Sunteți pe pagina 1din 82

INTRODUCTION

Corporate Finance is an area characterized by low transaction cost , large ticket size having concentrated risk exposure. The wholesale finance is very lucrative for banks but they are large in exposures so they also contain concentration of risk. Managed properly they can give a quick boost to the balance sheet of a bank and can have multiplier effect but if the decision goes wrong can also create big dent to the profitability of the bank. Bank of Baroda has established specialized branches designated as Corporate Financial services Branches to cater to the specific needs of the Mid and Large Corporate.

Anand Srivastava PGPBF(2010-2012)

Page 1

STATEMENT OF THE PROBLEM Bank of Baroda has established CFS branches as a specialized branches so as to cater to the needs of mid and large corporate. Though CFS branches are working satisfactorily the bank wants to improve the effectiveness of these specialized outfits. The Bank wants to increase the penetration of the CFS branches. It wants to have a greater share of mid and large corporate loans. SCOPE OF STUDY In the light of global recession the corporate have either postponed or dropped out capital investment. The scope of this study covers mid and large corporate within the definition of these adopted by Bank of Baroda.

Anand Srivastava PGPBF(2010-2012)

Page 2

REVIEW OF LITERATURE
In order to carry out my research I started with the study of what is Wholesale banking and what is Corporate finance. I went through the information on the Banks public domain website www.bankofbaroda.com and the banks internal website www.intranet.bankofbaroda.com to get access to the circulars.I also went through the banks internal loan policy guidelines and annual report to know the banks framework of Corporate finance.

Anand Srivastava PGPBF(2010-2012)

Page 3

RESEARCH METHODOLOGY
Since I have an experience of 11 years in Credit department of Bank of Baroda I have an idea of the banks loan policy guidelines.I concentrated on banks specific guidelines related to mid and large corporate.I also contacted the CFS branch clients which are the Corporates so as to know their feedback regarding the working of CFS Pune.I also got a feedback from the people working there to get first hand information on how to improve the effectiveness of CFS branch.

Anand Srivastava PGPBF(2010-2012)

Page 4

LIMITATIONS OF STUDY
While collection of the data, I had faced certain limitations. The limitations were such like : The main limitation faced was time constraints. Since there was less time available, sample size taken is not ideal to represent the whole population. It was very time-consuming to understand and incorporate the lending policy/procedure of various Banks in this report, hence I have covered the methodology adopted by Bank of Baroda for the purpose of this report. The corporates have long outstanding relationships with the bank and hence when contacted with its employees they do not reveal the true picture. Even the people at CFS are not ready to give the true picture knowing the fact that what they speak is going to be documented in the report.

Anand Srivastava PGPBF(2010-2012)

Page 5

ANALYSIS/INTERPRETATIONS
Let us have a look at the macro economic scenario in which these mid and large corporates are working. Global Economy The global economy during the first quater of 2011 continued with the momentum of late 2010. The global manufacturing purchasing managers index (PMI) for February 2011 was close to a record high, while the global services PMI recorded its fastest pace of expansion in almost five years. Although these indices slipped somewhat in March 2011, they signalled continuing expansion. However, consumer confidence in major countries, which improved during January-February 2011, moderated in March 2011 on the back of higher oil prices. GDP growth in the US, which was strong at 3.1 per cent (q-o-q seasonally adjusted annualised rate) in Q4 of 2010, slipped to 1.8 per cent reflecting a decline in government spending, deceleration in private consumption and increase in imports. Clearly, a number of weaknesses persist. The US housing market remains weak. More generally, unemployment rates continue to remain elevated in major advanced economies, albeit with some improvement in the US. Concerns about sovereign debt in the euro area have now been reinforced by developments in the US. Finally, and most importantly, commodity price increases have accelerated,

Anand Srivastava PGPBF(2010-2012)

Page 6

engendering global inflationary fears and posing downside risks to growth. The Brent crude price surged from an average of US$ 75 a barrel during May-September 2010 to US$ 123 a barrel by April 2011. The International Monetary Fund's (IMF) in its April 2011 World Economic Outlook (WEO) has assumed US$ 107 a barrel for the full year 2011. Initially, oil prices were buoyed by strong global demand and excessive liquidity. Since February 2011, oil prices have come under further pressure on account of apprehensions about supply disruptions due to political developments in the Middle East and North African (MENA) region. The demand for oil is expected to increase with the possibility of Japan substituting some of its shut-in nuclear power capacity with oil-based generation, combined with higher energy usage once reconstruction gets underway. In the recent period, commodity prices have been under pressure due to strong demand from emerging market economies (EMEs) and the financialisation of commodity markets. Global consumption of most base metals is estimated to have reached new highs in 2010. According to the Food and Agriculture Organisation (FAO), international food prices rose by 37 per cent (y-o-y) in March 2011, reflecting both higher demand and weather related supply disruptions. The increase in global food prices was led by the prices of cereals (60 per cent), edible oils (49 per cent) and sugar (41 per cent).

Anand Srivastava PGPBF(2010-2012)

Page 7

Commodity prices are now exerting a direct impact on inflation in advanced economies, despite substantial negative output gaps. They have also accentuated inflationary pressures in EMEs, which were already experiencing strong revival in demand. While major EMEs have been tightening monetary policies for more than a year now, the European Central Bank has recently raised its policy rate - the first central bank to do so among the major advanced economies - after maintaining them at historically low levels for almost two years. Central banks in other advanced economies are also under pressure to withdraw monetary accommodation. The above trend poses appreciable downside risks to global economic activity. Domestic Economy The Indian economy is estimated to have grown by 8.6 per cent during 2010-11. Agricultural growth was above trend, following a good monsoon. The index of industrial production (IIP), which grew by 10.4 per cent during the first half of 2010-11, moderated subsequently, bringing down the overall growth for April-February 2010-11 to 7.8 per cent. The main contributor to this decline was a deceleration in the capital goods sector. However, other indicators, such as the manufacturing PMI, tax collections, corporate sales and earnings growth, credit off-take by industry (other than infrastructure) and export performance, suggested that economic activity was strong. According to the Reserve Banks Order Books, Inventories and Capacity Utilisation Survey (OBICUS), the order books
Page 8

of

Anand Srivastava PGPBF(2010-2012)

manufacturing companies grew by 7 per cent in OctoberDecember 2010 as against 9 per cent in the previous quarter indicating sustained demand albeit with some moderation. The Reserve Banks forward looking Industrial Outlook Survey (IOS) shows a decline in the business expectations index for JanuaryMarch 2011 after two quarters of increase. Leading indicators of services sector suggest continuing growth momentum. Credit to the services sector grew by 24per cent in 2010-11 as compared with 12.5 per cent in the previous year. Other indicators such as commercial vehicles production and foreign tourist arrivals also showed an acceleration. However, the services PMI for March 2011 showed some moderation as compared with the previous month. Inflation was the primary macroeconomic concern throughout 2010-11. It was driven by a combination of factors, both structural and transitory. Based on drivers of inflation, the year 2010-11 can be broadly divided into three periods. In the first period from April to July 2010, the increase in wholesale price index (WPI) by 3.5 per cent was driven largely by food items and the fuel and power group, which together contributed more than 60 per cent of the increase in WPI. During the second period from August to November 2010, while WPI showed a lower increase of 1.8 per cent, more than 70 per cent of the increase was contributed by food and non-food primary articles and minerals. In the third period from December 2010 to March 2011, WPI increased sharply by 3.4 per cent, driven mainly by fuel and
Anand Srivastava PGPBF(2010-2012) Page 9

