk management at large institutions. The long-term goal of this
analysis is to encourage broader adoption of sound practices in the use of such ratings and to
promote further innovation and enhancement by the industry in this area.
Internal rating systems are primarily used to determine approval requirements and identify
problem loans, while on the other end they are an integral element of credit portfolio monitoring
and management, capital allocation, pricing of credit, profitability analysis, and detailed
analysis to support loan loss reserving. Internal rating systems being used for the former
purposes. As with all material bank activities, as sound risk management process should
adequaltely illuminate the risks being taken and apply appropriate control allow the institution
to balance risks against returns and the institution‟s overall appetite for risk, giving due
consideration to the uncertainties faced by lenders and the long-term viability of the bank. Based
on the historical data which is both financial and non-financial a score is arrived at. The
borrower is then classified into different classes of credit rating based
on the score which is used to determine the rate of interest to be charged.
The borrower‟s credit rating method used above is only one such model. Based on the information
available, a detailed and more comprehensive model can be developed by banks.
Banking organizations should have strong risk rating systems. These systems should take proper
account of the gradations in risk and overall composition of portfolios in originating new loans,
assessing overall portfolio risks and concentrations, and reporting on risk profiles to directors
and management. Moreover, such rating systems also should
play an important role in establishing an appropriate level for the allowance for loan and lease
losses, conducting internal bank analysis of loan and relationship profitability, assessing capital
adequacy, and possibly performancebased compensation.
Credit risk ratings are designed to reflect the quality of a loan or other credit exposure, and thus
– explicitly or implicitly- the loss characterstics of that loan or exposure.In addition, credit risk
ratings may reflect not only the likelihood or severity of loss but also the variability of loss over
time, particularly as this relates to the effect of the business cycle. Linkage to these measurable
outcomes gives greater clarity to risk rating analysis and allows for more consistent evaluation
of performance against relevant benchmarks, In documentation their credit administration
procedure, institutions should clearly identify whether risk ratings reflect the risk of the
borrower or the risk of the specific transaction.
The rating scale chosen should meaningfully distinguish gradations of risk within the
institution‟s portfolio, so that there is clear linkage to loan quality (and/or loss characterstics).
To do so, the rating system should be designed to address the range of risks typically
encountered in the underlying businesses of the institutions. Prompt and systematic tracking of
credits in need of such attention is an element of managing credit risk. Risk ratings should be
reviewed by independent credit risk management or loan review personnel both at the inception
and also periodically over the life of the loan.
In view of the diverse financial and non-financial risks confronted by banks in the wake of the
financial sector deregulation, the risk management practices of the banks have to be upgraded
by adopting sophisticated techniques like Value at Risk (VaR), Duration and simulation and
adopting internal model- based approaches as also credit risk modeling techniques.
When making credit rating decisions, banks review credit application
and credit reports with respect to financial risk. Once lenders make a
“yes” decision, they review the credit reports of their customers on a regular basis as they
continue to manage their financial risk. This process scans credit reports for certain risk
characterstics as defined by the lender. Some lenders, for example, monitor whether or not all
of a consumer‟s payments are on time. Others look at account balance in relation to the total
credit limit. Some lenders review their accounts frequently. Others review accounts once a year.
Account
monitoring also allows lenders to manage the business risk of extending credit in
a better way.
Banks pool assets and loans, which have a possibility of default and yet provide the depositors
with the assurance of the redemption at full face value. Credit risk, in terms of possibilities of
loss to the bank , due to failure of borrowers/counterparties in meeting commitment to the
depositors. Credit risk is the most significant risk, more so in the Indian scenario where the
NPA level of the banking system is significantly high. The management of credit risk through
an efficient credit administration is a prerequisite for long-term sustainability/ profitability of a
bank. A proper credit administration reduces the incidence of credit risk.
Credit risk depends on both internal and external factors. Some of the important external factors
are state of economy, swings in commodity prices, foreign exchange rates and interest rates etc.
The internal factors may be deficiencies in loan policies and administration of loan portfolio
covering areas like prudential exposure limits to various categories, appraisal of borrower‟s
financial position, excessive dependence on collaterals, mechanism of review and post-sanction
surveillance, etc.
The key issue in managing credit risk is to apply a consistent evaluation and rating system to
all investment opportunities. Prudential limits need to be laid down on various aspects of credit
viz., benchmarking current ratio, debt-equity ratio, profitability ratio, debt service coverage
ratio, concentration limits for group/single borrower, maximum exposure limits to industries,
provision for flexibilities to allow variation for very special features. Credit rating may be a
single point indicator of diverse risk factors. Management of credit in a bank will require
alertness on the part of the staff at all the stages of credit delivery and monitoring process. Lack
of such standards in financial institution would increase the problem of increasing loan write-
offs. How can an institution be sure that its collateral is totally protected
in the event of bankruptcy by the borrower? The bank can ensure this
through credit rating and loan documentation.
THEORETICAL BACKGROUND OF CREDIT
RISK MANAGEMENT

CREDIT:
The word „credit‟ comes from the Latin word „credere‟, meaning „trust‟. When sellers transfer
his wealth to a buyer who has agreed to pay later, there is a clear implication of trust that the payment will
be made at the agreed date. The credit period and the amount of credit depend upon the degree of trust.

Credit is an essential marketing tool. It bears a cost, the cost of the seller having to borrow until the
customers payment arrives. Ideally, that cost is the price but, as most customers pay later than agreed,
the extra unplanned cost erodes the planned net profit.

RISK :
Risk is defined as uncertain resulting in adverse out come, adverse in relation to planned objective or
expectation. It is very difficult o find a risk free investment. An important input to risk management is
risk assessment. Many public bodies such as advisory committees concerned with risk management.
There are mainly three types of risk they are follows
Market risk

Credit Risk
sOperational risk

Risk analysis and allocation is central to the design of any project finance, risk management is of
paramount concern. Thus quantifying risk along with profit projections is usually the first step in
gauging the feasibility of the project. once risk have been identified they can be allocated to participants
and appropriate mechanisms put in place.

Types of Financial Risks

Market Risk
Financial
Credit Risk
Risks
Operational Risk

MARKET RISK:
Market risk is the risk of adverse deviation of the mark to market value of the trading portfolio, due to
market movement, during the period required to liquidate the transactions.
OPERTIONAL RISK:
Operational risk is one area of risk that is faced by all organization s. More complex the organization
more exposed it would be operational risk. This risk arises due to deviation from normal and planned
functioning of the system procedures, technology and human failure of omission and commission.
Result of deviation from normal functioning is reflected in the revenue of the organization, either by the
way of additional expenses or by way of loss of opportunity.

CREDIT RISK:
Credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its
obligations in accordance with agreed terms, or in other words it is defined as the risk that a firm‟s
customer and the parties to which it has lent money will fail to make promised payments is known as
credit risk

The exposure to the credit risks large in case of financial institutions, such commercial banks when
firms borrow money they in turn expose lenders to credit risk, the risk that the firm will default on its
promised payments. As a consequence, borrowing exposes the firm owners to the risk that firm will be
unable to pay its debt and thus be forced to bankruptcy.

CONTRIBUTORS OF CREDIT RISK:

Corporate assets
Retail assets
Non-SLR portfolio
May result from trading and banking book
Inter bank transactions
Derivatives
Settlement, etc

KEY ELEMENTS OF CREDIT RISK MANAGEMENT:

Establishing appropriate credit risk environment
Operating under sound credit granting process
Maintaining an appropriate credit administration, measurement & Monitoring
 Ensuring adequate control over credit risk
Banks should have a credit risk strategy which in our case is communicated throughout the organization
through credit policy.

Two fundamental approaches to credit risk management:-

-
The internally oriented approach centers on estimating both the expected cost and volatility of future credit
losses based on the firm‟s best assessment.
- Future credit losses on a given loan are the product of the probability that the borrower will default and
the portion of the amount lent which will be lost in the event of default. The portion which will be lost
in the event of default is dependent not just on the borrower but on the type of loan (eg., some bonds
have greater rights of seniority than others in the event of default and will receive payment before the
more junior bonds).

To the extent that losses are predictable, expected losses should be factored into product prices and
covered as a normal and recurring cost of doing business. i.e., they should be direct charges to the loan
valuation. Volatility of loss rates around expected levels must be covered through risk-adjusted returns.
- So total charge for credit losses on a single loan can be represented by ([expected probability of default]
* [expected percentage loss in event of default]) + risk adjustment * the volatility of ([probability of
default * percentage loss in the event of default]).

Financial institutions are just beginning to realize the benefits of credit risk management models.
These models are designed to help the risk manager to project risk, ensure profitability, and reveal new
business opportunities. The model surveys the current state of the art in credit risk management. It
provides the tools to understand and evaluate alternative approaches to modeling. This also describes
what a credit risk management model should do, and it analyses some of the popular models.

