New Dawn at Bank of Baroda:

Project Navoday

Prashant Saxena (PGP/23/348)

Mini Pateriya (PGP/23/148)
Pratyush Barua (PGP/23/285)
Sandeep Mande (PGP/23/334)
Abhishek Gautam (PGP/23/373)
Abhishek Singh (PGP/23/127)
CBM (Section B) | Group 9 Sanjay Kumar Meena (PGP/23/357)
Introduction
The Context.
● The bank had posted losses in two of the past three years
including the largest loss in financial year 2015-2016. In the
year ending March 2018, the net losses of the bank were to the
tune of Rs. 24.32 billion
● The first quarter of 2018-19 had turned in good profits and that
could be the base for a strong performance in future.
● The entire state-owned banking sector was in crisis. All the
state-owned banks barring two had posted a combined loss of
Rs 870 billion. Eleven banks were under the Reserve Bank of
India's watch list for PCA.
● This was the last annual general meeting for Venkatesan
Banking in India was tightly controlled by the
whose term would come to an end by August 2018: it was time
State, following two bouts of bank
to take stock and chalk out strategic directions for the future nationalization, in 1969 and in 1980.

There were different types of ownership of

banks in India: Private sector, Public sector
and the Cooperative.
Private Sector Banks
Old Generation
Local Area Banks Payments Banks
Private Sector Banks

New Generation
- Smaller -Licensed in 90s Small Finance Banks
Private Sector Banks -Licensed in 2015
-Had a Legacy -Limited geographical -Operating in Payments
-Operated in smaller area of operation. and Remittances. Not
geographies Licensed in 1990s -Licensed in 2015 Allowed to lend.
following liberalization. -Serves smaller customers

Public Sector Banks Cooperative Banks

State Bank Of Other Public -Incorporated under
India Sector Banks Companies Act. Urban Cooperative Rural Cooperative
-Still controlled by Govt.

Nationalized Regional Rural Had an ownership of the

19 in
Banks Banks union Govt. and the Bank of Baroda operated in the competitive
number
respective state govt. And spaces of the private sector banks, SBI and
nationalised bank as a other nationalized banks.
sponsor bank
India’s International Bank

Established in 1908 30%

One of the oldest banks of India, 30% of the business f BOB came from
presence in 24 countries with 106 international operations.
branches.

Nationalised in 1969 In India

Undertook responsibilities of social banking. 5000+ branches, 9000+ ATMs, Customer base
Continued growth and profits. Presence in areas of of 78 million, 55,000+ staffs. Delivering
capital markets, debit and credit cards, technologies. profits over the years. But, reported a net loss
Multiple subsidiaries for its international operations. in the two of the past three years b/w 2015-18
 Crisis in Indian Banking Sector

PSBs were fully controlled by the government. Recommendations from committees had
Legacy issues in Public been implemented in bits and pieces and several decisions were rolled back.
Sector Banks
Took a long time for PSBs to achieve full computerization, they were not able to utilize the
Outdated technology was increasing digital footprint of customers as effectively as the Private banks
being used
Could not quickly adapt to a Customer Centric approach. Lagged in marketing channel as
Slow paced changes compared to other banks.

Venkatesan took charge in 2015 and had 3 years to understand the work culture, hierarchies
and examine the technological readiness of the bank

Jayakumar faced a tough test as a case of money laundering scam worth INR 60 billion was
Crisis faced by reported at BOB’s Ashok Vihar Branch. Second quarter ending reported a marginal profit of INR
Venkatesan and 1.24 billion but year ended with total loss of INR 53.96 billion
Jayakumar They faced a legacy of stressed assets and RBI had imposed AQR to impose strict regulations on
identifying and resolving stressed assets and front ended the recognition of NPAs

Macro- Economic condition was under stress. This was spread to diverse sectors
 “Project Shikhar” Rebranding
Migrated to Core Banking Systems. Introduction of a New logo the “Baroda Sun”
Appointed HP as the system integrator Employees were uplifted to create a customer
Global data Center was Built friendly environment
Integration to other delivery channels HR reforms were taken to boost customer
morale. Focus on customer experience
Reforms under Anil
Khandelwal
(2005-08) Integration of CBS to other departments “Project Parivartan”
Migrated to Account Management, Risk Retained McKinsey for this initiative
Management, Process management and people Vision of a multi specialist bank catering every need
management systems of a customer
Loan Factory concept for retail and SME Loans

“Project Navnirmaan”
Organization restructuring
CBS and Data Warehouse Centralization of back end processes leading to
Reforms under A new data warehouse was set up branches adapting to sales and service requirements
MD Mallya Aim on improving distribution capabilities to Two contact centers at Baroda and Lucknow were
look for high growth trajectories
(2009-12) setup to handle customer queries
 Jayakumar’s Challenges
Jayakumar dealt with multiple Internal Factors at the operational level