power

group

and

non-food

manufactured

products,

which

together contributed over 80 per cent of the increase in WPI. Thus, the inflationary pressures, which emanated from food, clearly became generalised as the year progressed. As food price inflation moderated, consumer price index (CPI) measures of inflation declined to 8.8-9.1 per cent in March 2011 from 13.3-15.0 per cent in April 2010. Over the same period, WPI inflation remained elevated reflecting increases in non-food primary articles prices and importantly, non-food manufactured product prices. This led to a broad convergence of WPI and CPI inflation by the end of 2010-11. Broad money supply (M3) growth at 15.9 per cent (year-on-year) during 2010-11 was lower than the Reserve Banks indicative trajectory of 17 per cent due to slow deposit growth and acceleration in currency growth. The higher currency demand slowed the money multiplier. Consequently, M3 growth slowed despite a significant increase in reserve money. This suggests that money supply growth was not a contributing factor to inflation. Non-food credit growth, which had been trending upwards from the beginning of the year, reached an intra-year high of 24.2 per cent (year-on-year) in December 2010. It slowed down subsequently to 21.2 per cent by March 2011, which was marginally higher than the Reserve Banks indicative projection of 20 per cent.

Anand Srivastava PGPBF(2010-2012)

Page 10

The Reserve Banks estimates show that the total flow of financial resources from banks, domestic non-bank and external sources to the commercial sector during 2010-11, at `12,00,000 crore, was 12.3 per cent higher than that in the previous year. There was a decline in non-bank sources of funds in 2010-11 as compared with that in the previous year. The decline was particularly noticeable in foreign direct investment. However, this was more than offset by the higher flow of funds from the banking sector. Data on sectoral deployment of bank credit show significant increases in credit flow to industry and services. Within industry, credit growth to infrastructure was robust. Credit flows improved in respect of metals, textiles, engineering, food processing, and gems and jewellery, among others. Within services, credit growth accelerated to commercial real estate and non-banking financial companies. Housing and vehicle loans recovered in 2010-11. The Base Rate system replaced the Benchmark Prime Lending Rate (BPLR) system with effect from July 1, 2010. Major scheduled commercial banks (SCBs), constituting about 81 per cent of total banking business, raised their Base Rates by 50165basis points between October 2010 and March 2011. Base Rates of 64 major banks with a share of around 98 per cent in the total bank credit were in the range of 8.00-9.50 per cent (March 2011), reflecting greater convergence in Base Rates announced by major banks. The weighted average lending rate in the banking system was 10.5 per cent as at end-March 2010.
Anand Srivastava PGPBF(2010-2012) Page 11

Data from select banks indicate that the weighted average yield on advances, which is a proxy measure for effective lending rates, is projected to increase from 9.7 per cent in 2010-11 to 10.3 per cent in 2011-12. This suggests that the Base Rate system has improved the transmission from the policy rates to banks lending rates. After remaining in surplus for 18 months, liquidity conditions transited to a deficit mode towards end-May 2010. This was the consequence of a large build-up in government cash balances as a result of higher than expected proceeds from spectrum auctions. Beginning October 2010, liquidity conditions became even tighter. Both frictional factors such as the above-normal build up in government cash balances and structural factors such as high currency demand growth and credit growth outpacing deposit growth contributed to tight liquidity conditions. Although a systemic liquidity deficit was consistent with the antiinflationary stance of monetary policy, the extent of tightness since October 2010 was outside the comfort level of (+)/(-) one per cent of net demand and time liabilities (NDTL) of SCBs. The Reserve Bank initiated several measures to ease the liquidity situation. These were: (i) additional liquidity support under the liquidity adjustment facility (LAF) to SCBs up to one per cent of their NDTL by temporary waiver of penal interest for any shortfall in maintenance of statutory liquidity ratio (SLR) - for a brief period the limit was two per cent of NDTL, which was reduced to one per cent following the permanent reduction in the SLR; (ii)
Anand Srivastava PGPBF(2010-2012) Page 12

reduction in the SLR by one per cent; (iii) conducting open market operations; and (iv) conducting the second LAF (SLAF) on a daily basis. Liquidity conditions have eased significantly in recent weeks, following a sharp reduction in government cash balances and moderation in the credit-deposit ratio of banks. Consequently, net liquidity injected by the Reserve Bank through its repo operations declined from a daily average of around `1,20,000 crore in December 2010 to around `81,000 crore in March 2011. The average daily net liquidity injected by the Reserve Bank fell sharply to `19,000 crore in April 2011 as government balances moved from positive to negative. In order to facilitate better liquidity management, the Reserve Bank extended the two liquidity easing measures, viz., additional liquidity support under the LAF to SCBs up to one per cent of their NDTL and the SLAF on a daily basis up to May 6, 2011. Yields on government securities eased during the first quarter of 2010-11 in expectation of an improved fiscal position due to higher than anticipated revenues in spectrum auctions. Yields hardened thereafter till January 2011 on account of increase in inflation and consequent rate hike expectations as well as tight liquidity conditions. Yields, however, moderated in February and March 2011 on the back of improvement in liquidity conditions, lower than expected budgeted fiscal deficit and the projected market borrowing programme for the first half of 2011-12. Significantly, the stability of long-term yields, despite the current
Anand Srivastava PGPBF(2010-2012) Page 13

high rates of inflation, suggests that inflationary expectations remain anchored. The Union Budget for 2011-12 has emphasised the Governments commitment to carry on the process of fiscal consolidation by budgeting a lower fiscal deficit (4.6 per cent of GDP in 2011-12 as compared with 5.1 per cent in 2010-11). The revenue deficit to GDP ratio is estimated to remain unchanged at 3.4 per cent in 2011-12. During 2010-11, the rupee dollar exchange rate showed two-way movements in the range of `44.03-47.58 per US dollar. On an average basis, the 6-currency real effective exchange rate (REER) appreciated by 12.7 per cent in 2010-11, the 30-currency REER by 4.5 per cent and the 36-currency REER by 7.7 per cent. The current account deficit (CAD) during April-December 2010 was US$ 38.9 billion, up from US$ 25.5 billion during the corresponding period of 2009. During the fourth quarter of 201011, exports grew at a robust pace of 46.6 per cent, while growth in imports decelerated to 22.8 per cent. Consequently, the CAD, which was 3.1 per cent during April-December 2010, is now estimated to moderate to around 2.5 per cent of GDP for 2010-11 as against 2.8 per cent during 2009-10. Although net capital inflows increased significantly to US$ 52.7 billion during April-December 2010 (US$ 37.6 billion a year ago), the composition shifted towards volatile flows such as FII investments and trade credits. Net inflows under FDI were lower.

