 "Increasing corporate wallet share is important: P S Jayakumar")
After reporting losses in two consecutive quarters, Bank of Baroda's Managing Director and Chief Executive Officer P S Jayakumar expects the bank to return to profitability in the coming quarters. He talks to Abhijit Lele, Hamsini Karthik and Anup Roy about his strategy for the same. Edited excerpts:
During the post-results conference call with analysts, you said an economic turnaround was not yet visible. When do you expect to see the turnaround?
I am not saying economic turnaround has not happened, but essentially, we had a poor monsoon. At least for us, the deal flow in terms of project finance has not been there. I would expect things to improve in the third and fourth quarters, because a lot of efforts have been taken and these take time to play out fully. The moot point is that Bank of Baroda's growth is somewhat disconnected from the growth of the banking sector. The market share in terms of clients' wallets - lending or otherwise - is low. We could upgrade those relationships substantially.
Corporate, and to some extent the MSME (micro, small and medium enterprises), will be part of it. My experience with consumer banking is that a lot of work should be done first to get the building block in place. It takes time to grow because it's a brick-by-brick, zone-by-zone model. But, in the immediate term, focusing on the corporate books and making it do better probably is an important course. Getting more share of the wallet of the customer, like in forex flow, trade flows, and cash flows are also important.
It's not necessary to lend more money, though that's an option, because we are a bit disconnected with the market growth because of our low share. But we also have to look at the other facets of the wallets of the customer.
You indicated that you would be on a path of profitability in FY17. Can we expect a healthy addition to the bottom line in the first and second quarters?
The first two quarters tend to be a bit slower for us, compared to the third and fourth quarters. So, you can expect a hockey stick kind of approach in the number. But as far as profitability is concerned, we should be able to bring something in the first two quarters. We might have higher level of provisioning coming in if we get opportunistic in the clean-up of balance sheet and coverage ratios. We would like to say we are in the seven to eight per cent return on equity number. But, if there is a larger number than that, it would be more sensible for us to strengthen the consumer book as well as the balance sheet.
You are raising your provision coverage ratio. Is the market giving a feedback that you would be treated on a par with private banks?
The analysts are not looking at us as private or public sector. They are looking at the balance sheet and saying the coverage is not adequate. The real trigger why we took the provision more is that we are always looking at triggers for an opportunity to take additional provision. This time, we did not go through the P&L (profit and loss), but rather through the capital line. Our capital adequacy ratio went up sharply in the last quarter. If you have the right capital adequacy ratio, you should look at the balance sheet and make sure you are adequately protected.
If the government's agenda for consolidation works out, you would become one of those global big banks. Are you prepared for it?
Yes, it's a matter of fact that we have to prepare ourselves for the future and compare ourselves with a large peer group. It's also the expectation of our international customer. When we speak with our international customers, we see them having accounts with us in three or four jurisdictions and, therefore, they want us to give a single limit to them, have the flexibility to use it where they want, to support them more in trade and finance, etc. We are moving in that direction. The transformation journey involves a lot of things, but the cultural aspect is a less challenging one. This bank has always been a very business-oriented institution.
About 10 years ago, Bank of Baroda embarked on a deep restructuring and rebranding exercise. In your latest presentation for vision 2020, you again talk about rebranding. Has the existing rebranding exercise run out of steam?
We are trying to validate those assumptions with data. For example, people wanted more automation. We are trying to do that from our e-lobbies, revamping branches. That's an immediate requirement. But, rebranding exercise itself has not been fully thought through. We want to make data-oriented decisions. We are in the process of completing the consumer research, on the one hand, and the brand part, on the other.
In the conference call, you also mentioned Bank of Nainital's divestiture. Can you elaborate?
That is an encashable asset. Right now, our focus is not divestiture. We are focused on building Bank of Nainital and making sure our technology, processes and development get integrated with that. We are looking more actively on them to support us in all that we do and on a standalone basis seen as Bank of Baroda in the same way as we are. We are also looking at revamping our other subsidiaries. We are looking for a joint venture partner in our credit card vehicle.
Is it possible that you make a counter-proposal to the government about the full integration of regional rural banks?
Conceptually, yes. We have discussed this with the government but the real issue is that many of these things are legislative. We take 100 per cent of the risk, so why should we take only 33 per cent of the reward?
Do you expect international business to show pressure on net interest margins as the markets there are moving towards negative interest rate?
We have three portfolios in the international business. We have a buyers credit portfolio, local customers dealing with us in multiple markets, and Indian customers. The real pain point is the ECBs (external commercial borrowings) that we have done for the Indian customers, where delinquency ratios are substantially high. But, local credit business is doing very well.
The Bankruptcy Code and other measures by the government and the Reserve Bank of India give you more teeth against defaulters. What is going to be your approach?
The overall approach of banks is to look at new leadership. Some of the things cannot be forced. You will have to do through mutual consent. The bankruptcy regulations provide that framework. We have slivers of exposure of the large customers. So, a lot of it is going to be decided by the lead bank and the consortium. We would like to articulate that we need to take the hard call if we were to support a business. But, if you have to move on, just move on.