The success of credit risk management models depends on sound design, intelligent implementation,
and responsible application of the model. While there has been significant progress in credit risk
management models, the industry must continue to advance the state of the art. So far the most
successful models have been custom designed to solve the specific problems of particular institutions.
A credit risk management model tells the credit risk manager how to allocate scarce credit risk capital
to various businesses so as to optimize the risk and return characteristics of the firm. It is important or
understand that optimize does not mean minimize risk otherwise every firm would simply invest its
capital in risk less assets. A credit risk management model works by comparing the risk and return
characteristics between individual assets or businesses. One function is to quantify the diversification
of risks. Being well-diversified means that the firms has no concentrations of risk to say, one
geographical location or one counterparty.
 CHAPTER 2
INDUSTRY OVERVIEW

History:

Banking in India has its origin as carry as the Vedic period. It is believed that the transition from
money lending to banking must have occurred even before Manu, the great Hindu jurist, who has
devoted a section of his work to deposits and advances and laid down rules relating to the interest.
During the mogal period, the indigenous bankers played a very important role in lending money
and financing foreign trade and commerce. During the days of East India Company, it was to turn
of the agency houses top carry on the banking business. The general bank of India was the first
joint stock bank to be established in the year 1786.The others which followed were the Bank of
Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906,
while the other two failed in the meantime. In the first half of the 19th Century the East India
Company established three banks; The Bank of Bengal in 1809, The Bank of Bombay in 1840 and
The Bank of Madras in 1843.These three banks also known as presidency banks and were
independent units and functioned well. These three banks were amalgamated in 1920 and The
Imperial Bank of India was established on the 27th Jan 1921, with the passing of the BANK OF
BARODA Act in 1955, the undertaking of The Imperial Bank of India was taken over by the
newly constituted BANK OF BARODA. The Reserve Bank which is the Central Bank was created
in 1935 by passing of RBI Act 1934, in the wake of swadeshi movement, a number of banks with
Indian Management were established in the country namely Punjab National Bank Ltd, Bank of
India Ltd, Canara Bank Ltd, Indian Bank Ltd, The Bank of Baroda Ltd, The Central Bank of India
Ltd .On July 19th 1969, 14 Major Banks of the country were nationalized and in 15th April 1980
six more commercial private sector banks were also taken over by the government. The Indian
Banking industry, which is governed by the Banking Regulation Act of India 1949, can be broadly
classified into two major categories, nonscheduled banks and scheduled banks. Scheduled Banks
comprise commercial banks and the cooperative banks.
The first phase of financial reforms resulted in the nationalization of 14
major banks in 1969 and resulted in a shift from class banking to mass
banking. This in turn resulted in the significant growth in the
geographical coverage of banks. Every bank had to earmark a min percentage of their loan
portfolio to sectors identified as “priority sectors” the manufacturing sector also grew during the
1970‟s in protected environments and the banking sector was a critical source. The next wave of
reforms saw the nationalization of 6 more commercial banks in 1980 since then the number of
scheduled commercial banks increased four- fold and the number of bank branches increased to
eight fold.

After the second phase of financial sector reforms and liberalization of the sector in the early
nineties. The PSB‟s found it extremely difficult to complete with the new private sector banks and
the foreign banks. The new private sector first made their appearance after the guidelines
permitting them were issued in January 1993.

The Indian Banking System:

Banking in our country is already witnessing the sea changes as the banking sector seeks new
technology and its applications. The best port is that the benefits are beginning to reach the masses.
Earlier this domain was the preserve of very few organizations. Foreign banks with heavy
investments in technology started giving some “Out of the world” customer services. But, such
services were available only to selected few- the very large account holders. Then came the
liberalization and with it a multitude of private banks, a large segment of the urban population
now requires minimal time and space for its banking needs.

Automated teller machines or popularly known as ATM are the three alphabets that have changed
the concept of banking like nothing before. Instead of tellers handling your own cash, today there
are efficient machines that don‟t talk but just dispense cash. Under the

Reserve Bank of India Act 1934, banks are classified as scheduled banks and non-scheduled
banks. The scheduled banks are those, which are entered in the Second Schedule of RBI Act,
1934. Such banks are those, which have paid- up capital and reserves
of an aggregate value of not less then Rs.5 lacs and which satisfy RBI
that their affairs are carried out in the interest of their depositors. All
commercial banks Indian and Foreign, regional rural banks and state co-operative banks are
Scheduled banks. Non Scheduled banks are those, which have not been included in the Second
Schedule of the RBI Act, 1934.

The organized banking system in India can be broadly classified into three categories: (i)
Commercial Banks (ii) Regional Rural Banks and (iii) Co-operative banks. The Reserve Bank of
India is the supreme monetary and banking authority in the country and has the responsibility to
control the banking system in the country. It keeps the reserves of all commercial banks and hence
is known as the “Reserve Bank”.

Current scenario:-

Currently (2020), the overall banking in India is considered as fairly mature in terms of supply,
product range and reach - even though reach in rural India still remains a challenge for the private
sector and foreign banks. Even in terms of quality of assets and
Capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets
- as compared to other banks in comparable economies in its region. The Reserve Bank of India is
an autonomous body, with minimal pressure from the Government

With the growth in the Indian economy expected to be strong for quite some time especially in its
services sector, the demand for banking services especially retail banking, mortgages and
investment services are expected to be strong. Mergers & Acquisitions., takeovers, are much more
in action in India.

One of the classical economic functions of the banking industry that has remained virtually
unchanged over the centuries is lending. On the one hand, competition has had considerable
adverse impact on the margins, which lenders have enjoyed, but on the other hand technology has
to some extent reduced the cost of delivery of various products and services.
Bank is a financial institution that borrows money from the public and lends money to the public
for productive purposes. The Indian Banking Regulation Act of 1949 defines the term Banking
Company as "Any company which transacts banking business in India" and the term banking as
"Accepting for the purpose of lending all investment of deposits, of money from the public,
repayable on demand or otherwise and withdrawal by cheque, draft or otherwise".

Banks play important role in economic development of a country, like:

• Banks mobilise the small savings of the people and make them available for
productive purposes.

• Promotes the habit of savings among the people thereby offering attractive rates of
interests on their deposits.

• Provides safety and security to the surplus money of the depositors and as well
provides a convenient and economical method of payment.

• Banks provide convenient means of transfer of fund from one place to another.

• Helps the movement of capital from regions where it is not very useful to regions
where it can be more useful.

• Banks advances exposure in trade and commerce, industry and agriculture by

knowing their financial requirements and prospects.

• Bank acts as an intermediary between the depositors and the investors. Bank also
acts as mediator between exporter and importer who does foreign trades.

Thus Indian banking has come from a long way from being a sleepy business institution to a highly
pro-active and dynamic entity. This transformation has been largely brought about by the large
dose of liberalization and economic reforms that allowed banks to explore new business
opportunities rather than generating revenues from conventional streams (i.e. borrowing and
lending). The banking in India is highly fragmented with 30 banking units contributing to almost
50% of deposits and 60% of advances.
 The Structure of Indian Banking:

The Indian banking industry has Reserve Bank of India as its

Regulatory Authority. This is a mix of the Public sector, Private sector, Co-operative banks and foreign
banks. The private sector banks are again split into old banks and new banks.

Reserve Bank of India

[Central Bank]

Scheduled Banks

Scheduled Scheduled Co-operative Banks

Commercial Banks

Public Sector Private Sector

Banks Banks Foreign Regional
Banks Rural Banks

Scheduled Scheduled State

Nationalized Urban Co-Operative
Banks Banks
 Coerative
Banks

SBI & its

Associat
es Op

Old Private New Private

Sector
Sector Banks
Banks

Chart Showing Three Different Sectors of Banks

Public Sector Banks

i)
ii) Private Sector Banks

Public Sector Banks

BANK OF BARODA and Nationalized Regional

Rural
SUBSIDIARIES Banks Banks

BANK OF BARODA and subsidiaries

This group comprises of the Bank of Baroda and its seven subsidiaries viz., State Bank of
Patiala, State Bank of Hyderabad, State Bank of Travancore, State Bank of Bikaner and Jaipur,
State Bank of Mysore, State Bank of Saurashtra, Bank of Baroda

Bank of Baroda (BANK OF BARODA) is the largest bank in India. If one measures by
the number of branch offices and employees, BANK OF BARODA is the largest bank in the
world. Established in 1806as Bank of Bengal it is the oldest commercial bank in the Indian
subcontinent. BANK OF BARODA provides various domestic, international and NRI products
and services, through its vast network in India and overseas. With an asset base of $126 billion
and its reach, it is a regional banking behemoth. The government nationalized the bank in1955,
with the Reserve bank of India taking a 60% ownership stake. In recent years the bank has focused
on two priorities, 1), reducing its huge staff through Golden handshakeschemes known as the
Voluntary Retirement Scheme, which saw many of its best and brightest defect to the private
sector, and 2), computerizing its operations.