Anand Srivastava PGPBF(2010-2012)

Page 14

As the CAD is expected to be significant in 2011-12, the sustainability of financing it becomes important. Global Outlook Growth The global recovery is expected to sustain in 2011, although growth will slow down marginally from its pace in 2010. According to the IMF WEO (April 2011), global growth is likely to moderate from 5.0 per cent in 2010 to 4.4 per cent in 2011. Growth is projected to decelerate in advanced economies due to waning of impact of fiscal stimulus, and high oil and other commodity prices. Growth in EMEs is also expected to decelerate on account of monetary tightening and rising commodity prices. Inflation The IMF WEO (April 2011) projects global CPI inflation to rise from 3.7 per cent in 2010 to 4.5 per cent in 2011. While advanced economies face inflationary pressures from high commodity prices, EMEs face pressures from both strong domestic demand and high commodity prices. CPI inflation in the advanced economies is projected to increase from 1.6 per cent in 2010 to 2.2 per cent in 2011, and in the EMEs from 6.2 per cent to 6.9 per cent. Domestic Outlook Growth Real GDP growth for 2010-11 was estimated at 8.6 per cent. Signs of moderation, however, emerged in the second half of the
Anand Srivastava PGPBF(2010-2012) Page 15

year. Particularly significant were the slowdown in capital goods production and investment spending. Going forward, high oil and other commodity prices and the impact of the anti-inflationary monetary stance will weigh on growth. Most business confidence surveys conducted by various agencies show a decline in business confidence. The Reserve Banks IOS conducted during March 2011, as mentioned earlier, indicates some moderation in business expectations for the quarter ended June 2011. Growth is expected to moderate in 2011-12 from its pace in 2010-11. First, notwithstanding the preliminary indication of a normal monsoon by the India Meteorological Department (IMD) during 2011, agriculture growth is likely to revert to its trend growth from the higher base of last year. Second, the pace of industrial activity has been slowing mainly due to the impact of past monetary policy actions and high input prices. External demand too may slow if global recovery slackens. Based on the assumption of a normal monsoon and crude oil prices averaging US$ 110 a barrel over 2011-12, the baseline projection of real GDP growth for 2011-12 for policy purposes is placed at around 8 per cent. The growth is projected to be in the range of 7.4 per cent and 8.5 per cent in 2011-12 with 90 per cent probability (Chart 1).

Anand Srivastava PGPBF(2010-2012)

Page 16

Inflation The Reserve Bank's forecasts systematically under-predicted year-end inflation during 2010-11. Even after a significant upward revision from 5.5 per cent to 7 per cent in the Third Quarter Policy Review in January 2011 and then to 8 per cent in the Mid-Quarter Review in March 2011, the forecasts remained below the provisional number of 9 per cent for March 2011. The analysis in the previous section reveals that the surge in headline inflation, despite an overall moderation in food inflation, was the combination of two factors: an unanticipated increase in oil and commodity prices, including the large upward revision in administered coal prices in March 2011, and demand pressures reflected in significant increase in inflation in non-food manufactured products.

Anand Srivastava PGPBF(2010-2012)

Page 17

Against this backdrop, several factors will play a role in the inflation outlook, going forward. First, there is a significant suppressed component of inflation as the increase in crude oil prices has not been passed on completely. The last increase in administered mineral oil prices was effected in June 2010 when the Indian basket of crude oil was US$ 74.3 per barrel. Subsequently, it increased to US$ 110.7 per barrel in March 2011. Similarly, administered electricity prices have not gone up even as input prices, particularly those of coal, have increased significantly. Hence, the timing of changes in administered prices as indicated above will have a significant influence on the inflation path. Second, the outlook for crude oil prices in the near future is uncertain, given the geo-political situation in the MENA region. In any case, the likelihood of oil prices moderating significantly is low. The IMF WEO (April 2011) has assumed a baseline average crude oil price of US$ 107 per barrel for 2011 and US$ 108 per barrel for 2012. Third, incomplete pass-through of higher crude prices will have an impact on aggregate demand though higher subsidy expenditure, which is expansionary and can add to inflationary pressure. Fourth, there have been sharp increases in the prices of several important industrial raw materials, such as minerals, fibres, especially cotton, rubber, besides coal and crude oil. In addition, there is also upward pressure on wages. The extent to which the
Anand Srivastava PGPBF(2010-2012) Page 18

increase in input prices translates into output prices will have an influence on the inflation path. Fifth, while the south-west monsoon 2011 is expected to be normal, its impact on moderation in food inflation may be less than commensurate, given a strong structural component in food inflation and elevated global food price situation. Sixth, even though demand pressures were evidently strong enough to induce the generalisation of commodity price increases in recent months, signs of moderation in growth suggest that this driver of inflation will ease in the coming months. The cumulative impact of monetary actions over the past 15 months will continue to be felt over the course of 2011-12, contributing to moderation in both growth and inflation rates. Keeping in view the domestic demand-supply balance and the global trends in commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2012 is placed at 6 per cent with an upward bias (Chart 2). Inflation is expected to remain at an elevated level in the first half of the year due to expected pass-through of increase in international petroleum product prices to domestic prices and continued passthrough of high input prices into manufactured products. Notwithstanding the current inflation scenario, it is important to recognise that in the last decade, the average inflation rate, measured in terms of WPI and CPI, had moderated to around 5.5 per cent. More specifically, non-food manufacturing inflation, which the Reserve Bank uses as an indicator of demand pressures
Anand Srivastava PGPBF(2010-2012) Page 19

and is the most responsive to monetary actions, averaged 4.0 per cent over this period.A period of low inflation preceded the highgrowth phase in 2003-08, which was in turn characterised by high investment-GDP and declining fiscal deficit-GDP ratios. Inflation remained moderate in the early part of the high-growth phase, but increased in the period immediately preceding the global financial crisis, reflecting the emergence of domestic bottlenecks. Based on cross-country as well as domestic experience, the Reserve Bank is strongly of the view that controlling inflation is imperative to sustaining growth over the medium-term. This is a critical attribute of a favourable investment climate, on which growth sustainability depends. Fiscal consolidation will also contribute to improving the investment climate. Accordingly, the conduct of monetary policy will continue to condition and contain perceptions of inflation in the range of 4.0-4.5 per cent, with particular focus on the behaviour of the non-food manufacturing component. This will be in line with the medium-term objective of 3.0 per cent inflation consistent with Indias broader integration into the global economy. The achievement of this objective will be helped by concerted policy actions and resource allocations to address domestic bottlenecks, particularly on the food and infrastructure fronts.