During the post-results conference call with analysts, you said an economic turnaround was not yet visible. When do you expect to see the turnaround?
I am not saying economic turnaround has not happened, but essentially, we had a poor monsoon. At least for us, the deal flow in terms of project finance has not been there. I would expect things to improve in the third and fourth quarters, because a lot of efforts have been taken and these take time to play out fully. The moot point is that Bank of Baroda's growth is somewhat disconnected from the growth of the banking sector. The market share in terms of clients' wallets - lending or otherwise - is low. We could upgrade those relationships substantially.
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Does it mean you will focus more on expanding the corporate loan book?
Corporate, and to some extent the MSME (micro, small and medium enterprises), will be part of it. My experience with consumer banking is that a lot of work should be done first to get the building block in place. It takes time to grow because it's a brick-by-brick, zone-by-zone model. But, in the immediate term, focusing on the corporate books and making it do better probably is an important course. Getting more share of the wallet of the customer, like in forex flow, trade flows, and cash flows are also important.
It's not necessary to lend more money, though that's an option, because we are a bit disconnected with the market growth because of our low share. But we also have to look at the other facets of the wallets of the customer.
You indicated that you would be on a path of profitability in FY17. Can we expect a healthy addition to the bottom line in the first and second quarters?
The first two quarters tend to be a bit slower for us, compared to the third and fourth quarters. So, you can expect a hockey stick kind of approach in the number. But as far as profitability is concerned, we should be able to bring something in the first two quarters. We might have higher level of provisioning coming in if we get opportunistic in the clean-up of balance sheet and coverage ratios. We would like to say we are in the seven to eight per cent return on equity number. But, if there is a larger number than that, it would be more sensible for us to strengthen the consumer book as well as the balance sheet.
You are raising your provision coverage ratio. Is the market giving a feedback that you would be treated on a par with private banks?
The analysts are not looking at us as private or public sector. They are looking at the balance sheet and saying the coverage is not adequate. The real trigger why we took the provision more is that we are always looking at triggers for an opportunity to take additional provision. This time, we did not go through the P&L (profit and loss), but rather through the capital line. Our capital adequacy ratio went up sharply in the last quarter. If you have the right capital adequacy ratio, you should look at the balance sheet and make sure you are adequately protected.
If the government's agenda for consolidation works out, you would become one of those global big banks. Are you prepared for it?
Yes, it's a matter of fact that we have to prepare ourselves for the future and compare ourselves with a large peer group. It's also the expectation of our international customer. When we speak with our international customers, we see them having accounts with us in three or four jurisdictions and, therefore, they want us to give a single limit to them, have the flexibility to use it where they want, to support them more in trade and finance, etc. We are moving in that direction. The transformation journey involves a lot of things, but the cultural aspect is a less challenging one. This bank has always been a very business-oriented institution.
About 10 years ago, Bank of Baroda embarked on a deep restructuring and rebranding exercise. In your latest presentation for vision 2020, you again talk about rebranding. Has the existing rebranding exercise run out of steam?
We are trying to validate those assumptions with data. For example, people wanted more automation. We are trying to do that from our e-lobbies, revamping branches. That's an immediate requirement. But, rebranding exercise itself has not been fully thought through. We want to make data-oriented decisions. We are in the process of completing the consumer research, on the one hand, and the brand part, on the other.
In the conference call, you also mentioned Bank of Nainital's divestiture. Can you elaborate?
That is an encashable asset. Right now, our focus is not divestiture. We are focused on building Bank of Nainital and making sure our technology, processes and development get integrated with that. We are looking more actively on them to support us in all that we do and on a standalone basis seen as Bank of Baroda in the same way as we are. We are also looking at revamping our other subsidiaries. We are looking for a joint venture partner in our credit card vehicle.
Is it possible that you make a counter-proposal to the government about the full integration of regional rural banks?
Conceptually, yes. We have discussed this with the government but the real issue is that many of these things are legislative. We take 100 per cent of the risk, so why should we take only 33 per cent of the reward?
Do you expect international business to show pressure on net interest margins as the markets there are moving towards negative interest rate?
We have three portfolios in the international business. We have a buyers credit portfolio, local customers dealing with us in multiple markets, and Indian customers. The real pain point is the ECBs (external commercial borrowings) that we have done for the Indian customers, where delinquency ratios are substantially high. But, local credit business is doing very well.
The Bankruptcy Code and other measures by the government and the Reserve Bank of India give you more teeth against defaulters. What is going to be your approach?
The overall approach of banks is to look at new leadership. Some of the things cannot be forced. You will have to do through mutual consent. The bankruptcy regulations provide that framework. We have slivers of exposure of the large customers. So, a lot of it is going to be decided by the lead bank and the consortium. We would like to articulate that we need to take the hard call if we were to support a business. But, if you have to move on, just move on.