The Bank of Baroda traces its roots to the first decade of19th century, when
the Bank of culcutta, later renamed theBank of bengal, was
established on 2 jun 1806. The government amalgamatted Bank of Bengal and two other
Presidency banks, namely, the Bank of Bombay and the bank of Madras, and named the
reorganized banking entity the Imperial Bank of India. All these Presidency banks were
incorporated ascompanies, and were the result of theroyal charters. The Imperial Bank of India
continued to remain a joint stock company. Until the establishment of a central bank in India the
Imperial Bank and its early predecessors served as the nation's central bank printing currency.

The Bank of Baroda Act 1955, enacted by the parliament of India,

authorized the Reserve Bank of India, which is the central Banking
Organisationof India, to acquire a controlling interest in the Imperial Bank of India, which was
renamed the Bank of Baroda on30th April 1955.

In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It
is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating
and various other rankings. According to the Forbes 2000 listing it tops all Indian companies.

Nationalized banks
This group consists of private sector banks that were nationalized. The Government of India
nationalized 14 private banks in 1969 and another 6 in the year 1980. In early 1993, there were 28
nationalized banks i.e., BANK OF BARODA and its 7 subsidiaries plus 20 nationalized banks. In
1993, the loss making new bank of India was merged with profit making Punjab National Bank.
Hence, now only 27 nationalized banks exist in India.

Regional Rural banks

These were established by the RBI in the year 1975 of banking commission. It was established to
operate exclusively in rural areas to provide credit and other facilities to small and marginal
farmers, agricultural laborers, artisans and small entrepreneurs.
Private Sector Banks
Private Sector Banks

Old private new private

Sector Banks Sector Banks

Old Private Sector Banks

This group consists of the banks that were establishes by the privy sectors, committee
organizations or by group of professionals for the cause of economic betterment in their operations.
Initially, their operations were concentrated in a few regional areas. However, their branches
slowly spread throughout the nation as they grow.

New private Sector Banks

These banks were started as profit orient companies after the RBI opened the banking sector to the
private sector. These banks are mostly technology driven and better managed than other banks.

Foreign banks
These are the banks that were registered outside India and had originated in a foreign country. The
major participants of the Indian financial system are the commercial banks, the financial
institutions (FIs), encompassing term-lending institutions, investment

institutions, specialized financial institutions and the state-level development banks, Non-Bank
Financial Companies (NBFCs) and other market intermediaries such as the stock brokers and
money-lenders. The commercial banks and certain variants of NBFCs are among the oldest of the
market participants. The FIs, on the other hand, are relatively new entities in the financial market
place.

IMPORTANCE OF BANKING SECTOR IN A GROWING ECONOMY

In the recent times when the service industry is attaining greater importance
compared to manufacturing industry, banking has evolved as a prime
sector providing financial services to growing needs of the economy.

Banking industry has undergone a paradigm shift from providing ordinary banking services in the
past to providing such complicated and crucial services like, merchant banking, housing finance,
bill discounting etc. This sector has become more active with the entry of new players like private
and foreign banks. It has also evolved as a prime builder of the economy by understanding the
needs of the same and encouraging the development by way of giving loans, providing
infrastructure facilities and financing activities for the promotion of entrepreneurs and other
business establishments.

For a fast developing economy like ours, presence of a sound financial system to mobilize and
allocate savings of the public towards productive activities is necessary. Commercial banks play
a crucial role in this regard.

The Banking sector in recent years has incorporated new products in their businesses, which are
helpful for growth. The banks have started to provide fee-based services like, treasury operations,
managing derivatives, options and futures, acting as bankers to the industry during the public
offering, providing consultancy services, acting as an intermediary between twobusiness entities
etc.At the same time, the banks are reaching

out to other end of customer requirements like, insurance premium payment, tax payment etc. It
has changed itself from transaction type of banking into relationship banking, where you find
friendly and quick service suited to your needs. This is possible with understanding the customer
needs their value to the bank, etc. This is possible with the help of well organized staff, computer
based network for speedy transactions, products like credit card, debit card, health card, ATM etc.
These are the present trend of services. The customers at present ask for convenience of banking
transactions, like 24 hours banking, where they want to utilize the services whenever there is a
need. The relationship banking plays a major and important role in growth, because the customers
now have enough number of opportunities, and they choose according to their satisfaction of
responses and recognition they get. So the banks have to play cautiously, else they may lose out
the place in the market due to competition, where slightest of opportunities are captured fast.

Another major role played by banks is in transnational business, transactions and networking.
Many leading Indian banks have spread out their network to other countries, which help in
currency transfer and earn exchange over it.

These banks play a major role in commercial import and export business, between parties of two
countries. This foreign presence also helps in bringing in the international standards of operations
and ideas. The liberalization policy of 1991 has allowed many foreign banks to enter the Indian
market and establish their business. This has helped large amount of foreign capital inflow &
increase our Foreign exchange reserve.

Another emerging change happening all over the banking industry is consolidation through
mergers and acquisitions. This helps the banks in strengthening their empire and expanding their
network of business in terms of volume and effectiveness.

EMERGING SCENARIO IN THE BANKING SECTOR

The Indian banking system has passed through three distinct phases from the time of inception.
The first was being the era of character banking, where you were recognized as a credible depositor
or borrower of the system. This era come to an end in the sixties. The

second phase was the social banking. Nowhere in the democratic developed world, was banking
or the service industry nationalized. But this was practiced in India. Those were the days when
bankers has no clue whatsoever as to how to determine the scale of finance to industry. The third
era of banking which is in existence today is called the era of Prudential Banking. The main focus
of this phase is on prudential norms accepted internationally.

BANK OF BARODA Group-

The Bank of Bengal, which later became the Bank of Baroda. Bank of Baroda with its seven
associate banks commands the largest banking resources in India.

Nationalisation-
The next significant milestone in Indian Banking happened in late 1960s when the then Indira
Gandhi government nationalized on 19th July 1949, 14 major commercial Indian banks followed
by nationalisation of 6 more commercial Indian banks in 1980.

The stated reason for the nationalisation was more control of credit delivery. After this, until
1990s, the nationalised banks grew at a leisurely pace of around 4% also called as the Hindu
growth of the Indian economy.After the amalgamation of New Bank of India with Punjab
National Bank, currently there are 19 nationalised banks in India.

Liberalization-

In the early 1990‟s the then Narasimha rao government embarked a policy of
liberalization and gave licences to a small number of private banks, which came to be known as
New generation tech-savvy banks, which included banks like ICICI and HDFC. This move along
with the rapid growth of the economy of India, kick started the banking sector in India, which
has seen rapid growth with strong contribution from all the sectors of banks, namely Government
banks, Private Banks and Foreign banks. However there had been a few hiccups for these new
banks with many either being taken over like Global Trust Bank while others like Centurion
Bank have found the going tough.

The next stage for the Indian Banking has been set up with the proposed relaxation in the norms
for Foreign Direct Investment, where all Foreign Investors in Banks may be given voting rights
which could exceed the present cap of 10%, at pesent it has gone up to 49% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave
ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led
to the retail boom in India. People not just demanded more from their banks but also received
more.

CURRENT SCENARIO-

Currently (2020), overall, banking in India is considered as fairly mature in terms of supply,
product range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets-as compared to other banks in
comparable economies in its region. The Reserve Bank of India is an autonomous body, with
minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to
manage volatility-without any stated exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its
services sector, the demand for banking services-especially retail banking, mortgages and
investment services are expected to be strong. M&As, takeovers, asset sales and much more action
(as it is unravelling in China) will happen on this front in India.
In March 2019, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed
to hold more than 5% in a private sector bank since the RBI announced norms in 2018 that any
stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India
has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government
of India holding a stake), 29 private banks (these do not have government stake; they may be
publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a
rating agency, the public sector banks hold over 75 percent of total assets of the banking industry,
with the private and foreign banks holding 18.2% and 6.5% respectively.
 CHAPTER 3 COMPANY PROFILE
Bank of Baroda (BoB) is an Indian state-owned banking
and financial services company headquartered in Vadodara in Gujarat, India. It is the secondlargest
bank in India, after State Bank of India, and offers a range of banking products and financial
services to corporate and retail customers through its branches and through its specialized
subsidiaries and affiliates. During FY 2013-14, its total business
was 9,659 billion. In addition to its headquarters in its home state of Gujarat, it has a corporate
headquarters in the Bandra Kurla Complex in Mumbai.

Based on 2014 data, it is ranked 801 on Forbes Global 2000 list. BoB has total assets in excess of
6,595 billion, a network of 4966 branches (out of which 4873 branches are in India) and offices,
and over 5000 ATMs.

Growing its presence across new regions and strengthening its equity in existing markets, Bank of
Baroda is on the path to establish itself „round the clock around the globe.' The bank is exploring
out-of-the-box means to identify new ways to tailor its growing repertoire of products and services
to meet segment-specific requirements across regions. Automation-led process and cost
optimization, orchestration of the offices network, and greater attention to compliance with global
regulations are aggressively being focused on to help the bank achieve its ambitious goals. Bank
of Baroda is gearing to leverage the opportunities that a globalized era presents and devising
nimble ways to skirt its threats. The bank is now charting a coherent strategy to not just cope but
break new ground and emerge with the winning edge in the changing global business scenario.

