Inside story of transformation that was underway at Bank of Baroda just before the big merger
The BJP-led NDA government probably had the right intention when they knocked on the doors of Ravi Venkatesan, former chairman of Microsoft India and P S Jayakumar, an ex-citibanker turned entrepreneur, for helping them in conducting an experiment of sorts with Bank of Baroda.
- Sep 18, 2018,
- Updated Sep 20, 2018 7:24 AM IST
"It's not an experiment if you know it is going to work," said Jeff Bezos, the founder of e-commerce giant Amazon once. Experiments are always unpredictable and the probability of them failing is very high. This is more so if you are partnering with the government for an experiment. The BJP-led NDA government probably had the right intention when they knocked on the doors of Ravi Venkatesan, former chairman of Microsoft India and ex-independent director of Infosys and P S Jayakumar, an ex-citibanker turned entrepreneur, for helping them in conducting an experiment of sorts with a public sector bank. The idea was to pick one of the largest PSB - Bank of Baroda - and hand it over to outside professionals to manage. They had all the operational freedom to transform the bank. The thought process was to build a template, if the experiment succeeded, for other PSBs to follow (excluding SBI) which were lagging far behind as compared to the private banks.
As people such as Raghuram Rajan, the then Governor of RBI and Jayant Sinha, then minister of state for finance, were on board to convey the message, there was little chance of any professional refusing the offer. So three years ago, Ravi Venkatesan joined the bank as its chairman and P S Jayakumar took over as MD & CEO. The goodwill of two professionals - Venkatesan and Jayakumar was such that there were dozens of other professionals that joined from outside in key positions to help in the transformation of BoB. Strangely, Venkatesan declined the offer for a second term. Jayakumar is still to hear from the government, but the announcement of merger of BoB, Vijaya Bank and Dena Bank came before the decision about his extension. The experts say the merger will now halt the entire process and instead shift the focus on integration. This will also create some sort of insecurity amongst the lateral hires about their future as many middle to senior level officers will come from other banks in the merged entity. The stock market was quick to react to the news and Bank of Baroda's share price crashed by 16 per cent to Rs 113. Investors certainly are not liking the move. And there is a reason for it. The market was actually betting on the transformation story.
In the last three years, the duo -- Venkatesan and Jayakumar -- had actually managed to create building blocks for a complete transformation of the bank's business. The bank was actually all set to considerably speed up the transformation efforts. While the transformation, which is already underway, will certainly help the merged entity, the revival or the take off period will now be elongated because of the new merged entity. Dena Bank has the maximum bad loan. The bank itself is under RBI's monitoring under prompt corrective action plan. "It's like starting all over again," says one of the official. But the three year journey of change has seen lots of challenges. The new team had to start from basics. It was as basic as getting a business card printed. In fact the former chairman Venkatesan had to struggle to get his business card printed when he joined the bank. A new lateral hire narrated an incident, where he had to take over a dozen approvals for launching a new product in association with an e-commerce player. It actually went all the way up to the board. By the time approval came, the e-commerce partner was nowhere in the picture. "The PSBs have this upward delegation. Everything has to move up," says one of the official. Though the new team has simplified a lot of things, this was actually the state of affairs at the bank three years ago.
Turbo Charging Retail Banking
These professionals came prepared when they landed at the bank. For example, Jayakumar actually did a lot of reading about the bank before formally joining the bank. He met many of the former CEOs including O P Bhat, former chairman of SBI, who created a retail story at the largest bank in the country. Jayakumar even visited bank's branches without disclosing his identity to see the operations, people management, the look and feel of the branches etc. In the first few days of joining, he gave very specific recommendations for improving internet banking website. So the work for transformation started from day one. The management style was more participative. The business strategy was developed after extensive discussions with people. There were also town hall meetings, eliciting feedback and questions. "The plan was to catch up and also leapfrog," says Jayakumar who met Business Today couple of days before the merger announcement came out.
Most of the PSBs are positioned as corporate banks. That was true for BoB also with higher share of corporate banking, at almost half of its total advances. The duo decided to bring higher degree of focus on the retail and SME side of the portfolio. The idea was to de-risk the business model. The retail loans have far lesser NPAs than corporate banking and margins are also better. But the big stumbling block was the lack of infrastructure for collection mechanism, scoring methodology, risk based pricing, and reworking the processes. "If you are scaling the business (retail) without a collection mechanism, the chances are that you will create another set of problems," says Jayakumar.
The bank moved to a modern decision making architecture where account opening, processing and approval of loans, forex and trade finance transactions have moved from branches to a centralised back office.This process took almost a year. The bank is now ready for a higher growth in the retail segment. The bank has also started offering better interest rates to customers with good credit history or higher credit score. Today, the bank has higher percentage of customers with credit bureau score of more than 725.