Anand Srivastava PGPBF(2010-2012)

Page 20

Performance of Indian Banking Sector in 2010-11 Indian banking sector emerged stronger during 2010-11 in the aftermath of global financial meltdown of 2008-10 under the watchful eye of its regulator. The timely and calibrated policy responses by the RBI and the government excellently supported the economic recovery process and aided the banking business during the year 2010-11.As inflation remained the dominant policy concern in 2010-11, the monetary and liquidity conditions during the year remained consistent with the anti-inflationary stance of the RBI. Liquidity conditions had switched to deficit mode since end-May 2010, due to large increase in government balances with the RBI resulting from 3G/BWA auctions combined with the impact of advance tax outflows. Structural factors like
Anand Srivastava PGPBF(2010-2012) Page 21

imbalances between deposit and credit growth coupled with high currency demand too added to the pressure on liquidity during most part of the year. However, by allowing the banks to avail of additional liquidity support under the LAF and by conducting second LAF on daily basis, the RBI tried to ease the liquidity pressures. During the third quarter of 2010-11, the RBI undertook open market operations and other measures to improve the availability of liquid funds. Liquidity conditions improved satisfactorily during the last quarter of 2010-11 due to pick up in government spending and staggered open market operations of the RBI since mid-December. For the year as a whole, Indian banking industry delivered a strong performance underpinned by better than expected loan growth, improvement in NIMs helped by faster re-pricing of assets than liabilities and a higher CD ratio. During 2010-11, the non-food credit of commercial banks grew by 21.2% (y-o-y) against 17.1% in 2009-10, while aggregate deposits expanded by 15.8% (y-o-y) in 2010-11 versus 17.2% in 2009-10. The banks total accommodation of commercial sector (as measured by non-food credit plus non-SLR investments) too improved healthily by 21.3% (y-o-y) during 2010-11 against 16.9% in 2009-10. Bank finance continued to be the major source of finance for the commercial sector as during 2010-11, funding from non-bank sources registered a marginal decline as compared to the previous year.
Anand Srivastava PGPBF(2010-2012) Page 22

The sectoral deployment of bank credit continued to remain broad-based, with high growth in flow of credit to services and personal loans. Disaggregated analysis suggests that credit to the industrial sector continued to be led by credit to infrastructure, metal & metal products, textiles, engineering, food processing and gems & jewellery. The high growth in credit to infrastructure is especially noteworthy as it is on a high base. Even the asset quality for most of the banks remained well within limits and under norms set by the RBI. The process of banking reforms too received a further push during 2010-11. For instance, the government presented this year the Banking Laws (Amendment) Bill 2011 in the Lok Sabha. The bill proposed the following amendments among other recommendations in the existing Banking Law. To raise the voting rights of shareholders of nationalized banks to 10.0% from the existing 1.0%. For private sector banks, the voting rights would be proportionate with investors shareholding. To remove the voting right restriction of 10.0% for private sector banks in the total voting rights of all the shareholders of the banking company.

Anand Srivastava PGPBF(2010-2012)

Page 23

BANK OF BARODA-OVERVIEW Bank of Baroda is one of the largest public sector banks in India founded by Maharajah of Baroda Sir Sayajirao Gaekwad II on July 20 , 1908 in the princely state of Baroda, in Gujarat.The bank has come a long way with 3364 branches, 85 overseas offices and 1561 ATMs to its Credit. 60 percent of its branches are located in the rural and semi-urban regions of India. The Bank provides personal banking services including deposits, retail loans, credit cards, debit card, lockers and other services and also provides business banking services and merchant banking services. VISION AND MISSION TO BE A TOP RANKING NATIONAL BANK OF INTERNATIONAL STANDARDS COMMITTED TO AUGMENTING STAKE HOLDERS VALUE THROUGH CONCERN, CARE AND COMPETENCE

CORPORATE MOTO FOR 2011-12 Business Growth through Sales and Service Excellence

Anand Srivastava PGPBF(2010-2012)

Page 24

CREDIT RATING Credit rating agency, CRISIL has assigned its rating of AAA/Stable to Bank of Baroda`s (BOBs) new Rs 4-billion Perpetual Tier I bond issue, while reaffirming its ratings on the bank`s existing bond issues at AAA/Stable.

The rating reflects BOBs established position in the domestic banking industry, its healthy resource profile, adequate capitalisation level, and expected support from its majority owner, the Government of India (GOI). While BOBs asset quality has seen a steady improvement, the earnings continue to remain at industry average levels.

Outlook: Stable CRISIL believes that BOB will maintain its dominant business position in the banking sector over the medium term. GOI`s majority ownership, and the bank`s healthy resource profile and adequate capital position, will continue to support the rating at the current level. The outlook may be revised to Negative if the bank`s asset quality and profitability levels come under significant pressure.

Anand Srivastava PGPBF(2010-2012)

Page 25

Table no.1 Capital Structure

Anand Srivastava PGPBF(2010-2012)

Page 26

Table No.2 Quarter Sr. No. Particulars Ended 31.03.11 Audited 1 Segment Revenue (a) Treasury Operations (b) Wholesale Banking (c) Retail Banking (d) Other Banking Operations Total Revenue 2 Segment Results (a) Treasury Operations (b) Wholesale Banking
Anand Srivastava PGPBF(2010-2012) Page 27

Quarter Ended 31.03.10 Audited

Year Ended 31.03.11 Audited

Year Ended 31.03.10 Audited

152400

117941

559784

459916

286914

190082

984082

732424

168127

143536

598340

495691

109424

68659

327304

262439

716865

520218 2469510 1950470

16353

18784

88251

104770

19776

53859

152549

158536

(c) Retail Banking (d) Other Banking Operations Total Unallocated expenditure Profit before Tax Provision for Tax Net Profit 3 Capital Employed (a) Treasury Operations (b) Wholesale Banking (c) Retail Banking (d) Other Banking Operations (e)

20184

22560

151789

77865

90759 147072 11532 135540 6105 129435

55069 150272 25127 125145 34517 90628

275061 667650 102618 565032 140864 424168

178039 519210 95404 423806 117973 305833

503442

377089

503442

377089

681669

473105

681669

473105

316036

244292

316036

244292

583874 14290

403346 12806

583874 14290

403346 12806
Page 28

Anand Srivastava PGPBF(2010-2012)

Unallocated Total Capital Employed 2099311 1510638 2099311 1510638

Business Performance of Bank Of Baroda


The Banks Global Business touched the mark of Rs 5,34,116 crore in 2010-11 posting a growth of 28.3% (y-o-y). The Banks performance on the business front was much above the banking industrys average. In its Indian operations, the Banks Deposits and Advances increased healthily by 25.8% and 28.7%, respectively. Even in a rising fixed (or term) deposit interest scenario, the Banks Domestic Low-cost or CASA deposits richly
Anand Srivastava PGPBF(2010-2012) Page 29

grew by 21.4% (y-o-y) forming 34.4% share of the total Domestic Deposits. The Banks Priority Sector Credit too recorded a decent growth of 18.2% during 2010-11 and formed 43.57% of its Adjusted Net Bank Credit, easily surpassing the mandatory requirement of 40.00%.Sectorally speaking, the Bank posted a growth of 29.6% in its SME credit, 13.5% in Farm credit, [28.7% in Direct Agriculture credit] and 33.8% in Retail credit reflecting a well-balanced growth across different sectors. During the year under review, the Total Business of the Banks overseas branches registered a robust growth of 32.5% on the back of surging world trade volumes and a rebound in the activities of Indian corporate abroad. In Overseas operations, the Banks Customer Deposits increased by 23.4%, Total Deposits by 29.3% and Advances by 36.6%. Supported by steady and better than industry average spreads and a good pool of fee-based income, the Banks Gross Profit in Overseas operations posted a healthy growth of 23.9%. The Banks Overseas Business contributed 24.6% to the Banks Global Business, 17.1% to its Gross Profits and 32.1% to its Core Fee-based Income. Besides, the Total Assets of the Banks International Operations increased from Rs 68,375 crore to Rs 91,273 crore registering a growth of 33.5% during the year 2010-11. For the Bank as a whole, Gross Profits grew impressively by 43.8% to Rs 6,981.61 crore and Net Profit by 38.7% to Rs 4,241.68 crore - much ahead of the market expectations. Despite increased provisions, especially on account of the pension liabilities of the employees, a strong growth in Net
Anand Srivastava PGPBF(2010-2012) Page 30