Bank of Baroda is amongst first in the industry to complete an all-inclusive rebranding exercise
wherein various novel customer centric initiatives were undertaken along with the change of logo.
The initiatives include setting up of specialized NRI Branches, Gen-Next Branches and Retail
Loan Factories/ SME Loan Factories with an assembly line approach of processing loans for
speedy disbursal of loans.

Ever since it‟s rebranding in 2005, Bank has consistently promoted its major strengths viz. large
international presence; technological advancement and superior customer service etc. Bank had
introduced the sub brand BARODA NEXT-State of the Art-Straight from the Heart to showcase
how it has utilized technology to nurture long term relationships for superior customer experience.
The sub brand has been reinforced by alternate delivery channels such as internet banking, ATMs,
mobile
banking etc. and robust delivery outfits like Retail Loan Factories, SME Loan Factories, and City
Sales Office etc. Bank‟s constant endeavor to strengthen its branch/ATM network combined with
well-informed staff offering personalized service at its various touch points have enhanced
customer interactions and satisfaction. Thus the Bank has firmly positioned itself as a
technologically advanced customer-centric bank.

History of the Bank

It all started with a visionary Maharaja‟s uncanny foresight into the future of trade and enterprising
in his country. On 20th July 1908, under the Companies Act of 1897, and with a paid up capital of
Rs 10 Lacs started the legend that has now translated into a strong, trust worthy financial body,
THE BANK OF BARODA.

It has been a wisely orchestrated growth, involving corporate wisdom, social pride and the vision
of helping others grow, and growing itself in turn.

The founder, Maharaja Sayajirao Gaekwad, with his insight into the future, saw "a bank of this
nature will prove a beneficial agency for lending, transmission, and deposit of money and will be
a powerful factor in the development of art, industries and commerce of the State and adjoining
territories.”

These words are etched into the mind, body and soul of what has now become a banking legend.
Following the Maharajas words, the emblem has been crafted to represent wealth, safety, industrial
development and an inclination to better and promote the country‟s agrarian economy. This
emblem shows a coin, symbolizing wealth, embossed with an upraised palm, a safety cover for the
depositor‟s money, with a cogwheel that promotes industrial growth in tandem with the two corn
ears that stand for the progress of the staple agricultural growth in the country.

Between 1913 and 1917, as many as 87 banks failed in India. Bank of Baroda survived the crisis,
mainly due to its honest and prudent leadership. This financial integrity, business prudence, caution
and an abiding care and concern for the hard earned savings of hard working people, were to
become the central philosophy around which business decisions would be effected. This cardinal
philosophy was over the 94 years of its existence, to become its biggest asset. It ensured that the
Bank survived the Great War years. It ensured survival during the Great Depression. Even while
big names were dragged into the Stock Market scam and the Capital Market scam, the Bank of
Baroda continued its triumphant march along the best ethical practices.

No history is complete without mention of its heroes, mostly ordinary people, who turn in
extraordinary performances and contribute to building an institution. Over the years, there have
been thousands of such people. The Bank salutes these "unknown soldiers" who passionately
helped to create the legend of Bank of Baroda.

There were also the leaders, both corporate and royal, who provided the vision and guided the
Bank through trail blazing years, and departing, left behind footprints on the sands of time. This
Roll of Honor will be incomplete without mention of men, of the stature of Maharaja Sayajirao
Gaekwad, Sampatrao Gaekwad, Ralph Whitenack, Vithaldas Thakersey, Tulsidas Kilachand and
NM Chokshi.

Mission Statement

To be a top ranking National Bank of International Standards committed to augmenting stake

holders' value through concern, care and competence.

Business Strategy

• Focusing upon customer needs and preferences and fulfilling them in a cost effective manner
by leveraging strong technology platform
• Attain a well balanced growth in its loan book across different sectors like retail, SME,
agriculture, wholesale etc. and across different geographies
• Further strengthen its systems for credit origination and monitoring
• Maintain a high provision coverage ratio to protect the quality of its asset portfolio from any
downside growth risks
• Develop innovative products and services that attract targeted customers and address
 inefficiencies in the Indian financial sector
• Back office functions moved to hub, so branch staff can spend time with customers

SWOT Analysis

Strength

• Well diversified branch distribution

• One of the biggest names in public sector banking
• CBS implementation in its branches
• Strong concentration in the western region makes sure that it is CASA rich
• Better focus on international market
• Strong asset quality with healthy coverage ratio
• Improvement on the ROE margins in the last fiscal year
• International presence adds to the credibility Weakness

• Lesser branches across the country when compared with SBI and PNB
• Inadequate talent pool to compete with strong private banks
• Late on introducing latest products in the market
• Lesser strategic initiatives as compared to larger private banks
• Due to focus on international branches, local focus sometimes gets diluted Opportunities

• International branches give scope to expand in other economies

• Expansion in the rural areas to include the unbanked and under banked
• BoB Caps can contribute more to the revenues
• Cost to Income could improve in coming years
• Scope to improve non-interest income
• Focus more aggressively on retail banking
Threat

• New banking licenses by RBI

• NPA levels could rise as there is over reliance on corporate and SME‟s.
• Contribution from the foreign business of the bank is around 25% on the bottom line
• Foreign banks

Business Description

The bank offers a wide array of customized and specialized services to meet the diverse needs of
its customers, and these services have been categorized into Personal Banking, Business Banking,
Corporate Banking, International Banking, Treasury Banking and Rural Banking services. The
company offers fixed, current, and savings deposits; and home loans, mortgage loans, advance
against securities, education loans, auto loans, term finance, small scale industries and SME loans,
traders loans, working capital, export and import finance, bill finance, bridge loans, project finance,
and infrastructure finance.

Subsidiaries

Domestic

• BOBCARDS Ltd.
• BOB Capital Markets Ltd.
• Nainital Bank Ltd.
Overseas

• Bank of Baroda (Botswana) Ltd.

• Bank of Baroda (Kenya) Ltd.
• Bank of Baroda (Uganda) Ltd.
• Bank of Baroda (Guyana) Ltd.
• Bank of Baroda (New Zealand) Ltd
• Bank of Baroda (Tanzania) Ltd
• Bank of Baroda (Trinidad & Tobago) Ltd.
• Bank of Baroda (Ghana) Ltd.
 Business overview

An overview of various business segments

Retail Banking

Bank of Baroda has developed a strong retail banking franchise over the years. Retail Banking is
one of the key drivers of the Bank‟s growth strategy and it encompasses a wide range of products
delivered to customers through multiple channels. The Bank offers a complete suite of products
across deposits, loans, investment solutions, payments and cards to help customers achieve their
financial objectives. The Bank focuses on product differentiation as well as a high level of
customer-service to enable it to build its retail business.

The Bank has continued to develop its risk management capabilities in Retail business, both from
a credit and operations risk standpoint. The branch channel is effectively utilized for growing the
retail assets business, with loan and card products being offered to existing clientele.

The growth areas identified by the Bank are in the areas of residential mortgages and passenger
car loans. Of the total retail loans portfolio, 57.47% is in the form of secured loans (residential
mortgages and auto loans).

The Bank offers a wide range of payment solutions to its customers in the form of debit cards,
prepaid cards and credit cards. As on 31st March 2014, the Bank has a base of approximately
99,000+ debit cards, placing it among the leading players in the country. The Bank also distributes
third party products such as mutual funds, Bank assurance products (life and general insurance),
online trading, and Gold and Silver coins through its branches.

The retail business of the Bank is supported by innovative services and alternate channels which
provide convenience of transactions to customers. These channels include an extensive ATM
network, internet banking, mobile banking and phone banking.

International Retail

International Retail Business focuses specifically on the overseas sales channel, retail foreign
exchange business, remittances and retail businesses in overseas centers such as Hong Kong and
Singapore, where the Bank has a presence. The products offered in the area of retail Forex and
remittances include travel currency cards, inward and outward wire transfers, traveler‟s cheques
and foreign currency notes, remittance facilities through online portals as well as through
collaboration with correspondent banks, exchange houses and money transfer operators.

Business Banking

Business Banking leverages the Bank‟s strengths – a well distributed network of branches and a
strong technology platform to offer the best in transaction banking services. The Bank offers a
range of current account products and cash management solutions across all business segments
covering corporates, institutions, central and state government ministries and undertakings as well
as small and retail customers.

The Bank is one of the top CMS providers in the country. The Bank acts as an agency bank for
transacting government business offering services to various Central Government Ministries /
Departments and other State Governments and Union Territories. In order to provide solutions for
business to effectively manage their funds flow, the Bank has introduced liquidity management
solution for corporate customers. Similarly, a single window for all payment requirements was
launched with several advanced features such as setting a daily transaction limit for corporate
users, setting transaction limits for individual beneficiaries, prioritizing payment methods, online
stop payment and cancellation facilities.

