Bank of Baroda CEO PS Jayakumar's focus on differentiation, to make bank future-ready

About 10 months ago, when chief executive PS Jayakumar called for a town-hall of Bank of Baroda staff, a rarity for a state-run bank. While he spoke, the rest remained just mute spectators. But now, such meetings go on for three hours with many staff questioning what he is up to even if his responses are not convincing. For those looking for a quick turnaround at this 108-year-old lender, it is a reality check. The mission is to turn around a giant ship.
Jayakumar, a former Citibanker, is the first thoroughbred private banker to head a state-run bank as the government experiments with private sector talent to revive ailing state-owned banks.

On his part, he is not looking to reinvent the banking wheel, but rather is analysing the strengths and the weaknesses of the institution that many even in the banking system envy because of its franchise and conservative lending that held it back from binging on infrastructure.

Bank of Baroda’s exposure to a single entity is no more than Rs 2,000 crore, and that, in hindsight, looks to be a virtue. What is certain at this point is that the bank will be a ‘universal bank’ with a suite of services ranging from corporate lending to retail to investment banking to insurance business – reflecting Sandy Weil’s business model that made what Citibank, Jayakumar’s former employer, is today.

Jayakumar is aided by a professional team of board of directors headed by the tech-savvy Ravi Venkatesan, who led Microsoft in India. There cannot be a better combination than Ravi-Jay, at least on paper, for now.

The performance of this combo will determine the government’s strategy for state-run banks. “There is no room for failure,” says Venkatesan, who actively mingles with senior management and spends time to know the institution. “If you can have good people in the key roles that matter, I think good outcomes are going to happen. It is mostly spending time to make sure that at least I am satisfied that the management is thinking through the people dimension.”



Bank of Baroda may have the reach with over 5,300 branches and 50,000 employees across the globe, but it ails from the same problem that plagues all state-run banks – not seeking business, but wait for it to fall on its lap.

And that’s what Jayakumar is working to change. “The public sector setup is such that we are excellent credit givers, we are excellent customer service organisations. What we don’t do is ask for business… that is one basic change that we are proposing to do,” says BB Joshi, executive director at Bank of Baroda.

“We were only extending credit. We were not capturing transactions and cash flows... that is another paradigm shift that we are trying to bring in now. We would like to see that their transactions are captured through their accounts with us.”

Public sector banks, used to the comforts of directed lending and flow of deposits, rarely chased other businesses of clients. Private peers such as HDFC Bank or Axis Bank keep customers almost captive by providing them almost every service. So, their so-called CASA (current account savings account) ratio is around 40%. Even those who borrow from Bank of Baroda will keep their salary accounts with HDFC Bank or Axis Bank. Jayakumar wants to change that.

So, what are the things he’s doing now? “We have put a lot of milestones in the way forward and the whole theme right now is making Bank of Baroda future-ready,” says Jayakumar without getting into specifics. “The first thing is to protect and survive ... if your house is on fire don’t think about how to reorganise your drawing room just douse the fire and let’s think about the drawing room being arranged subsequently.”

The plans are well laid out, but the obstacle could in convincing employees, among whom there is already a murmur that he is a control freak and may be executing his plans with lateral hires, overlooking old-timers.

“Yes, they have got the intent, but it’s easier said than done,” says R Sreesankar, head, institutional equities, at Prabhudas Lilladher. “The reason is that the DNA of the bank is very well laid out for a long period of time. If you try to change it, it will take a long period of time and you need the mindset of a lot of people to change. The management may think about it, but the entire people down the line… have they thought about it? Quickfixes won’t work.’’

But one thing Jayakumar is clear about is that he wants to rid BoB of the tag that it is no different from the other PSU banks. Differentiate is the mantra. But how? “Differentiation could mean high-quality service, it could also mean the type of products we offer,” he says. “Differentiation could mean we could be as digitised or better than others. How do we leapfrog? Banks like ours have a very significant personalised service capability.” Does that mean aping successful rivals like HDFC Bank? “If you look at HDFC Bank... their ability to be a significant retail bank, their ability to be strong on cash management… these are businesses with large profitability. I am not saying we should be like them. The chosen segments that we have taken is universal in nature.”

Jayakumar, 53, gave up entrepreneurship with his mentor and friend Jerry Rao, who have ventured into affordable housing with his VBHC Value Homes Private Ltd. Although the chief executive position at a large bank is a good enough draw after working with a process-driven multinational bank with little freedom to do things at will, it is also the social responsibility that led to the choice to head Bank of Baroda.

“Here is a government that says: ‘listen, we want to get different sets of people because we want to make the change’. And you and I and all of us are criticising the government for the things they do and don’t do,” Jayakumar said. “I thought if we did not respond personally to these kinds of calls, then we lose the right to criticise the government.”

But the ride so far has been bumpy and there is very little to show in terms of performance. Investors who gave an early thumbs up for the aggressive bad loans provisioning are now questioning if he will be able to deliver on the financial metrics.

Some faith was dented when the bank gave a shock with a second round of provisioning in the March quarter after declaring in December 2015 that almost all the bad things are behind. Furthermore, the bank shrank its business when everyone was looking for growth. Bank of Baroda shares, which rose as much as 22% after the December announcement, fell 8% after the March shock.

But there is a belief that the bank is on the right track. “The biggest challenge is to bring back the bank to its old glory,” said D Sarkar, former CMD of Union Bank who spent almost 30 years at Bank of Baroda where he rose to the rank of general manager.

“For this, the bank will have to strengthen its loan book and just expanding the retail loan book will not help. The bank will have to engage in meaningful restructuring of accounts that have sustainable debts and recovery of bad loans,” he said.

“Bank of Baroda seems a little ahead of other PSU banks,” says Siddharth Purohit, senior research analyst at Angel Broking. “They are moving beyond asset quality issues. They are trying to differentiate themselves from other PSUs. Now they are trying to follow business principles that private banks have been doing.”

Jayakumar also looks to make Bank of Baroda the lender with highest revenue from overseas of about 30%, an Indian bank with international retail presence mainly in Africa. Some worry that going retail in international markets, which even the likes of JPMorgan refuse to do because of aggressive local players with superior knowledge and ability, may be a blunder where the profitability is poor compared with high-margin Indian business. The net interest margin of its international business is less than 1%, while for the Indian business, it is at 2.1%.

As a seasoned banker, Jayakumar knows that answers to all the strategies will be known a few years down the line. “Three years hence, we will see how the whole thing plays out,” says Jayakumar. “But, philosophically, my view is that I am here to see the work completed. I will be willing to stay back to complete what we came here for. We came here to accomplish certain things, so we should leave behind a fully done job, not something that is stunted.”