Eroding competitiveness of the

public sector banks
Legacy of stressed Assets • More opportunities in retail business Challenge from Technology
• Identify stressed assets and fix staff than corporate banking • Data based decision making,
accountability • Offering specialized services in •
expanding
,,

• Contain new stressed assets by corporate banking including cash • Risk profiling and audit functions
streamlining origination and management, supply chain management that involved technology
appraisal of individual loan products • Integration of applications with
accounts, adequate diversification • Streamlining of processes: Housing, core accounting and banking
of portfolio MSME and Agriculture loans solutions
• Implementing changes involves • Talent Management: Open market • Technology for ensuring Digital
significant re-orientation, training hiring, Compensation structure and transactions at last mile
and communication work culture
 Learnings from Crisis

Scandal In South African BOB Other Findings - Lack

Foreign Exchange Of Talent In The Bank
Scam At Ashok Vihar • due to process failure because of
Branch excessive exposure to a single • due to demographic
party and lack of monitoring issues, severe
• effective internal • detailed review of international restrictions on hiring,
control, tightening of operations and identify inadequate
KYC norms, overall geographies that they wanted to compensation, and
review to create an expand and the ones they wanted deep legacy issues
environment that to exit.
avoids fraud • For this they strengthened crisis
management, centralized
everything, allotted a PR official
Project Navodaya
• In 2016, McKinsey was hired to advise them on strategy.
• Project Navodaya was a structured program which fixed current business verticals and provided a roadmap for future.
• Bank established Shared Service Centre in the nationalized banking space through a wholly owned Subsidiary undertaking all
back office functions of the Bank happening in different geographies at one centralized place at Gandhinagar.
• This will enable reduction in Turn Around Time, Higher Transparency, Standardization, Economies of scale etc besides freeing
up man-hours for front end staff for sales and service.

Build Next-gen capabilities Nurture the Organization

Transform and in priority areas viz, Digital, and unleash the talent pool
monetize the core Shared Services, Analytics while building a strong
business and Relationship control and compliance
Management. culture across the Bank.
PROJECT NAVODAY
Rollout Strategy for Project Navoday

Improve the quality of the decision making

01 Speedup the decision making
process 02 to ensure that rapid growth doesn’t being
toxic portfolio
03 Look into systematic risk mitigants
in place

“Nurturing” the organization and “unleashing” the talent pool

03

“Building” the capabilities for the future “Enabling change” through focus on
(digital, fintech, analytics, customer 02 04 execution and capacity building
relationship management)

Transforming the “Core” of the bank (Corporate,

Retail, MSME, agriculture/rural and international Building a strong culture of control
business) while managing stressed assets 01 05 and compliance across tha bank
 1. Transforming the “Core” of the banking and salvaging the stressed assets
A. Corporate Banking B. Launch of New Products

 Adverse selection- Less desirable customers targeting the  Lack of innovative products to compete with private
bank, rather bank targeting the most desirable customers banks

 Syndicate Landing - Tactical not strategic asset creation,  Restriction on earning potential and reduced possibility of
brough small share in overall deals 01 01 cross selling of products

 Bad customer experiences

 Adoption of target market approach- Evaluating  Launched integrated supply chain financing and cash
complete value of relationship instead od a transaction management products – 2nd public bank to do so after
 Large corporate and emerging corporate dept. brought
SBI
under single manager  Roped in Litesh Majethia – market expert for supply
 Opened 9 dedicated corporate finance service branches
chain financing
and 5 emerging corporate branches (80 % of total loans)  Acting as a feeder between dealers/suppliers (spokes)
 Corporate baking and credit approval functions
and large corporates (anchors)
segregated
 RAROC (Randomized and an objective risk adjusted 02 02  Hired Saurabh Dalmia to anchor the cash management
product
return on capital) model was introduced  Developing Baroda INSTA for providing trade finance
 Relationship manager app was introduced

 Quality of the portfolio based on earning ratings has

significantly improved – Process leading to better  Enhanced customer experience
capitalization  Opening new income sources for bank via introducing
 Risk profile of the portfolio improved
 The loans to top rated customer of A and above 03 03
3 new service lines
 Increase Upselling opportunity to big corporates and
rating from 29.26% to 63.31 % MSME at the same time

01 – Issues , 02- Initiatives, 03-Results

 1. Transforming the “Core” of the banking and salvaging the stressed assets
C. Retail Banking D. MSME Banking

 Deteriorating Risk profile of retail customer segment  Lack of customer sourcing vehicles for the MSME
customer
 Loosing on a segment which usually gives the highest
 Hugh NPA in MSME landings
risk adjusted returns

