BANK OF BARODA: ENHANCING STAKEHOLDER VALUE WITH CARE, CONCERN AND COMPETENCE

Banking is the backbone of any country's economy, so such an important segment has to have a responsibility towards the community, country, and economy. Bank of Baroda has a global presence, we are present in more than 20 countries. 

Wherever we are, we follow the same vision. Our vision is to be the most respected and preferred bank mid-size Bank, striving to enhance stakeholders' value with care, concern, and competence.

In this context, maintaining transparency and following ethical values is important. Bank of Baroda strongly believes in this. We are implementing our commitment to these Principles through effective governance and a culture of demonstrating ambition and accountability by setting societal targets relating to our most significant impacts.

 


We are working closely not only with our customers but also with our parent Bank to encourage sustainable practices and enable economic activities that create shared prosperity for the larger economy.

 


We are also increasing financial literacy and improving financial consumer protection frameworks.

 


The bank has donated Ksh. 20 million to the Covid-19 Emergency Relief Fund established by the President. This we have donated through the Kenya Bankers Association. We are doing our level best to bring the economy out of the current situation.

 


Now, one of the other things that is actually happening around the world is the use of Environmental, Social and Governance (ESG) factors in measuring sustainability and the social impact of your business. Is that something that your bank is doing? 

 


Yes. We have a separate policy on ESG factors. It is a disturbing fact that environmental degradation is getting worse. We do not support projects that harm the environment. For example, we do not support projects encroaching on riparian land.

 


We have also decided to digitize all of our records. We are moving away from maintaining all our records in physical form, on paper. Reducing the use of paper has, not only a cost impact, but also an environmental impact. So we are going for communication through email and this will reduce our paper usage and also improve the environment. 

 


Whether we are sanctioning a project at the branch level, head office or at the board level, every member who is sanctioning the loan has to confirm that the project we are sanctioning is environmentally viable and that it is not ddegrading the environment. 

 


To what extent are you compliant with the Banking Sector Charter which was initiated last year by the Central Bank of Kenya?

 


I really appreciate the initiative taken by our regulator, Central Bank of Kenya, in this aspect. It will improve governance in the banking industry. The charter has four broad parameters - fairness, transparency, financial literacy and financial access, and we are complying with all of them. For example, under fairness, we are one of the first banks in Kenya to complete our credit rating module for all of our existing clients and we have already completed the risk
 
rating module so that we can reduce the pricing for the low-risk clients. This will ensure we exercise fairness when dealing with our client. It is properly justified if you charge less to the low-risk client because they are maintaining a good risk rating and need to benefit from that. We are maintaining transparency and ethical banking in whatever we are doing, our charges and everything. All our charges have been displayed on our website. 

 


So our business is growing because of our existing client. This is possible only because of our transparent and ethical banking practices when dealing with our clients. One satisfied customer brings 10 more customers.

 


We have also introduced an online complaint resolution module. When a customers is not happy with our service, they can immediately take up the matter on our online complaint module and whatever the complaint, we ensure it is resolved within a maximum of seven days. But we will normally resolve the issue within 24 to 48 hours. As of now, we have nil unresolved complaints.

 


We conducted a Customer Satisfaction Survey this year in April – May and we are very happy to find out that the satisfaction level of the customers were 80.50%. Bank got a Net Promoter Score (NPS) of almost 61 which is considered an excellent score.

 

On financial literacy, you aware, we became a member of Kenya National Chamber of Commerce and Industry (KNCCI), and we have conducted a couple of seminar for members of KNCCI. Unfortunately because of the Covid-19 pandemic, we had to suspend the programme. A majority of the members are MSMEs and they are into trade, export and import, so in the coming days once the pandemic has normalised, we will conduct more seminars and workshops. 

 


We have a strong presence in India. Those traders who are trading with India, either in import or export have a lot to gain from us because of our presence in both countries. Apart from that, we are present in 20 countries across the globe.