Interest Income (at 48.2%), a good traction of Core Fee based income and a modest growth in Operating Expenses enabled the Bank to achieve such record levels of incomes and profits during the year 2010-11.Even as the Bank gained market share in loans, it has sustained the best asset quality standards within the Indian banking universe. In line with its past record, the Bank succeeded in restricting its Incremental Delinquency Ratio to 1.09%, Gross NPAs to 1.36% and Net NPAs to 0.35% during 2010-11. The Banks Loan Loss Coverage Ratio (including technical write-offs) too stood at the healthy level of 85.0% as on 31st March 2011. The key performance highlights for the year ended March 31, 2011 (FY11) are as follows: Total Business (Deposit + Advances) increased to Rs 5,34,116 crore reflecting a growth of 28.30%. Gross Profit and Net Profit were Rs 6,981.61 crore and Rs 4,241.68 crore respectively. Net Profit registered a growth of 38.7% over previous year. Credit-Deposit Ratio stood at 86.77% as against 84.47% last year. Retail Credit posted a growth of 33.8% constituting 18.88% of the Banks Gross Domestic Credit in 2010-11.

Anand Srivastava PGPBF(2010-2012)

Page 31

Net Interest Margin (NIM) as per cent of interest earning assets in global operations was at the level of 3.12% and in domestic operations at 3.72%. Net NPAs to Net Advances stood at 0.35% this year against 0.34% last year. Capital Adequacy Ratio (CAR) as per Basel I stood at 13.02% and as per Basel II at 14.52%. Net Worth improved to Rs 19,750.63 crore registering a rise of 43.27%. Book Value improved from Rs 378.44 to Rs 504.43 on year. Business per Employee moved up from Rs 981 lakh to Rs 1,229 lakh on year.

Table No.3 Key Financial Ratios

Anand Srivastava PGPBF(2010-2012)

Page 32

Marketing Efforts in Wholesale Banking The Department is planning to have a full-fledged Market Intelligence Unit and a vibrant Marketing Team to target newer companies from the perspective of significant business opportunities, especially in loan syndication. The Project Finance Division attached to the department has been tracking the Projects Today database on a regular basis and identifying upcoming projects. The Relationship Officers identified to handle various states of India and attached to Wholesale Banking Department are also on the move to their respective states to have a continuous liaison with the existing units and to help the Zonal Offices in those states in targeting the new customers.

Other Initiatives

Anand Srivastava PGPBF(2010-2012)

Page 33

Additionally, the Banks Wholesale Banking Division took the following initiatives during 2010-11 to strengthen this portfolio further. 1) A substantial improvement was brought about in communication channels between the Corporate Office and Operating Units of the Bank by creating separate e-mail IDs for different purposes like agreement in principle, modifications and submission of credit proposals, etc. 2) A dedicated focus was given to upgradation of skills and knowledge levels of officers working in the Department including the new campus recruits. 3) A thrust was placed on regular grooming of Credit Officers and Forex Officers to handle the credit portfolio branches. 4) A plan was made to open additional Corporate Financial Services branches in North Mumbai, Greater Noida and Surat. 5) The Department closely tracked the Mid Corporate segment accounts by identifying the segment as a separate line of business. It is now proposing to open 14 exclusive Mid-Corporate branches during the Year 2011-12, for which licenses were obtained from the RBI. 6) The Department organized several customers meeting and one-to-one meetings between the Corporates and the Members of Top Management of the Bank to have first-hand information on their business and credit requirements. of large number of

Anand Srivastava PGPBF(2010-2012)

Page 34

7) The Department took active interest in recruiting specialized officers from campuses and Institute of Chartered Accountants of India (ICAI) and placing them in vital areas of credit administration across the branches/administrative offices, etc., for bringing in new blood and filling the vacancies arising out of attrition and retirement. Wholesale Banking A strong corporate credit culture and consistent growth in credit way above the banking industry average have been the key differentiators of Bank of Baroda. The Banks Wholesale Banking Division offers a full range of loan products and services such as Term Loans, Short-Term Loans, Demand Loans, Working Capital Facilities, Trade Finance Products, Treasury Products, Bridge Loans, Syndicated Loans, Infrastructure Loans, Cross Currency/ Interest Rate Swaps, Foreign Currency Loans, Loan Against Future Rent Receivables and many more to its large and mid corporate clients depending upon their needs. The product offerings are flexible and suitably structured taking into account the customers risk profiles and specific needs. Based on the superior product delivery, passionate service orientation, timely and speedier sanctions with a customer centric approach, the Bank has made significant achievements into providing an array of Wholesale Banking products and services to

Anand Srivastava PGPBF(2010-2012)

Page 35

several multinationals, domestic business houses and prime public sector companies. The Wholesale Banking Department started the year 2010-11, with a motto -- Year of Strengthening Corporate Relationship and the focus was to improve the share of business from the existing customers, thereby, strengthening the relationship with them and also building new relationships by targeting the Corporates who were hitherto not banking with the Bank. Under Wholesale Banking, the Corporate Customers are identified as Large and Mid Corporates. Those having annual sales turnover of over Rs 150 crore but up to Rs 500 crore are classified as Mid Corporates, and those having a sales turnover of above Rs 500 crore are classified as Large Corporates. During 2010-11, the Wholesale Banking Division sanctioned fresh facilities to 239 first time entrants amounting to Rs 36,318.67 crore through its Fast Track scheme and achieved increase in the existing accounts to the tune of Rs 41,660.31 crore, thus, the total sanctions from the department reaching a figure of Rs 77,978.98 crore. This exceeds the total sanctions for the previous year by almost Rs 7,900 crore. The major sanctions were given to sectors like iron & steel, metals & metallic products, commercial real estate and infrastructure segments like power, roads, telecommunication, etc.