Corporate Credit

Bank of Baroda has built a strong corporate banking franchise across corporate, liability and asset
businesses. Bank provides customized structuring and financing solutions in a timely and
comprehensive manner to its corporate customers with a focus on building out a high quality credit
portfolio. The Bank is among market leaders in Debt Capital Markets and loan syndication
business across segments, sectors and geographies. The Bank also provides full range of Treasury
and Trade Finance solutions to its corporate clients. The Bank offers technology enabled
transaction banking and cash management services to customers across Government, financial
institutions and corporate segments. Bank‟s infrastructure business includes project and bid
advisory services, project lending, debt syndication, project structuring and due diligence,
securitization and structured finance.
Treasury

The Bank has an integrated Treasury, covering both domestic and global
markets, which manages the Bank‟s funds across geographies.
The Bank‟s treasury business has grown substantially over the years, gaining market share and
continuing to be among the top five banks in terms of forex revenues. The Treasury plays an
important role in the sovereign debt markets and participates in the primary auctions held by RBI.
It also actively participates in the secondary government securities and corporate debt market. The
foreign exchange and money markets desk is an active participant in the inter- bank/ FI space. The
Bank has been exploring various cross-border markets to augment resources and support customer
cross-border trade. The Bank has emerged as one of the leading providers of foreign exchange and
trade finance services. It provides a gamut of products for exports and imports as well as retail
services. Its cutting edge technology provides comprehensive and timely customer services.

International Banking

The international operations of the Bank form a key enabler in its strategy to partner with the
overseas growth potential of its domestic clientele, who are venturing abroad or require nonrupee
funds for domestic projects. The Bank now has a foreign network of branches in 14 other countries,
which include Bahamas, Bahrain, Belgium, China, Fiji Islands, Hong Kong, Mauritius, Republic
of South Africa, Seychelles, Singapore, Sultanate of Oman, United Arab Emirates, United
Kingdom and United States of America and tree representative offices (Australia, Malaysia and
Thailand.) While corporate banking, trade finance, treasury and risk management solutions are
the primary offerings, the Bank also offers retail liability products Further, the Bank‟s alliances
with banks and exchange houses in the Middle East provide the support for leveraging the business
opportunities emanating from the large NRI Diaspora present in these countries.

Small and Medium Enterprises

The Small and Medium Enterprises (SME) segment is a thrust area of the Bank. The business
approach towards this segment, which is expected to contribute significantly to economic growth
in future, is to build relationships and nurture the entrepreneurial talent available. The relationship
based approach enables the Bank to deliver value through the entire life cycle of SMEs. The Bank
has segmented its SME business in three groups: Small Enterprises, Medium Enterprises and
Supply Chain Finance. The Bank extends working capital, project finance as well as trade finance
facilities to SMEs.

Information Technology

Technology is one of the key enablers for business and delivery of customized financial solutions.
The Bank continues to focus on introducing innovative banking services through investments in
scalable and robust technology platforms that delivers efficient and seamless services across
multiple channels for customer convenience and cost reduction. The Bank has also focused on
improving the governance process in IT.

The Bank has undertaken various steps in order to align itself towards RBI guidelines on security
and governance, including setting up of Board and Executive level committees and working on IT
operations and other key areas.

Agriculture

The Bank continues to drive and expand the flow of credit to the agricultural sector. More than
400 branches of the Bank have dedicated officers for providing farm loans. Products and solutions
are created specifically with simple features and offered at affordable rates to rural customers. The
Bank has also adopted a value-chain approach, wherein end-to-end solutions are being provided
for various stakeholders. It also offers various customized solutions to meet the regional
requirements.

Human RESOURCES

The Bank aims in creating and developing human capital to realize its vision of nurturing a
mutually beneficial relationship with its employees. Employee engagement and learning,
leadership development, enhancing productivity and building multiple communication platforms
thus occupied center stage in the Bank‟s HR objective. The Bank continues to maintain a strong
employer brand in the financial services sector especially on the campuses of the premier business
schools of the country. Bank of Baroda has a middle age workforce with an average age of 46
years.
 Various initiatives taken up by the Bank

Strategic initiative

The Bank‟s focus was optimize human resource management in a highly motivating work
environment, rawing maximum mileage out of the available Information Technology and imbibing
a full-fledged marketing culture to promote a sense of professionalism in approach and attitude.
BOB completed Core Banking Solution (CBS) rollout in 4,952 domestic branches covering 94%
of its business as at 31st March, 2014.

The Bank launched several new IT products and services such as Phone Banking, Corporate
Cash Management System, Payment Messaging Solution and Global Treasury.
The Bank took many initiatives introducing new products both on assets and liability sides such as
Loan for Earnest Money Deposit, Baroda Additional Assured Advance to NRIs, Baroda Bachat
Mitra etc.

In its role as a partner to the rural development, the Bank, besides meeting all its credit deployment
targets, established four Baroda Swarojgar Vikas Sansthan for imparting training to
the unemployed youth and facilitating their gainful self-employment.
It organized awareness programmes for SME borrowers to educate them about various products,
services and precautionary steps to be taken in view of global financial crisis.

Marketing Initiatives

The mid-eighties marked the beginning of the shift to a buyers` market. The Bank orchestrated its
business strategies around the centrality of the customer. It diversified into areas of merchant
banking, housing finance, credit cards and mutual funds. A string of segment specific branches
entrenched operations in the profitable markets. Overseas operations were revamped and structural
changes intensified in the territories to cater to second generation NRIs. Slowly but surely, the
move to become a one stop financial supermarket had been set in motion. Service delivery
standards were stipulated.
Technology was adopted to add punch. Employees across the board were inculcated with the
marketing concept. Aggressive marketing became the new business philosophy.

Quality Initiatives

In its relentless striving for quality perfection, the Bank secured the ISO 9001:2000 certifications
for 15 branches. By end of the current financial, the Bank is targeting 54 more branches for this
quality certification.

People Initiatives

Bank of Baroda has always had an immense faith in the infinite potential of its people. This has
been historically demonstrated in its recruitment practices, developmental initiatives, placement
processes and promotion policies. Strategic HR interventions like, according cross border and
cross cultural work exposure to its managers, hiring diverse functional specialists to support line
functionaries and complementing the technical competencies of its people by imparting
conceptual, managerial and leadership skills, gave the Bank competitive advantage. The elaborate
man management policies also made the Bank a breeding ground for business leaders. The Bank
provided around a dozen CEOs to the industry- men who went on to build other great institutions.
People initiatives were blended with IR initiatives to create an effectively harmonious workplace,
where everyone prospered.

Financial Initiatives

New norms for capital adequacy required new capital management strategies. In 1995 the Bank
raised Rs 300 crores through a Bond issue. In 1996 the Bank tapped the capital market with an IPO
of Rs 850 crores, despite adverse market conditions prevailing then, the issue was oversubscribed,
reflecting the positive public perception of the Banks fundamental financial strength.

Digital Initiatives

Bank of Baroda pioneered the shift from manual operating systems to a computerized work
environment. Starting with ledgers, to ledger posting machines, through ALPMs, the Bank
graduated to the use of Unix based systems to Mainframes, to client server based Total Branch
Mechanization
Systems. Today, the Bank has 3918 computerized branches, covering 75% of its network and
91.64% of its business. Alive to the growing complexities of an intensely competitive marketplace
and the mounting expectations of customers fuelled by this competition, the Bank reworked its
distribution strategy. It ventured beyond the brick and mortar delivery channel into ATMs and the
OmniBOB range of anytime, anywhere electronic channels of PC banking, telephone banking. The
e-banking products used state of the art technologies like digital certificates, smart card
authentication and secure networking.

The new IT strategy, in the process of implementation will see the deployment of Core Banking
Systems, Multi Service Transaction Switch, Payment Gateways - all geared to deliver convenience
banking.

Corporate Social Responsibility (CSR) Initiatives

Bank has always upheld inclusive growth high on its agenda. Bank has established 36 Baroda
Swarojgar Vikas Sansthan (BSVS) for imparting training to unemployed youth, free of cost for
gainful self-employment & entrepreneurship skill development and 52 Baroda Gramin Paramarsh
Kendra and for knowledge sharing, problem solving and credit counseling for rural masses across
the country. Bank has also established 18 Financial Literacy and Credit Counseling Centers
(FLCC) in order to spread awareness among the rural masses on various financial and banking
services and to speed up the process of Financial Inclusion.
The Future
Revolutionary and discontinuous changes in the operating environment are a stark reminder that
business success is impermanent. The emergence of IT as a major driver for change, has
accentuated the need to initiate a major transformation program. The conversion to an IT savvy,
market driven bank will be a prerequisite to survival and growth. A major and strategic step in hi-
tech, was the establishment of the Integrated Treasury branch, as a forerunner to full-fledged global
treasury operations. Towards creating a future Bank of Baroda, the Bank has adopted a
revolutionary new business strategy that will be enabled by a revolutionary new IT strategy.
Actioning this strategy will position Bank of Baroda as India‟s uncontested premier bank.