 


As far as financial access is concerned, we are continuously taking feedback from our clients and also upgrading our products continuously. We are also launching various technology platforms.

 


So as far as the Banking Sector Charter is concerned, we are meticulously compliant with all the requirements. We have fulfilled the timelines and we are reporting regularly to our regulator.

 


In the wake of Covid-19, how have you responded to your customers who may be in distress? 

 


Covid-19 has definitely impacted the economy negatively. We deal with different segments of clients, particularly, traders, manufacturers and those in the construction sector, real estate, retail clients, MSME clients and corporate clients. Most of the segments have been affected in different magnitudes. Some segments are very severely affected while others are mildly affected. We’re working with those in distress to help them out.

 


I really appreciate the efforts taken by our regulator, CBK, in dealing with this situation. They have given banks guidelines on restructuring existing credit facilities up to 12 months on a case-to-case basis, depending on how the cash flow of the borrower or company is affected. So we are following these guidelines and so far we have restructured a good number of accounts.

 

 
We are providing a moratorium period for payment of instalments or interest or both, depending on how their cash flow is affected. Apart from restructuring, we are also giving additional funding, you can call it a top up of working capital facility, because even though their cash flow is affected, these companies need to pay salaries, insurance, and even taxes. Their fixed expenditures are still there, regardless of the cashflow being affected. So to take care of this cash flow mismatch, we have sanctioned various top up loans and various short term working capital loans. This will certainly take care of the companies that are in stress situations.

 


To cushion our customers, we are offering remittances to India at reduced rates (50% reduction of charges).

 


The Bank has introduced a special product dubbed “Baroda Covid Credit Line” to support customers adversely affected by the pandemic.

 


It is a specific product for only those who are affected by Covid-19.

Yes. -Baroda Covid Credit Line

 


Is it for businesses only or also for individuals?

 


It is for personal, MSMEs and Corporate customers. It will take care of all the three segments.

 


How was your performance in 2019 compared to 2020 so far? How do you see 2020 turning out? 

 


As far as 2019 is concerned, though the market was dull, we grew as projected. We grew by 15% in deposit, 13.5% in advances, 14:5% in total business and 12% growth in operating profit. If you see the performance of the bank over the last 10 years, the growth is more than 300 to 400 percent.  Many banks in Kenya might have grown over the last 10 years, but the peculiarity of our bank is that the year-on-year growth is consistent. If you see our graph, it is constantly going up. There is no year in the last 10 years that we have shown a decline. This clearly shows the confidence our customers have on us. Our businesses has grown consistently. Consistent growth is important because it shows the efficiency of the organization.

 


This year, the whole banking industry has been affected by the Covid-19 pandemic, including ourselves. However, if you see our Q1 performance, we have grown in terms of business and profitability also. It is only in credit where we haven't had a good takeoff because of the slowness in the market, but still, we hope that in the second half of the year, the Kenyan market will recover. 

 


I would like to appreciate the Kenyan government because we didn't go for a complete lockdown. Another good thing is that the affected cities like Nairobi and Mombasa were locked down but with in Nairobi and with in Mombasa, business activities were still continuing. The govenrment was also right to impose the night curfew. So I hope with this positive action, the Kenyan economy will not be affected much like other developing countries. 

 


In days to come our GDP will be in the range of 1% to 2%. It is very positive compared to other developing countries that are projecting negative GDP growth rates.  So, I hope the banking industry will recover in the second half and we will achieve whatever we have planned at the end the year.

 

 
So, you are still optimistic about your growth? 

 


Yes, I'm very much optimistic. It is already visible on the deposit side. I am only worrying about the advances side. But I hope that things will normalize in the second half.

 


In light of the Covid-19 pandemic, how would you rate the quality of your loan book?