Anand Srivastava PGPBF(2010-2012)

Page 36

Reduction in Turnaround Time in Wholesale Banking The Department placed a major thrust on faster delivery through efficient channels and adoption of better practices in credit administration. Efforts were also made to improve the speed of decision making without compromising the quality of decision. Simplification of credit proposal formats was carried out, so that all vital information was captured with a sense of objectivity, thereby quickening the decision-making process. This helped the Bank a great deal in reducing the turnaround time. The Department targets to reduce the time taken for according a sanction to less than 25 days. Project Finance Division The Project Finance Division, a part of the Wholesale Banking Department earned total fee income of Rs 19.14 crore during 2010-11 through conducting 156 TEV (i.e., Technical Evaluation & Viability) studies and vetting of projects and syndication deals. This is in comparison to the fees of Rs 6.84 crore earned during 2009-10 out of TEV, vetting of projects and also Syndication deals. The Division finalized 15 syndication deals during the year as against three deals during the last year. Furthermore, the fee receipts during the year have increased to Rs 14.67 crore as against Rs 3.98 crore last year. Out of the total booked Syndication fees of Rs 30.42 crore, the amount already
Anand Srivastava PGPBF(2010-2012) Page 37

received was Rs 14.67 crore and the balance amount of Rs 15.75 crore will be received during the year 2011-12.

6) The Department organized several customers meeting and one-to-one meetings between the Corporates and the Members of Top Management of the Bank to have first-hand information on their business and credit requirements. 7) The Department took active interest in recruiting specialized officers from campuses and Institute of Chartered Accountants of India (ICAI) and placing them in vital areas of credit administration across the branches/administrative offices, etc., for bringing in new blood and filling the vacancies arising out of attrition and retirement. Wholesale Banking in Bank of Baroda Bank has identified the following new business segments as a step toward becoming Multi Specialist Bank.

Wholesale (Large & Mid Corporates) Urban Retail Small & Medium Enterprises Rural/Agri Business

Anand Srivastava PGPBF(2010-2012)

Page 38

Under Wholesale Banking the corporate customers are identified as Large and Mid corporates. Companies having annual sales turnover of over Rs. 500 crore are classified as Large Corporate and those having annual sales turnover between Rs 100 crore to 500 crore are classified as Mid Corporate. Under Wholesale Banking it has been proposed that Large & Mid Corporate customer of the Bank are located at the identified branches for providing them better services. By locating the Corporates at the identified branches, they would have the following advantages.

Single point contact to cater to all the banking requirements of the Corporates.

Expeditious decision making and shorter turnaround time. Availability of product specialist who can customize existing products as per the Corporates specific requirements & can also develop new products.

Existence of Core Banking Solution facilities & World-class infrastructure.

The Corporate accounts will be served at these branches by the Client Service Team (CST) of competent credit officers. The team will comprise of :

Relationship Manager

Anand Srivastava PGPBF(2010-2012)

Page 39

Relationship Officer Product Specialist Credit officer (dedicated from Corporate Office)

The following are the areas in which Client Service Team can help the Large & Mid Corporate :

Trade Finance products Cash Management Products Treasury Products Bridge Loans Syndicated Loans Infrastructure Loans Cross Currency/Interest Rate Swaps Foreign Currency Loans and many more depending upon the needs of the Corporates.

Initially 11 important centers, 2 at Mumbai & 1 each at Delhi, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Baroda, Kolkata and Raipur have been identified for the rollout of Wholesale Banking.

Anand Srivastava PGPBF(2010-2012)

Page 40

WHOLESALE BANKING PRODUCTS OF BANK OF BARODA


1.Working Capital Finance A firm's working capital is the money it has available to meet current obligations (those due in less than a year) and to acquire earning assets. Bank of Baroda offers corporations Working Capital Finance to meet their operating expenses, purchasing inventory, receivables financing, either by direct funding or by issuing letter of credit. Key Benefits

Funded facilities, i.e. the bank provides funding and assistance to actually purchase business assets or to meet business expenses.

Non-Funded facilities, i.e. the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers, Government Departments for the procurement of goods and services on credit.

Available in both Indian as well as Foreign currency.

Anand Srivastava PGPBF(2010-2012)

Page 41

2.Line of Credit Bank of Baroda understands the needs of its clients. Considering the need of clients for operational flexibility, Bank of Baroda has introduced a scheme of Line of Credit to enable the clients to switch over between the various working capital facilities sanctioned with relative ease as per their needs compared to the prevalent system of restricting the usage of funds within the maximum limits available within a particular facility only. This system will essentially facilitate medium/large business units in efficient management of their borrowing requirements within the sanctioned Line of Credit facility. Under the Line of Credit, instead of considering/ sanctioning separate limits for Cash Credit (Stocks/Book Debts) and DA LC facilities, a combined limit for Cash Credit (Stocks & Book Debts)cum-DA LC limit is sanctioned, with a sub-limit for DA-LC facility. The Line of Credit as a product is innovative and unique in the banking industry.

3.Export Finance Bank of Baroda, being Indias International bank is very active in Export promotion. With the operating network of its own branches/offices in 25 countries and worldwide correspondent relationships, its clients enjoy comforts in transacting
Anand Srivastava PGPBF(2010-2012) Page 42

international business. Besides the world-class services, it also provides Export Finance to Exporters at concessive terms to facilitate their competing in the global market. Its Export Finance is made available at pre shipment and post shipment stage to exporters in various types of credit. Pre-Shipment Finance:

Packing Credit in Rupees. Running Packing Credit in Rupees. Packing Credit in Foreign Currency. Letters of credit/Guarantees for procurement of materials for export.

Post-Shipment Finance:

Purchase of Export Documents under confirmed order. Discounting of Export documents under L/C or confirmed order. Negotiation of documents under L/C. Post shipment demand Loans against Export Bills sent for collection. Export Bills purchase / discounting in Foreign Currency. Advance against export incentive receivables

Anand Srivastava PGPBF(2010-2012)

Page 43

4.Bill Finance In order to ease the pressures on cash flow and facilitate smooth running of business, Bank of Baroda provides Bill finance facility to its corporate / non corporate clients. Its bill finance facility plugs in the mismatches in the cash flow and relieves the corporates from worries on commitments. Besides the fund based bill finance, it also provides agency services for collection of documentary bills/cheques. In its fund based bill finance facilities, it offers post-sale credit against bills as follows,

Purchase of bills drawn under L/C or confirmed order. Discounting of usance bills drawn under L/C or confirmed order. Negotiation of documents under L/C.

Purchase of cheques. 5.Foreign Currency Loan (FCNRB)


Currencies for loan : US $, Euro , Japanese and Sterling

Who is Eligible: This facility would be available to all its existing Corporate / non corporate clients

Purpose: 1. Working Capital.

Anand Srivastava PGPBF(2010-2012)

Page 44

2. Loan for capital expenditure such as purchase of new

plant and machinery, acquisition of equipments and other assets. 3. Repayment of existing high cost loans.

Tenor: The facility can be allowed for a period from 3 months to 36 months subject to periodical rollover.

Rate of Interest: Interest rate is linked to LIBOR of relevant currency + spread depending on credit rating, payable at monthly rests.

Commitment Fee: 1% p.a. of unutilised amount of FCL if it is not availed within 30 days of sanction.