At Bank of Baroda, change is a journey. It has a beginning. There will be no end. It will be a long
and difficult march. And the Bank will emerge stronger, more resilient and positioned to become
India‟s first bank of truly global standards. The relocation to the imposing Baroda Corporate
Centre is a true reflection of the Banks resolves to move ahead of the times. It will not be out of
place now, as it stands on the threshold of a digital era, to echo the same sentiments that guided
the Bank in its platinum jubilee year - a promising future is the sequel to a glorious past.

Product and Services Of Bank of Baroda

Bank of Baroda offers its services majorly in six parts:

A. Personal Banking
B. Business Banking
C. Corporate Banking
D. International Banking
E. Treasury Banking
F. Rural Banking
 CREDIT RISK MANAGEMENT
IN BANK OF BARODA DFFERENT
PARAMETERS USEDTO GIVE RATINGS ARE
AS FOLOWS:-
PARTICULARS 31.03.19* 31.03.20

DEPOSITS 638689.7 945984.4

OF WHICH- DOMESTIC DEPOSITS 517966.6 808705.5

INTERNATIONAL DEPOSITS 120723.2 137278.9

DOMESTIC DEPOSITS 517966.6 808705.5

OF WHICH- CURRENT ACCOUNT DEPOSITS 34327.6 49650.1

SAVINGS BANK DEPOSITS 174076.2 266301.3

CASA DEPOSITS 208403.8 315951.4

DOMESTIC CASA TO DOMESTIC DEPOSITS (%) 40.2 39.1

ADVANCES 468818.7 690120.7

OF WHICH- DOMESTIC ADVANCES 370185.0 570340.8

INTERNATIONAL ADVANCES 98633.8 119780.0

TOTAL ASSETS 780987.4 1157915.5

NET INTEREST INCOME (NII) 18683.8 27451.3

OTHER INCOME 6294.5 10317.3

OF WHICH-FEE INCOME 3576.1 4951.0

FOREX INCOME 693.2 1016.1

TRADING GAINS 989.5 2750.7

RECOVERY FROM PWO 832.0 1531.8

NON-CUSTOMER INTEREST INCOME 204.0 67.0

NII + OTHER INCOME 24774.7 37768.6

OPERATING EXPENSES 11288.0 18077.2

OPERATING PROFIT 13486.8 19691.4

PROVISIONS 12788.7 21493.5

OF WHICH- PROVISIONS FOR NPAS AND BAD DEBTS WRITTEN 12192.40 16404.9
OFF

PROFIT BEFORE TAX 698.2 -1802.1

PROVISION FOR TAX 264.6 -2348.3

NET PROFIT 433.5 546.2

APPROPRIATIONS/TRANSFERS
STATUTORY RESERVE 108.4 145.9

CAPITAL RESERVE 210.4 822.2

REVENUE AND OTHER RESERVES

I) GENERAL RESERVE 0 -560.3

II) SPECIAL RESERVE U/S 36 (I) (VIII) OF THE INCOME TAX ACT 1961 182.1 180.0

III) INVESTMENT RESERVE ACCOUNT

-41.6

PROPOSED DIVIDEND 0 0

*Figures are related to standalone Bank of Baroda financial results for pre-amalgamation period
hence not comparable with post amalgamation financial results for theyear ended March 312020
KEY PERFORMANCE INDICATORS 31.03.19* 31.03.20

AVERAGE COST OF FUNDS (%) 4.83 5.11

AVERAGE YIELD (%) 7.28 7.55

AVERAGE INTEREST EARNING ASSETS 686743.0 1007058.7

AVERAGE INTEREST BEARING LIABILITIES 648495.6 949179.9

NET INTEREST MARGIN (%) 2.72 2.72

COST-INCOME RATIO (%) 45.56 47.86

RETURN ON AVERAGE ASSETS (ROAA) (%) 0.06 0.06

RETURN ON EQUITY (%) 1.18 1.23

BOOK VALUE PER SHARE (') 138.42 96.22

BASIC EPS (RS) 1.64 1.36

Total deposits of the Bank increased to Rs 945985 crore as on March 31 2020.Advances

 31.03. 19* 31.03.20

13.42 13.30
CAPITAL ADEQUACY RATIO - BASEL III

CET-I 10.38 9.44

TIER - I 11.55 10.71

TIER - II 1.87 2.59

increased to Rs 690121 crore led by international loans and domestic retailloans. The net interest
margin (NIM) was stable at 2.72% in FY 2020. The Bank posted anoperating profit of Rs 1 9691
crore. Total provisions (other than tax) and contingencieswas Rs 21493 and provisions for NPAs
were Rs 1 6405 crore. The Bank posted a net profitof Rs 546 crore.

Capital Adequacy Ratio (CAR)

Ratios in %

The Capital Adequacy Ratio (CAR) and CET-1 of the Bank stood at 13.30% and
9.44%respectively as on March 31 2020. The consolidated group capital adequacy ratio
was13.87%.

The Bank's net worth as of March 31 2020 was Rs 44457 crore comprising of paid-upequity capital
of Rs 925 crore and reserves of Rs 43532 crore (excluding revaluationreserves foreign currency
translation reserves and other intangible assets). The bookvalue of the share (FV Rs 2) was Rs
96.22 as on 31.03.2020.

Business Performance

The highlights of business performance of the Bank are as below:

PARTICULARS 31.03.19* 31.03.20

DEPOSITS 638689.7 945985.4

OF WHICH- DOMESTIC DEPOSITS 517966.6 808705.5

INTERNATIONAL DEPOSITS 120723.2 137278.9

DOMESTIC DEPOSITS 517966.6 808705.5

OF WHICH- CURRENT ACCOUNT DEPOSITS 34327.6 49650.1

SAVINGS BANK DEPOSITS 174076.2 266301.3

CASA DEPOSITS 208403.8 315952.4

DOMESTIC CASA DEPOSITS (%) 40.2 39.1

ADVANCES 468818.7 690120.73

OF WHICH- DOMESTIC ADVANCES 370185.0 570340.8

INTERNATIONAL ADVANCES 98633.8 119780.0

TOTAL ASSETS 780987.4 1157915.5

Resource Mobilisation Credit Expansion and Operating Performance
The Bank's absolute CASA deposits crossed the Rs 3 lakh crore milestone and reached Rs3.16 lakh
crore as of March 312020. The Bank opened 94.70 lakh new CASA accounts duringFY 2020 of
which bulk of the eligible accounts were opened through TAB Banking. The Bankintroduced a
host of new products and implemented several new initiatives to improve itsprocesses and
strengthen the product proposition to meet the enhanced customerexpectations.
New products introduced during FY 2020 include Baroda Platinum Savings account in thevalue
segment Baroda Government Bodies SB account - an exclusive product for governmentbodies
BSNL/MTNL savings account with inbuilt personal accident insurance cover of Rs 40lakh foreign
currency current account for SEZ and for project offices escrow currentaccount for corporates real
estate developers and government bodies “StartupIndia” and “Scale-Up India” current account
schemes exclusively designed tomeet the requirements of Startups and Mahila Shakti- women's
savings account with inbuiltcomplimentary personal accident insurance of Rs 50000/- for first
year.

Some of the strategic initiatives taken by the Bank to increase CASA deposits includeintegration
with Ministry of Corporate Affairs (MCA) for instant current accountgeneration for new
companies which are formed through the MCA portal Memorandum ofUnderstanding (MoU) with
Indian Army for salary and pension accounts and acquiringprestigious banking relationship with
Mumbai Police for opening current accounts. The Bankalso introduced current account opening
through TAB for individual proprietorshipconcerns. The Bank promoted its health insurance
linked SB product - BOB Sehat Surakshaand opened over 1.19 lakh accounts under this segment.
To bring strong awareness of healthinsurance to the women Bank bundled a complimentary health
insurance in its Women SavingsAccount - BOB Mahila Shakti Account.

The Bank also conducted an extensive customer contact programme “Phir EkMulakat” to contact
existing customers at their residence or work place to strengthenrelationships and over 3.8 lakh
customers were contacted under this programme. Bank openedaccounts of over 1163 schools for
implementation of the grants under the ATAL TINKERINGLAB scheme by Government of
India.
The Bank offers various depository services like account maintenancedematerialisation settlement
of trades through market transfers off-market transfers andinter-depository transfers distribution
of non-cash corporate actions and nomination/transmission etc. During the year Bank opened
55300 demat accounts. The Bank is adepository participant of Central Depository Services Ltd
(CDSL) as well as NationalSecurities Depository limited (NSDL).

Credit Expansion:
During FY 2020 credit growth increased to Rs 690121 crore as on March 312020 withinwhich
domestic advances of the Bank amounted to Rs 570341 crore. The
increase indomestic advances was led by retail loans and agriculture
loans. Retail loan increased toRs 1 20657 crore led by home and auto
loans at Rs 83012 crore and Rs 1 6490 crorerespectively. With this the ratio of retail loans to total
domestic loans increased to19.8% during the year. The international loan book grew by
21.4% to Rs 1 19731 crore ason March 312020.