 


Yes, it has been affected to a large extent, mainly because of the loan restructuring that we have done. A number of accounts have converted from standard category to watch category because people are really struggling to repay. We are going for more restructuring and more rescheduling and we are giving more moratorium. So it has affected the quality of our loan book no doubt, but already the economy has started bouncing back. So once things normalize I hope the quality will improve. It is a temporary phenomena and I strongly believe once things are normalized in the market we can regain its quality.

 


Let's talk about the next 10 years, what is in store for your bank? 

 


We are one of the oldest banks in this country. We have been here for last 66 years. We started our operations before the independence of this country, way back in 1953. This clearly shows we have a strong presence in this country. As per the vision of our parent bank in India, we have a plan to expand our operations in Kenya. We have already constructed our own new head office building where we are planning to open one more branch along Muthithi road. It will be our fourteenth branch. Apart from that we are planning to open more branches as per the guidance and suggestion given by our global MD and CEO in India. He has guided us and suggested that we open more branches in Kenya. We are also present in other East African countries, like Tanzania and Uganda. Also, we are in other African countries, like Botswana and Mauritius. In the next 10 years, our global MD & CEO has guided and directed us to go for opening more branches in other African countries particularly in East Africa. So I strongly believe our growth will be much bigger in the next 10 years. Growing our global presence is one aspect.

 


The second aspect is to improve our technology platform. Our parent bank in India is grounded on technology platforms. We are planning to bring in much of the technology that our Indian operations have already implemented to Kenya in coming years. We have already launched a mobile banking platform and and we are planning to launch prepaid cards and other types of technology platforms. We understand that Kenya is a country where people are very techno-savvy. If you look at global money transfer, Kenya is a country where money transferred through mobile channels is very high. This clearly shows how this country is techno-savvy. So to keep pace with the country's growth in technology, we are also planning to bring more technology in the coming days.

 

 

How will the removal of interest rate caps affect your financial performance?

 


Interest rate cap was introduced in 2017 to curb banks that were taking advantage of customers by charging very high rates of interest. So it was a good move at that time. It was eventually removed in November 2019. Although it has been removed, our regulator is very stringently monitoring how banks are behaving, with regard to interest rates. I feel this is a good move, as it is good for the country and good for the people. If the rate is reasonable, more customers will be willing to borrow from banks. I understand that a good number of the public are taking loans at exorbitant rates of interest through mobile money platform or through other informal channels. These channels need to be brought under the banking system. This will enhance financial inclusion. Financial inclusion should aim at
 
bringing in people who are financially excluded. That means those who are not in the banking system. 

 


As far as Bank of Baroda is concerned, even before the interest rate cap was introduced, we are one of the banks that never charged very high interest rates.

 


We are also following the CBK’s new guidelines following the repeal of interest rate cap. We have already submitted our proposal to our regulator, for the introduction of a new base rate that will help our operational efficiency level and is also comparably very low.

 


Let’s talk a little more about technology, what else is the bank doing? The kind of expansion you have talked about will require some specific investment in technology.

 


In coming days technology implementation in the banking industry is going to be very very important and relevant. To deposit cash or withdraw cash and some other services, customers still have to come to the branch and wait in the queue. These are wastage of time.  See what's happening in the developed countries, already various technology platforms have been introduced such that people are transacting without visiting the bank branch. Many of the younger generation even in Kenya have never visited their banks. 

 


So we have to create such an environment for doing banking transactions without visiting the branch as it is a waste of time and it is also a cost to the bank. 

 


The new talk is about virtual banking without any physical branch in the long run. The bank will exist but without any physical presence. 

 


So they will develop more technology platforms so that customers can access banks through the internet or through some other remote mode. You can transfer funds and get whatever else you want, including the sanctioning of loans. So nowadays, it is possible because we are putting all types of details about the client on the net. All the KYCs will be done on the platforms since the government is already uploading all relevant documents into the e-government platform. The credit rating agencies are uploading, clients credit history - how you have behaved in the past in your repayment of loans. All those things will give a clear picture to the banks of who their client is without physical interaction. It is still a long way to come, may be in the next decade. In the coming days, I hope technology platforms will play a major role in the banking industry.