 No risk assessed loan product for the retail customers

01 01  Poor collection performance

 Launched Baroda e-business pack and special product for

 In April 2016, Introduced a Risk- Based pricing on loans financing against GST receivables
of retail customer  Value chain financing concept was extended to the first
and second derivative suppliers to all the way down to
 Became first bank to introduced home loans at MCLR to the last mile small and tiny industries
customers with high CIBIL score  Risk based pricing on MSME loan introduced
 Uses of machine learning algorithms on the CIBIL MSME
 A dedicated Retail loan collection center was setup
02 02 Rank (CMR) to predict the probability of MSME becoming
NPA in next 12 months
 Significant process changes in sales, distribution and  Centralization of MSME Loans in Delhi and Mumbai
collection was introduced  Setup of dedicated collection center for MSME Loans

 By march 2018, BOB accounted for 22% of the business

 Overall improved risk profile of the retail loan on TReDS (Trade Receivable electronics Discount System)
portfolio platform lunched by Govt.
 Customer percentage having premium of 760+  Improved risk profile of MSME loan book
increased to 76% against 30% of the customer in
April 2016 03 03  NPA’s reduced from 17.65% in June 2017 to 12.33% in
June 2018
 Only 1% of the customer had less than a score less  Special Mention Accounts (SMAs) reduced from 12.33%
than 725 in June 2018 against 19% in April 2016 in June 2017 to 4.65% in June 2018

01 – Issues , 02- Initiatives, 03-Results

1. Transforming the “Core” of the banking and salvaging the stressed assets

E. Rural and Agriculture

 Developing an ecosystem of allimaces and partnerships
with several entrities such as financial service providers,
insurance companies, Private euity firms, seed and fertilizer
companies, warehouses and coldstorags, agriculture
universities and drip arigation companies

F. International Banking
Problems: Present in too many geographies, Sugnificant
compliance and cost overheads.
Initiatives: Bringing down contribution of internation business
from 17/14% (March 2017) to 22.33% by March 2018.
Identifying countries an regions with growh protentail
Results : international business margins improved from 0.88%
to 1/05%

G. Stressed assets : Two pronged approach

1. Building sufficient coverage against the stressed asset (higher
than regulatory requirement)
2. Operational Approach
a. Specialized cell of resolution of the large stressed assets
b. Setting up of a legal war room for recorvery process
and decision making process
c. Dedicated collection center of retail and MSEM laons
d. Inhouse stressed asset management vertical setup
 2. Building Capabilities of the future
C. Fintech Alliance
I. Setting up state-of-the-art Shared Service Center (SSC) at GIFT City, Gujarat – Managed and wholly owned subsidiary of Baroda Global
Services Ltd. (BGSS)
II. SSC having independent governance and staffing structure allowing autonomy to hire specialist laterally
III. Migrating several back office operational activities of branches such as accounts management services, mortgages loan processing, forex and
trade finance operation to SSC
IV. At Retail Front: Customer interface (front office) and execution of transaction (back office) was segregated by centralizing a number of
functions like liability accounts opening, retail loan processing and underwriting trade finance and forex transaction at SSC
V. Relationship Manger and Credit approval manager post were segregated
VI. An objective risk adjusted return on capital provided
VII. Processing and approval hierarchy moved from Zonal offices to Centralized back office
VIII. Designated sector specialists from main sectors were appointed to check quality of the loan approval

B. Technology Based Intervention

I. Upgraded the Core Banking System (CBS) to latest version, Integration with various digital applications working smoothly across a verity of
platforms
II. Tab Banking: Digitalized account opening process through tablets on all branches
III. Revamping of mobile app to incorporate best in class features
IV. Introduced Loan lifecycle processing system (LLPS) – integrating spreadsheet applications, credit bureau score checking…etc.
V. Digitized record keeping across all 600 branches
VI. Established IT Centre of Excellence (ITCoE) and Analytics Centre of Excellence (ACoE) – To create market leading technologies

C. Fintech Alliance
I. Hired Akhil Handa to create a new vertical on Fintech
II. Forged 25 fintech alliances to take advantage of opportunities of APIs enabling to stay at the innovation edge of the evolving sector
3. “Nurturing” the organization and “unleashing” the talent pool

Prevailing Issues and Causes : Talent Crunch

Unadequate Autonomy Missing balance Scarcity of leadership talent

1. Banks does not have autonomy 1. There was not a balance 1. Large Super-numeration in
of hiring people form campus between internal talent senior management in last 5
development & expert pool years period overall
2. They doesn’t have unfettered
freedom to hire laterally 2. Lack of transfer of best 2. Recruitment ban in 1980s for
practices from the external continuous 5 years leading to
contract workers a talent seniority shortage
 3. “Nurturing” the organization and “unleashing” the talent pool