The total assets of the Bank increased to Rs 1 157915 crore as on March 312020.

Operating Performance:

The highlights of operating performance of the Bank are as below:

PARTICULARS 31.03.19* 31.03.20

INTEREST EARNED 49770.0 75983.7

INTEREST EXPENDED 31290.3 48532.4

NET INTEREST INCOME (NII) 18479.7 27451.3

OTHER INCOME 6294.5 10317.3

OF WHICH- FEE INCOME 3576.1 4951.0

FOREX INCOME 693.2 1016.1

TRADING GAINS 989.5 2750.7

RECOVERY FROM PWO 832.0 1531.8

NON-CUSTOMER INTEREST INCOME 204.0 67.0

OPERATING INCOME (NII + OTHER INCOME) 24774.2 37768.6

OPERATING EXPENSES 11287.9 18077.2

EMPLOYEE EXPENSES 5039.1 8769.5

OTHER OPERATING EXPENSES 6248.9 9307.7

OPERATING PROFIT 13486.8 19691.4

PROVISIONS 12788.7 21493.5

OF WHICH-PROVISIONS FOR NPAS AND BAD DEBTS WRITTEN 12192.4 16404.9

OFF

PROVISION FOR STANDARD ADVANCES (35.5) 3085.0

PROVISION FOR DEPRECIATION ON INVESTMENT 138.5 987.0

OTHER PROVISIONS 493.3 (1332.0)

PROFIT BEFORE TAX 698.2 (1802.1)

PROVISION FOR TAX 264.6 (2348.3)

NET PROFIT 433.5 546.2

KEY PERFORMANCE INDICATORS 31.03.19* 31.03.20

COST OF DEPOSITS - GLOBAL (%) 4.68 4.98

COST OF DEPOSITS - DOMESTIC (%) 5.33 5.39

COST OF DEPOSITS - INTERNATIONAL (%) 1.89 2.03

YIELD ON ADVANCES - GLOBAL (%) 7.65 7.99

YIELD ON ADVANCES (DOMESTIC) (%) 8.67 8.82

YIELD ON ADVANCES (INTERNATIONAL) (%) 4.12 3.77

NET INTEREST MARGIN - GLOBAL (%) 2.72 2.72

NET INTEREST MARGIN - DOMESTIC (%) 2.93 2.84

NET INTEREST MARGIN - INTERNATIONAL (%) 1.71 1.34

COST-INCOME RATIO (%) 45.56 47.86

RETURN ON AVERAGE ASSETS (ROAA) (%) 0.06 0.06

RETURN ON EQUITY (%) 1.18 1.23

The interest income of the Bank increased to Rs 75984 crore during FY 2020. The globalyield on
advances increased to 7.99% from 7.65% and yield on domestic advances rose to8.82% from
8.67%.

Total interest expenses stood at Rs 48532 crore in FY 2020. The domestic cost ofdeposits stood at
5.39%.The cost of deposits in the international book increased from1.89% to 2.03%. Net
Interest Income (NII) for the Bank increased to a level of Rs 27451crore during FY 2020. Global
NIM has remained constant at 2.72%.

Other income of the Bank increased to Rs 1 0317 crore on account of increase intreasury gains to
Rs 2751 crore. Recovery from written-off accounts was higher at Rs 1532 crore.

Operating expenses increased to Rs 1 8077 crore in FY 2020. Employee cost during theyear was
Rs 8770 crore whereas other operating expenses were Rs 9308 crore. As a resultoperating profit
of the Bank increased to Rs 1 9691 crore during FY 2020.
Totalprovisions (other than tax) and contingencies increased to Rs
21493 crore as provisionsfor NPAs increased to Rs 1 6405 crore in FY
2020. The Bank posted a net profit of Rs 546crore in FY 2020.

Corporate Credit

Corporate credit in the Bank is serviced through 14 Corporate Financial Services (CFS)branches
which manage about 77% of the total corporate credit portfolio of the Bank. Thecorporate credit
portfolio of the Bank increased to Rs 291543 crore as on March 312020.

With revamp in approach towards corporate credit delivery the risk profile of theportfolio further
improved during FY 2020 as observed in the rating distribution ofdomestic credit portfolio as
below:
CREDIT RATING DISTRIBUTION** 31.03.19* 31.03.20

A AND ABOVE 60% 61%

BBB 14% 19%

BELOW BBB 16% 15%

UNRATED 10% 5%

**External rating distribution of advances above Rs 5 crore.

Total portfolio comprising of investment grade (BBB and above) in FY 2020 was 80% asagainst
74% in the previous year. Exposure to high rated accounts has helped to reducecapital charge and
enhanced capital efficiency.

With a view to ensure enhanced customer experience Bank has a bouquet of products andservices
as under:

• Supply chain finance including vendor financing dealer financing and receivablefinancing.
• Baroda Diginext i.e. Cash Management Services (CMS) consisting of receivablesand payables
management services through efficient collection and integrated paymentsystems.

• “Usance Payable at Sight” (UPAS) LC - a product introduced as analternate to buyer's credit

leading to augmented growth in fee based income.

• In-house Project Finance Division for carrying out technoeconomic viability toreduce
dependence on external consultants improving the turnaround time (TAT) andcontributing to the
Bank's bottom line.

During the year under review the corporate credit portfolio reaped the benefits of theamalgamation
as under:

• Corporate vertical accounts have already been migrated to a common IT platform(Finacle 10).
This has enabled automation in processing reporting and monitoring. As aresult all corporate
borrowers of the amalgamated entity have access to new products andservices like supply chain
finance value chain finance cash management services etc.

• An extensive exercise was undertaken to develop a common policy for all clientswherein the
most beneficial and rational terms and policy guidelines of all three bankswere incorporated.
This led to simplification in assessment thus reducing time taken fordecision making.

• In addition to the above rationalisation of pricing was done to providecompetitive rates to

borrowers. This led to improved utilisation and availment of productsand services.

• All large corporate accounts are serviced through specialised corporate creditbranches which has
resulted in standardisation of services improved risk management andquick decision making.

Credit Risk

Credit risk is managed through a Board approved framework that sets out policiesprocedures and
reporting which is inline with international best practices. Adequateattention is given to the
independence of the risk evaluators and business functions forestablishing a sound credit culture
and a well- structured credit approval process. Creditrisk measurement models are validated by
independent model validators for theirdiscriminatory power accuracy and stability.

The Bank's experience in internal ratings over the years has enabled the
Bank to obtainthe regulator's approval for running the Foundation
Internal Rating (F-IRB) approach ofcredit risk under Basel II guidelines from March 31 2013.
Under the IRB approach banksdevelop their own empirical model to quantify required capital for
credit risk.

Bank has well established models for awarding internal rating to the borrowers andthese models
are calibrated and validated periodically by dedicated internal team as wellas external agencies.
The Bank has put in place prudential caps across industries sectorsand borrowers to manage credit
concentration risk. The portfolio review cell carries outdetailed reviews on sectoral exposure credit
concentration rating distributions andmigration.

The Bank has implemented „Risk Adjusted Return on Capital (RAROC)' framework forcorporate
credit exposures for evaluating credit risk exposures from the point of„economic value addition'
to the shareholders.

The Bank has also implemented Enhanced Access and Service Excellence (EASE) RiskScoring
Model for independent risk- based review of the credit proposals by risk verticalof the Bank
including classification of credit proposals into high/ medium/ low riskalong with risk decisions
of go/ no go.

Market Risk

Market Risk implies the risk of loss of earnings or economic value due to adversechanges in market
rates or prices of trading portfolio. The change in economic value ofdifferent market products is
largely a function of change in factors such as interestrates exchange rates economic growth and
business confidence. The Bank has well definedpolicies to control and monitor its treasury
functions which undertake market riskpositions.

The Bank measures and monitors interest rate risk in its trading book through durationmodified
duration PV01 and Value at Risk (VaR) on a daily basis. The foreign exchangerisk is measured
and monitored in terms of Net Overnight Open Position limits (NOOPL) VaRlimits Aggregate
Gap Limits (AGL) Individual Gap Limits (IGL) on a daily basis. Equityprice risk is measured and
monitored through VaR limits and portfolio size limits etc. Ata transaction level stop loss limits
and dealer wise limits have been prescribed andimplemented. Under its stress testing framework
the
Bank conducts comprehensive stresstests of its trading book portfolio on a quarterly basis.

