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BW Businessworld

Steady Does It

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Steady" may not seem the appropriate term to describe India's fastest-growing large bank, but that is how a banking analyst from Aditya Birla Money describes Bank of Baroda's (BoB) growth. He also describes the winner of the Fastest Growing Bank-Large award in the BW-PwC Best Banks Survey 2011 as "solid".

India's third-largest public sector bank has built a strong brand name for itself through consistent operational performance, and by building a strong international business — 86 offices, including locally incorporated subsidiaries in 26 locations.

"The idea driving our international growth is to look at business potential in places where we have already created a base among the Indian diaspora," says chairman and managing director, M.D. Mallya. "I like to think of us as being glocal." (Years ago, Unilever had invented that term to describe its international strategy.)

Take BoB's presence in Africa, for example. Mallya says if you ask locals where Baroda is, they will point to a branch of the bank. That said, like most other Indian banks with an international presence, BoB follows its corporate clients to the countries they establish themselves in. And this is something it has been doing for more than 50 years.

As more Indian companies chase the dream of becoming multinational corporations, BoB, too, will expand its theatre of operations. It plans to take the number of its international offices to 100 by the end of 2012. It is also in talks with Indian Overseas Bank (IOB) and Andhra Bank to set up a joint venture in Kuala Lumpur (IOB had a large presence in East Asia, which it shrank years ago).

In terms of financials, BoB's performance on various parameters such as demand deposits (26 per cent for FY09-11 period), advances (26.3 per cent), operating profit (27.35 per cent), net worth (27.76 per cent) and net interest income (31.07 per cent) are well above the median for the top five contenders.

But what sets BoB's success apart from others is the quality of its growth: its consistency. In comparison with its peer group, BoB has demonstrated that its strategy is not merely growth but growth that is sustainable over the long term. Bank insiders say this philosophy goes back several years. P.S. Shenoy, BoB's former CMD who retired in 2005, had also pursued the same path.

A major contributing factor to the bank's pinnacle position is location — 34 per cent of domestic branches are in the highly industrialised states of Maharashtra and Gujarat, while its overseas branches account for 25 per cent of the bank's deposits and asset base.

With such a strong foundation, will BoB step on the accelerator? Analysts say it will — with plans to open 269 branches in Tier-1 and 2 centres and 253 branches in Tier-3 to Tier-6 centres in this financial year, which will substantially increase its presence from the 3,409 branches it now has.

The expansion, however, will not affect the bank's profitability — at 85 per cent, BoB's coverage for non-performing assets (NPAs) is among the highest in the sector (regulatory requirement is 70 per cent). This insulates BoB's profits to a large extent.

"Profit per employee, too, rose from Rs 4 lakh to Rs 11 lakh in the past three years," says Mallya. "Business per branch grew from Rs 89 crore in FY08 to Rs 156 crore in FY11." And analysts expect this to grow further to Rs 190 crore by the end of FY13.

In the 2010 edition of the BW-PwC Best Banks Survey, the jury had made a strong point about the quality of governance and its impact on growth. With its sustainable growth strategy, BoB exemplifies this.


(This story was published in Businessworld Issue Dated 28-11-2011)