Prevailing Issues and Causes : Initiatives taken

Senior leadership development initiative – WeLead

1. Baroda Senior Leadership Program- Scale VI & VI Employee Engagement Initiatives
2. Baroda Emerging Leaders Program- Scale V
3. Baroda Raising Stars Program- Scale IV  Bank conducted its first employee engagement survey
4. Sayaji Rao Gaekwad Scholars Program- For scale I , II “Voice of Barodians” in 2016 were launched
and III
Under this program 2700 potential leaders were identified
to take leadership positions in future Creating a happy workplace environment
Project “SparshPlus” Under the program “Baroda Anubhuti” bank rolled out initiatives
such as:
 BOB introduced a new Performance management System -  Employee of Month
christened as Growth & Empowerment Management  Spot recognition for capturing “WoW” moments
system (GEMS)  Zero Hours were introduced – for fun activities
 Shift to a development and growth oriented approach  Local community service/social activity undertaken
 provided officers digital platforms to track their  Launching the grievance redressal portal
performance
Becoming a Learning organozation
Focus shift: Striking the right balance
 Employees encouraged to acquire skills through “life cycle
 Project “Khoj” was rejuvenated
concept of training”
 More force to out of the box thinking and specialization
 Baroda Academy Mobile application and Baroda Radio
skills were given
 An active effort to strike balance between the internal Application were launched as alternative learning platforms
 Approximately 230 modules are made available
promotion and contractual hiring was g
4. Enabling change through focus on execution and capacity
building
Initiatives:
 A project management office (PMO) was setup
 The PMO takes care of regular tracking of the 120 strategic initiatives taken across all segments
 Forming a Steering Committee comprised whole-time directors and functional heads

5. Compliance building a strong culture of control and

compliance across the bank
 
Issues:
 Frauds and scams in Indian and South African branches highlighting the non-transparency of the
transaction systems
PowerPoint Presentation
Initiatives:
 Hiring KPMG as “Knowledge Partner” for examining the audit functions
 Fragmented concurrent audit process at the branch level is consolidated to have fever concurrent
auditors at each of the 13 zones
 Rolled out a Key Risk Indicators framework – to perform control checks as per the critical checkpoint on
quarterly basis
 A quality control was setup at SSC – to validate transactions of the last day as per set limits
 For large value transactions, separate centralized Transaction Mentoring Unit (TMU) is setup for money
laundering alerts
 Centralizing the audit functions
SUBSIDIARIES & OUTSOURCING for NAVODAY ROLL OUT STRATEGY

WHY CREATE SUBSIDIARIES? ADVANTAGES OF CREATING SUBSIDIARIES

• For management of some specialized functions and aggressive growth in frontier • Independent governance
areas like supply chain finance, cash management and digital finance • Specialized talent
• In order to bring about rapid change, there was need to completely change the • Pay competitively
way the business was looked at, but that would take time. • Work on a dedicated basis for BOB
• Shifting the specialized activities into a special purpose, wholly owned • Process changes could be accelerated housed in a
subsidiary. separate ecosystem
The Short Run: The subsidiary would provide specialized services to the parent • Could even be integrated into the bank when the
The Long Run: It could have a business model of its own and be a service provider time is appropriate
for the banking sector and even attract other investors
BOB Financial Solutions Limited Baroda Global Shared Services Limited

Would provide end-to-end services in payment systems related Would provide the entire back office support for:
initiatives • Loan processing system
Barodasun Technologies Limited • Hire talent in risk assessment
• Centralize the loan processing
Would look at providing all the technology-related solutions and • Foreign exchange operations
attract talent which could be housed in a technology ecosystem • Account opening through tab banking
rather than in a banking ecosystem. • Retail loan processing
BOB Caps Limited
The subsidiary would be a strong operational support
Would undertake all the capital market, investment, institutional for the bank to build a risk-free quality portfolio.
broking, and advisory services.
These services needed specialists and was best housed outside
 Future Outlook
1. A crisis was a good opportunity to transform the bank, it was also risky because there was every chance that a short-term
view could result in a reversal.
2. These changes brought about were fundamental. They were in the thought process and would take time to internalize
within the culture of the bank.
3. The next phase was to move down the customer experience at the rural retail level and that was a challenge that
Jayakumar was mulling about.
4. The changes brought about through the process of transformation could be classified into three broad types - namely
leader/personality-led changes, process-driven changes and system-driven changes. It was assumed that the personality-
led changes would not last, the process-driven changes had a chance of lasting while the system-driven changes would be
more persistent. It appeared that the changes brought about by Jayakumar was largely falling into the last category.