Asset Liability Management

Liquidity Risk is the inability to meet expected and unexpected cash and collateralobligations at
reasonable cost. In the Bank the liquidity risk is measured and monitoredthrough Flow Approach
and Stock Approach and other prudential stipulations as per thelatest guidelines of the RBI. The
Bank has implemented the Basel III Framework onLiquidity Standards - Liquidity Coverage Ratio
(LCR) Liquidity Risk Monitoring Tools andLCR Disclosure Standards. The LCR Standard aims
to ensure that banks maintain an adequatelevel of unencumbered High-Quality Liquid Assets that
can be converted into cash to meetliquidity needs for a 30-calendar days' time horizon under a
significantly severeliquidity stress scenario. The Bank has always been well above the stipulated
level of LCRon a solo basis as well as on a consolidated basis. The Bank discloses simple average
ofdaily LCR for the respective quarter as part of Notes to Accounts on its website.
Interest Rate Risk in the Banking Book (IRRBB) arises due to mismatch between ratesensitive
assets and liabilities which may adversely impact the earnings/economic value ofequity of the
Bank with the change in interest rates in the market. For measurement andmonitoring of interest
rate risk in banking book the Bank uses risk management tools suchas Traditional Gap Analysis
Earning at Risk and Modified Duration of Equity. The short-term impact of interest rate
movements on NII is worked out through the „Earnings atRisk' approach by taking into
consideration parallel shift in yield curve yield curverisk basis risk and embedded options risk. The
long-term impact of interest ratemovements is measured and monitored through change in Market
Value of Equity (MVE).

Operational Risk

The Bank has a well-defined Operational Risk Management Framework (ORMF) andOperational
Risk Management System (ORMS) for effective management of Operational Risk inthe
organisation. ORMF comprises of the organisational structure for management ofoperational risk
governance structures policies procedures and processes whereas ORMFconsists of the systems
used by the Bank in identifying measuring monitoringcontrolling and mitigating operational risk.

The Bank implemented a web based Operational Risk Management System SAS
EnterpriseGovernance Risk and Compliance (SAS EGRC) for systemic and integrated
management ofOperational Risk.

Roll out of Key Risk Indicators Programme (KRI) Risk Control and Self-AssessmentProgramme
(RCSA) and root cause analysis further strengthened the control environment. TheBank created a
repository of Internal Loss Data as part of Operational Risk Management.

To mitigate and control operational risk at a transaction level the Bank hasestablished a Centralised
Transaction Monitoring Unit for monitoring of all domestictransactions from the KYC/ AML/ CFT
perspective. The Bank segregated customer interface(front office) from the execution of
transactions (back office) by centralising a numberof back office functions. The Centralised Trade
Finance Back Office (TFBO) has been set upto minimise operational risk in forex transactions.
The Bank has put in place an incentive scheme to promote risk culture at enterprisewide level.
Financial and non -financial incentives were announced for the employees forreporting of near
miss events.

Climate Risk

Climate change risk has become crucial challenge to the financial industry of late. TheBank is
committed to reduce the impact of climate change risk and is consciously workingtowards
sustainable development of its banking operations so as to achieve the economicdevelopment
while maintaining the quality of environmental and social ecosystems.

As a policy matter to reduce the greenhouse effect the Bank is not financingborrowers for setting
up new units producing / consuming Ozone Depleting Substances (ODS)and small / medium scale
units engaged in the manufacturing of aerosol units usingChlorofluorocarbons (CFC). While
sanctioning project loans the Bank ensures that allstatutory permissions such as environmental
clearance pollution control etc. are put inplace before sanction or disbursement.

The Bank intends to reduce the emissions by adoption of green technologies such asminimising /
discontinuing the operation of Diesel Generator (DG) Sets which acts as oneof the major
contributors to the environment pollutants and shift to alternate resourceslike hybrid UPS solar
based systems etc.

The Bank is also considering the impact of climate change while assessing operationalrisks during
natural calamities such as floods cyclone earthquake landslideswildfires storms etc. The impact of
such risks on the Bank's operations and outcome ispresented to various risk management
committees from time to time.

The Bank has undertaken following green initiatives for reduction of climate changerisk
environmental protection and sustainable development:

a) The Bank implemented e-approvals and Board-Pack for paperless approval and
paperlessemeeting respectively which resulted in substantial reduction in usage of paper in
theBank. The Bank stopped issuance of physical circulars for internal circulation. The
 Bankstarted sending statement of accounts through secured emails to willing customers so as
toreduce paper consumption.

b) A wet garbage (Bio-Gas) plant was set up at the Corporate Office to process wetgarbage / waste
from staff canteen and convert into bio-gas and manure which was used forcooking and
agricultural purposes.

c) Solar Panels / Tree were installed at Corporate Offices and at some of the Bank'sstaff quarters.
The Bank is committed to increase the usage of renewable (Solar) energyresources for its
internal energy requirements.

d) Energy efficient LED light fixtures were installed in all branches/offices.

The Bank started rain water harvesting in its owned buildings. Sewerage Treatment Plant(STP)
was set up at Baroda Corporate Centre.
Findings :

• Project findings reveal that BANK OF BARODA is sanctioning

less Credit to agriculture, as compared with its
key competitor‟s viz., Canara Bank, Corporation Bank, Syndicate Bank

• Recovery of Credit: BANK OF BARODA recovery of Credit during the year 2019 is
62.4% Compared to other Banks BANK OF BARODA „s recovery policy is very good,
hence this reduces NPA

• Total Advances: As compared total advances of BANK OF BARODA is increased year

by year.

• Bank of Baroda is granting credit in all sectors in an Equated Monthly Installments so that
any body can borrow money easily

• Project findings reveal that Bank of Baroda is lending more credit or sanctioning more
loans as compared to other Banks.

• Bank of Baroda is expanding its Credit in the following focus areas:

1 BANK OF BARODA Term Deposits

2 BANK OF BARODA Recurring Deposits

3 BANK OF BARODA Housing Loan

4 BANK OF BARODA Car Loan

5 BANK OF BARODA Educational Loan

6 BANK OF BARODA Personal Loan …etc

• In case of indirect agriculture advances, BANK OF BARODA is granting 3.1% of Net

Banks Credit, which is less as compared to Canara Bank, Syndicate Bank and Corporation
Bank. BANK OF BARODA has to entertain indirect sectors of agriculture so that it can
have more number of borrowers for the Bank.
 • BANK OF BARODA‟s direct agriculture advances as
compared to other banks is 10.5% of the Net Bank‟s Credit, which shows that Bank has
not lent enough credit to direct agriculture sector.

• Credit risk management process of BANK OF BARODA used is very effective as

compared with other banks.

LIMITATIONS:

1. The time constraint was a limiting factor, as more in depth analysis could not be carried.
2. Some of the information is of confidential in nature that could not be divulged for the
study.
3. Employees were not co operative.
 CHAPTER 6

CONCLUSION

The project undertaken has helped a lot in gaining knowledge of the “Credit Policy and Credit
Risk Management” in Nationalized Bank with special reference to Bank of Baroda. Credit Policy
and Credit Risk Policy of the Bank has become very vital in the smooth operation of the banking
activities. Credit Policy of the Bank provides the framework to determine (a) whether or not to
extend credit to a customer and (b) how much credit to extend. The Project work has certainly
enriched the knowledge about the effective management of “Credit Policy” and “Credit
Risk Management” in banking sector.

• “Credit Policy” and “Credit Risk Management” is a vast subject and it is very difficult to
cover all the aspects within a short period. However, every effort has been made to cover
most of the important aspects, which have a direct bearing on improving the financial
performance of Banking Industry
• To sum up, it would not be out of way to mention here that the Bank of Baroda has
given special inputs on “Credit Policy” and “Credit Risk Management”. In pursuance of
the instructions and guidelines issued by the Reserve Bank of India, the Bank of Baroda
is granting and expanding credit to all sectors.
• The concerted efforts put in by the Management and Staff of Bank of Baroda has helped
the Bank in achieving remarkable progress in almost all the important parameters. The
Bank is marching ahead in the direction of achieving the Number-1 position in the Banking
Industry.

RECOMMENDATIONS
• The Bank should keep on revising its Credit Policy which will
help Bank‟s effort to correct the course of the policies

• The Chairman and Managing Director/Executive Director should make modifications to

the procedural guidelines required for implementation of the Credit Policy as they may
become necessary from time to time on account of organizational needs.

• Banks has to grant the loans for the establishment of business at a moderate rate of interest.
Because of this, the people can repay the loan amount to bank regularly and promptly.

• Bank should not issue entire amount of loan to agriculture sector at a time, it should release
the loan in installments. If the climatic conditions are good then they have to release
remaining amount.

• BANK OF BARODA has to reduce the Interest Rate.

• BANK OF BARODA has to entertain indirect sectors of agriculture so that it can have
more number of borrowers for the Bank.
 REFERENCES
BOOKS REFERRED:

1. M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw Hill.
2. M.Y.Khan and P.K.Jain, Financial Management (Fourth Edition), Tata McGraw Hill.
3. D.M.Mittal, Money, Banking, International Trade and Public Finance (Eleventh Edition),
Himalaya Publishing House.

WEB SITES

1. www.Bank of Baroda.co.in
2. www.rbi.org
3. www.indiainfoline.com
4. www.google.com

BANKS INTERNAL RECOREDS:

1. Annual Reports of Bank of Baroda (2016-2020)

2. State bank Of India Manuals
3. Circulars sent to all Branches, Regional Offices and all the Departments of Corporate Offices.