The bank also decided to have product managers from outside in areas like auto, education loans, tractor financing and commercial vehicle. The bank had also identified white spaces like commercial vehicle, construction equipment financing, wealth management, MSME etc for higher growth.
Branches For Sales and Customer Servicing And Not For Processing
Jayakumar noticed that branches used to keep records dating back to 1930s. These files used to occupy almost 35 per cent of the spaces at the branches. He put in place a mechanism to digitise the records and move all these files to central places. Today, branches are better looking and more customer-friendly.
"There is now a fair amount of differentiation in the branches," says Jayakumar. They have also identified branches for more specialisation in areas like liabilities (generating more current and savings accounts), wealth management and MSME business. "We are bringing in the culture of sales or people going out of branches and spending time with customers," says Jayakumar. The digital processes are also changing the way bank was operating earlier. Take for example, the bank had some 500 people doing the data entry for account opening. With tablets or online banking, these jobs are gone and people were redeployed in sales and other areas. "Lot of work done manually is now digitised," says Jayakumar. In fact, the bank was also setting up fully digital branches.
Relationship Managers For Corporate Banking, More Centralised Approach
In the corporate banking, the credit decision were approved geographically. They have now centralised all the credit approvals. They have built proper metrics and build enough number of relationship managers. The bank has also created a target market group to go out and look for good corporate business. The bank is also doing lot of cross boarder deals with the clients. "We centralised all our corporate exposure in the central office," says Jayakumar.
Catch Up And Leap Frog In Terms Of Technology
The IT infrastructure of the bank was probably dated by five years. It actually skipped a generation in the areas like core banking, CRM system, contact centre etc. "Upgrading core banking is like transplanting the heart while the person is walking," grins one insider. It was a long exercise. The bank actually planned it for 18 months. The core banking was upgraded from Finacle 7 to Finacle 10. This new system has enabled the bank to have better features of Internet banking, mobile banking and also engaging with fin-tech companies by way of APIs. Today, there are dozens of fin-techs that are connected to the bank's system, offering new capabilities and products and also helping in risk management.
There are two IT centres of excellence with partners like Accenture and IBM. The idea is to do analytics and also work on new technologies like blockchain etc. Currently, the bank has a data warehouse that gives a single view of customer. Under the excellence centre, the bank is working on behavioural scores, propensity scores (probability of customer buying more products). "It is still in very formative years. We have infrastructure in place," says Jayakumar.
"It's not an experiment if you know it is going to work," said Jeff Bezos, the founder of e-commerce giant Amazon once. Experiments are always unpredictable and the probability of them failing is very high. This is more so if you are partnering with the government for an experiment. The BJP-led NDA government probably had the right intention when they knocked on the doors of Ravi Venkatesan, former chairman of Microsoft India and ex-independent director of Infosys and P S Jayakumar, an ex-citibanker turned entrepreneur, for helping them in conducting an experiment of sorts with a public sector bank. The idea was to pick one of the largest PSB - Bank of Baroda - and hand it over to outside professionals to manage. They had all the operational freedom to transform the bank. The thought process was to build a template, if the experiment succeeded, for other PSBs to follow (excluding SBI) which were lagging far behind as compared to the private banks.
As people such as Raghuram Rajan, the then Governor of RBI and Jayant Sinha, then minister of state for finance, were on board to convey the message, there was little chance of any professional refusing the offer. So three years ago, Ravi Venkatesan joined the bank as its chairman and P S Jayakumar took over as MD & CEO. The goodwill of two professionals - Venkatesan and Jayakumar was such that there were dozens of other professionals that joined from outside in key positions to help in the transformation of BoB. Strangely, Venkatesan declined the offer for a second term. Jayakumar is still to hear from the government, but the announcement of merger of BoB, Vijaya Bank and Dena Bank came before the decision about his extension. The experts say the merger will now halt the entire process and instead shift the focus on integration. This will also create some sort of insecurity amongst the lateral hires about their future as many middle to senior level officers will come from other banks in the merged entity. The stock market was quick to react to the news and Bank of Baroda's share price crashed by 16 per cent to Rs 113. Investors certainly are not liking the move. And there is a reason for it. The market was actually betting on the transformation story.