Prepayment charges: 1% on the loan amount for the remaining period

Processing Charges: 1. Working Capital- Rs. 20,000/2. Term Loans- as applicable for rupee TL

6.Bridge Loans Bank of Baroda has introduced a scheme called Bridge Loan for top rated corporate clients against expected equity flows/issues. Bank can also extend bridge loans against the expected proceeds of Non-Convertible Debentures, External Commercial Borrowings, Global Depository Receipts and/or funds in the nature of Foreign
Anand Srivastava PGPBF(2010-2012) Page 45

Direct Investments, provided the borrowing company has already made firm arrangements for raising the aforesaid resources/funds. This facility is available for a period not exceeding 12 months.

7.Term Finance Under Term Finance, Bank of Baroda, offers the following:

Fund Based Finance for capital expenditure / acquisition of fixed assets towards starting / expanding a business or industrial unit or to swap with high cost existing debt from other bank / financial institution.

Non-Fund Based Finance in the form of Deferred Payment Guarantee for acquisition of fixed assets towards starting / expanding a business or industrial unit.

8.Project Finance Bank of Baroda provides its customers with the option of a loan to take care of the needs of an ongoing project, whether it is in Indian or foreign currency. This facility is available for project finance and also for project exports.

Anand Srivastava PGPBF(2010-2012)

Page 46

9.Infrastructure Finance Available in Indian as well as foreign currency, this product enables funding for infrastructure projects, such as, Power Generation, Road Constructions, Construction of Bridges on the Road / Railway Lines, Air/ Sea Port-Development Activities, Telecom, Water Supply System, Urban Development etc.

10. Take Over of Accounts Bank of Baroda provides the facility to high rated corporate/Non corporate to transfer /take over their existing borrowal accounts from other FIs/Banks, subject to meeting certain criteria. With this facility clients can shift their banking transactions to Bank of Baroda and enjoy the world-class services of Indias international bank. The take over of accounts is strictly on merits and under discretion of the bank.

11. Non Fund Based Products & Services


Anand Srivastava PGPBF(2010-2012) Page 47

Bank of Baroda offers non fund based products to its clients as follows :

Letter of Credit : It offers import as well as domestic Letter of Credit facility to its clients for procurement of goods on DA/DP basis as per their needs at very competitive rates. Considering its international network of branches / offices coupled with worldwide correspondent relationship arrangements, its clients enjoy market acceptability and comfort in business deals.

Bank Guarantee : It offers Bank Guarantee facility to its clients guaranteeing their performance / financial obligations in the domestic as well as international market.

LC Advising / Confirming Services : In case of Letters of Credit received by its clients, it offers LC advising as well as LC confirmation services under its correspondent relationships with domestic as well as international banks.

Co-acceptance facilities : Sometimes in business deals on credit basis, buyers are required to offer adequate comforts to the sellers such as bank guarantee or co-acceptance of bills by the bankers. Bank of Baroda offers co-acceptance of bills facility to the top rated clients.

Bancassurance : Bank of Baroda has tie-up arrangement with National Insurance Company (NIC), under which it arranges for issuance of general insurance policies to its

Anand Srivastava PGPBF(2010-2012)

Page 48

clients thereby taking away their worries of timely and adequate insurance cover of the assets.

Solvency Certificate : BOB provides Solvency Certificate to it s clients in case it is required for providing to Government authorities, other corporates in business deals / bids etc.

Credit Reports : It provides Credit Reports on its clients to other banks/FIs and it also obtains Credit information required by its clients on their counter parties, through its correspondent relationship.

12. Appraisal & Merchant Banking Bank of Baroda provides its assistance to corporate customers to assess the value of their holdings, in syndicating loans and in consultations for Merchant Banking purposes.

Appraisal: Bank of Baroda carries out credit and merchant appraisals of all types of business ventures including infrastructure projects by its specialised team of officials at a reasonable cost. Loan Syndication:

Anand Srivastava PGPBF(2010-2012)

Page 49

The bank also assists in loan syndication for all kinds of business ventures when a tie-up of business sources is required.

Other Consultations: BOB team is highly capable of advising on parameters of feasibility & viability of an existing / proposed project and suggest measures, if required, for improvement of the business enterprise.

13. Cash Management & Remittances


Overview / Introduction Benefit Collection Service Payment Service Liquidity Management

Overview / Introduction Bank of Baroda is technology led and service driven Bank and operates out of large expanding network of 3100 plus outlets across the country. 100% outlets are electronically linked i.e. working under Core Banking Solution (CBS). Baroda Cash Management Services (BCMS) is a software application that facilitates management of customers fund, particularly, of Corporate customers. BCMS is its thrust area and technology
Anand Srivastava PGPBF(2010-2012) Page 50

advantage helps it in delivering superior products. This provides us competitive advantage and corporates may route their voluminous collection/payment through BOB for faster credit to Corporates/ suppliers. BCMS is based on robust technology capable to cater to collection/receivables or payment/payable requirement of

Large Corporate Small and Medium Enterprises NBFCs Mutual Funds Financial intermediaries

Highlights of the Product:


State-of-the-art features End-to-end solutions to Corporate Clients Comprehensive product having following four Modules
o

Collection Module Payment Module

- a) Cash Deposits b) Collection - a) Direct Debit b) ECS c)

of local / outstation cheques


o

DD/BC d) RTGS/NEFT/IFT e) D/W


o

Liquidity Mgmt Module - Sweep-in/ Sweep-out from Concentration A/c Front-end Module Trail - Internet facility Including Audit

Anand Srivastava PGPBF(2010-2012)

Page 51

Benefits Corporates have experienced that the collection of local and outstation funds are expensive and time consuming, needs constant follow-up and tracking. Bulk and voluminous payments needs lot of manual involvement and attracts huge cost. To eliminate these bottlenecks, Bank of Baroda has come out with a comprehensive range of collections and payments modules under BCMS products to take care of corporate needs. It will enable them to have following advantages

collection module will help corporates receive funds in their account in minimum transit time thereby reducing costs of borrowings.

Quick realization results in improve liquidity position thereby improving the bottom line and financial ratios.

Detail information on cheques deposited are made available on daily/weekly basis/periodically which helps in accounting and reconciliation. Fund forecasting report can also be provided for better fund management for all BCMS locations. Customized MIS can be provided as per the requirement.

Corporates can download statement of BCMS transactions from banks website BOB_CMS for their BCMS account.

Anand Srivastava PGPBF(2010-2012)

Page 52

Centralized operations provides a dedicated service to ensure that customer queries are resolved quickly and efficiently.

BOB offers innovative pricing structures that enable corporates to remain competitive. Its price structure covers tiered pricing, volume rates.

Cheque pick-up facility at customers door step at select locations.