 


Many banks will come out with various new technology platforms. I really appreciate the efforts of our governor of CBK in establishing a fintech relationship forum with Singapore. Last year we conducted one exhibition here in Kenya and this year also, they are planning to do it virtually. So, these types of fintech exhibitions will help introduce new technology to the Kenyan banking industry.  

 


We are already in the process of upgrading our technology capacity. We have migrated to Finacle 10x from Finacle 7x core Banking System. This will give Bank a uniform digital banking functionality, better data analysis, customer centric services and many more.

 


I know your strategy has been very consistent for a while. Are there any changes?

 


Our strategy is very clear. It has always been customer-oriented. It is about operating transparently and ethically.  We plan to grow like we have done in the last 10 years. We will maintain consistency. 

 

 
From a regulatory perspective, we will always respect the laws of the land. As you rightly said,

the country is now focused on growing MSMEs, so definitely we will also focus on this and trade and the big four agenda given by our honorable President. 

 


Ultimately we should be a customer friendly bank. We will work to win the confidence of our clients so that through them we get more business. This is the strategy that we will follow stringently.

 


Banks like you are in a very good position to access what is happening in the broader economy, not just locally but also globally. What is your assessment of the local and global macroeconomic environment currently? And what, do you percieve as the biggest threats to the growth of Kenya's banking sector?

 


The Covid-19 pandemic has greatly impacted the macroeconomic environment. Most of the developed economies have been affected, economies like the USA, European Union, UK, including big growth giants like China and India have all been affected.  

 


We are fully aware that most of the developed economies closed down completely for months. So this will clearly have an impact on their economies. The world trading activity is very common across countries. So the impact on one economy will affect other economies.

 


The impact no doubt will continue for some time. Even if the pandemic is over this month or next month, we will continue to feel it for the next 6 months or nine months. So it will affect the current year. Sectors like tourism, restaurants, hotels and transport have totally been affected. Covid-19 has also changed people's lifestyle. People are now more familiar with conducting meetings on Zoom or Microsoft Teams or other web-based meeting platforms. This is a big change and it will have an impact on the transportation sector, especially the aviation industry, in the short-term.

 


Also tourism may be affect for couple of years. People fear to travel to other countries and it will be the same until normalcy returns. However, I feel the FMCG sector, agriculture, manufacturing and trading will recover faster. These are day to day essentials, even during this pandemic, people have had to purchase their food items. We will see recovery in the manufacturing and other food processing industries soon.

 


As far as Kenya is concerned as I already said that the fact that there was no total lockdown during this pandemic. I don’t think business was serverly affected including manufacturing and trading. I am aware tourism, aviation and the hotel industry have been affected gravely. In terms of manufacturing and trading, it is at 50%.  So I feel the threat is not that much.  And as far as our exposure is concerned, especially in the most affected sectors, it is almost negligible. So I don't feel any type of threat to the bank. 

 


Those banks having a big exposure in affected sectors will have to take a hit in the short-term. It is a temporary phenomena. So the banks will have to jointly work with the affected organisations to revive them. It is not a big threat in long run.

 


I think the economy will bounce back.

 


So where do you see growth coming from amidst this crisis?

One positive thing I can see because of the pandemic is that most of manufacturers and traders who used to import inputs and goods from other countries have started finding some of these materials locally. I think in many cases, the raw material are available in Kenya, but they were importing because it is available cheaper and in good quality from other counties.
 
Because of the pandemic, we have realized that we can use locally available resources. They can be good substitutes for our imports. 

 


If we can efficiently utilize local resources it will impact positively on the country's foreign exchange reserve. If it is sustained, in the long run it will be good for the country, whether these resources are in form of manpower or raw materials.

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