In the last three years, the duo -- Venkatesan and Jayakumar -- had actually managed to create building blocks for a complete transformation of the bank's business. The bank was actually all set to considerably speed up the transformation efforts. While the transformation, which is already underway, will certainly help the merged entity, the revival or the take off period will now be elongated because of the new merged entity. Dena Bank has the maximum bad loan. The bank itself is under RBI's monitoring under prompt corrective action plan. "It's like starting all over again," says one of the official. But the three year journey of change has seen lots of challenges. The new team had to start from basics. It was as basic as getting a business card printed. In fact the former chairman Venkatesan had to struggle to get his business card printed when he joined the bank. A new lateral hire narrated an incident, where he had to take over a dozen approvals for launching a new product in association with an e-commerce player. It actually went all the way up to the board. By the time approval came, the e-commerce partner was nowhere in the picture. "The PSBs have this upward delegation. Everything has to move up," says one of the official. Though the new team has simplified a lot of things, this was actually the state of affairs at the bank three years ago.
Turbo Charging Retail Banking
These professionals came prepared when they landed at the bank. For example, Jayakumar actually did a lot of reading about the bank before formally joining the bank. He met many of the former CEOs including O P Bhat, former chairman of SBI, who created a retail story at the largest bank in the country. Jayakumar even visited bank's branches without disclosing his identity to see the operations, people management, the look and feel of the branches etc. In the first few days of joining, he gave very specific recommendations for improving internet banking website. So the work for transformation started from day one. The management style was more participative. The business strategy was developed after extensive discussions with people. There were also town hall meetings, eliciting feedback and questions. "The plan was to catch up and also leapfrog," says Jayakumar who met Business Today couple of days before the merger announcement came out.
Most of the PSBs are positioned as corporate banks. That was true for BoB also with higher share of corporate banking, at almost half of its total advances. The duo decided to bring higher degree of focus on the retail and SME side of the portfolio. The idea was to de-risk the business model. The retail loans have far lesser NPAs than corporate banking and margins are also better. But the big stumbling block was the lack of infrastructure for collection mechanism, scoring methodology, risk based pricing, and reworking the processes. "If you are scaling the business (retail) without a collection mechanism, the chances are that you will create another set of problems," says Jayakumar.
The bank moved to a modern decision making architecture where account opening, processing and approval of loans, forex and trade finance transactions have moved from branches to a centralised back office.This process took almost a year. The bank is now ready for a higher growth in the retail segment. The bank has also started offering better interest rates to customers with good credit history or higher credit score. Today, the bank has higher percentage of customers with credit bureau score of more than 725.
The bank also decided to have product managers from outside in areas like auto, education loans, tractor financing and commercial vehicle. The bank had also identified white spaces like commercial vehicle, construction equipment financing, wealth management, MSME etc for higher growth.
Branches For Sales and Customer Servicing And Not For Processing
Jayakumar noticed that branches used to keep records dating back to 1930s. These files used to occupy almost 35 per cent of the spaces at the branches. He put in place a mechanism to digitise the records and move all these files to central places. Today, branches are better looking and more customer-friendly.
"There is now a fair amount of differentiation in the branches," says Jayakumar. They have also identified branches for more specialisation in areas like liabilities (generating more current and savings accounts), wealth management and MSME business. "We are bringing in the culture of sales or people going out of branches and spending time with customers," says Jayakumar. The digital processes are also changing the way bank was operating earlier. Take for example, the bank had some 500 people doing the data entry for account opening. With tablets or online banking, these jobs are gone and people were redeployed in sales and other areas. "Lot of work done manually is now digitised," says Jayakumar. In fact, the bank was also setting up fully digital branches.
Relationship Managers For Corporate Banking, More Centralised Approach
In the corporate banking, the credit decision were approved geographically. They have now centralised all the credit approvals. They have built proper metrics and build enough number of relationship managers. The bank has also created a target market group to go out and look for good corporate business. The bank is also doing lot of cross boarder deals with the clients. "We centralised all our corporate exposure in the central office," says Jayakumar.
Catch Up And Leap Frog In Terms Of Technology
The IT infrastructure of the bank was probably dated by five years. It actually skipped a generation in the areas like core banking, CRM system, contact centre etc. "Upgrading core banking is like transplanting the heart while the person is walking," grins one insider. It was a long exercise. The bank actually planned it for 18 months. The core banking was upgraded from Finacle 7 to Finacle 10. This new system has enabled the bank to have better features of Internet banking, mobile banking and also engaging with fin-tech companies by way of APIs. Today, there are dozens of fin-techs that are connected to the bank's system, offering new capabilities and products and also helping in risk management.
There are two IT centres of excellence with partners like Accenture and IBM. The idea is to do analytics and also work on new technologies like blockchain etc. Currently, the bank has a data warehouse that gives a single view of customer. Under the excellence centre, the bank is working on behavioural scores, propensity scores (probability of customer buying more products). "It is still in very formative years. We have infrastructure in place," says Jayakumar.