Collection Module The Collection Module handles all inflow of funds in customer accounts, which can be by way of :

Cash Deposit Proceeds of local cheques Proceeds of outstation cheques Proceeds through DDI (Direct Debit Instructions) Mandate, some Banks call it ADM (Automatic Debit Mandate)

The inflow of funds is efficiently managed by the Collection Module of BCMS by capturing all relevant details of the three types of transactions listed above and thereby helping customers,both for their MIS as well as for reconciliation. The collection of cheques, whether local or outstation, can be programmed for pre-defined days, enabling customers to

Anand Srivastava PGPBF(2010-2012)

Page 53

forecast their financial position and helping them in financial decision making. Direct Debit Instructions (DDI) / Automatic Debit Mandates (ADM) Funds can be collected in corporate accounts from the payees who have given DDI/ADM in their favor as per predefined periodicity. PAYMENT MODULE BCMS payment module can help corporate to reduce their overall processing costs, saving time and money while providing a valueadded service to their suppliers. BOBs comprehensive payment module enhances accounts payable process, thus eliminating many manual task involved in making payments, allowing corporates and their staff to spend more time focusing on their core business needs. BOB understand that most of customers efforts in payment is directed towards initiation, difficulties in reconciliation process. With BCMS payment module they can track the exact status of each payment through timely reports that can be uploaded in the companys system. Paper Based Instruments Demand Draft/Bankers cheques Printing - To Cater to corporates need for issuing bulk DD/BC, BOB offers its

Anand Srivastava PGPBF(2010-2012)

Page 54

centralized DD/BC printing services. Status of DD paid/unpaid can also be provided. Customer Cheque Printing - Payment by cheque still remains a popular mode but involves time-consuming and laborious manual processes. Payment outsourcing to bank enables corporates to get the cheques printing as per the payment file. At present cheques can be printed centrally at Central Operation Hub (COH) Mumbai and can be dispatched through courier to customers or the beneficiaries as per their instructions. Electronic Mode To cater to the need for bulk / voluminous payments through electronic mode, BOB offers centralized payment through COH as under NEFT - NEFT is introduced in Banking System to facilitate an efficient, secure, economical, reliable and expeditious funds transfer and clearing in the banking sector throughout India. Payment file in prescribed format in soft copy is to be submitted to bank for crediting the beneficiarys account with specified amount normally on the same day. RTGS - RTGS system is a payment settlement system that minimizes the credit risk in the prevalent cheques clearing system. BCMS provides immediate electronic fund transfer to RTGS enabled bank branches of other Banks across the country.
Anand Srivastava PGPBF(2010-2012) Page 55

IFT (Internal Fund Transfer) - Payment of Dividend/Interest or Redemption to customers of our Bank (i.e. fund transfer between BOB branches). Payment to suppliers/employees who are banking with BOB (i.e. fund transfer between BOB branches). . PAY ROLL - Salary to the companys employees can be effected through BCMS package. On receipt of payment file the bank process the same and thereafter provides update payment status report and return payment status report for easy reconciliation and accounting at customers end. LIQUIDITY MANAGEMENT Corporates main challenge revolves around ensuring that the companys cash resources are utilized to maximum advantage. Liquidity Management helps in managing funds in various accounts called Contributing Account by sweeping in one account called Concentration Account at specified time (may be end of day) and funding of different contributing accounts through Concentration Account at specified time (may be beginning of day).

Anand Srivastava PGPBF(2010-2012)

Page 56

14. Export Credit (Rs) RUPEE EXPORT CREDIT (PRE-SHIPMENT AND POSTSHIPMENT) BOB offers both pre and post shipment credit to the Indian exporters through Rupee Denominated Loans as well as foreign currency loans in India. Exporters having firm export orders or confirmed L/C from a recognized Bank can avail the export credit facilities from BOB provided they satisfy the required credit norms. Rupee export credit is available for a maximum period of -180days from the date of first disbursement. The corporates, if required can book forward contracts in respect of future export credit drawals. EXPORT BILL REDISCOUNTING : BOB offers financing of export by way of bill discounting of export bills to provide post shipment finance to the exporters at competitive international rate of interest. The export bills (both Sight and Usance) can be purchased/ discounted provided they comply with the norms of the Bank/ RBI.

Anand Srivastava PGPBF(2010-2012)

Page 57

All exporters are eligible to cover the bills drawn under L/C, noncredit bills under sanctioned limits under the Bill discounting Scheme.

15.Import Finance Bank of Baroda provides various types of funding/ services to the importers for facilitating the imports in the country. The vast network of Bank's overseas branches/ subsidiaries and Correspondent Banks worldwide facilitate prompt & efficient services to the importers. All the facilities are subject to the prevalent rules of the Bank/ RBI guidelines. The various facilities provided are:

Collection of import bill. Opening of Import L/Cs (Sight/ DA) Financing of import by way of Foreign Currency Loans Issuing Guarantees etc. on behalf of importers.

COLLECTION OF IMPORT BILLS: The import bills are collected through the 120 authorised branches at very competitive rates. The Bank has correspondent
Anand Srivastava PGPBF(2010-2012) Page 58

relationship with reputed International Banks throughout the world and can provide the services to importers who may be importing from any part of the globe. LETTER OF CREDIT: Bank of Baroda offers L/C facility for the purchase of goods in the international market. Being a well-known international Bank of repute, the L/Cs of the Bank of Baroda are well accepted in the International market. With the Letter of Credit of Bank of Baroda, importers can build up better trust/ confidence in their suppliers and develop other business relationship at a much faster pace. The L/C facility can be granted to the importers after assessing their requirement/ credit worthiness/ financial strength and other parameters being to the satisfaction of the Bank. BANK GUARANTEES: Bank of Baroda on behalf of importers/ other customers issues guarantees in favour of beneficiaries abroad. The guarantees can be both Performance and Financial.

16.Foreign Currency Credits The Foreign currency denominated credit facilities are granted to
Anand Srivastava PGPBF(2010-2012) Page 59

the Indian corporations in India as well as at the Money Centre Branches abroad. Corporations interested in raising foreign currency funds both in India and abroad can contact in India the branches they are dealing with, the Position Maintaining Offices (PMO's/ Authorised Foreign Exchange Branches), Corporate Banking Branches, Industrial Finance branches or any of the major branch in the city. Foreign Currency Loans In India (FCNR 'B' Loans) The foreign currency denominated loans in India are granted against the foreign currency funds a bank has on account of FCNR(B) Deposit. These loans are commonly known as FCNR(B) Loans. Bank of Baroda with a wide global presence has a large base of NRI customers/ depositors. This enables, Bank of Baroda pool in from a arge resource base of FCNR(B) deposits and is in a position to offer the Foreign Currency Loans in India under FCNR(B) Plan at very competitive rates.

Foreign Currency Credit outside India

Anand Srivastava PGPBF(2010-2012)

Page 60

With a presence at major financial centers of the world, Bank of Baroda has strong foreign currency resources at Money Centre Branches. This enables Bank of Baroda to arrange for and grant Foreign Currency Credits to Indian as well as multinational corporations at competitive rates. The foreign currency denominated Loans are granted at Money Centre Branches across the globe. The Foreign Currency Loans granted to Indian Corporate are granted as per External Commercial Borrowing (ECB) Policy of Govt. of India.

17.Correspondent Banking The extensive worldwide network of branches of Bank of Baroda offers Correspondent Banking services to the Indian Banks as well as banks from other countries. BOB branches are capable of providing the services that an international correspondent Bank can offer. All the branches of the Bank are well equipped to handle the business of Correspondent Banking. The New York, Brussels and London Branches of the Bank are equipped with latest technology and are having trained and experienced staff for handling the maintenance of Nostro accounts in US$, Euro and GBP respectively.

Anand Srivastava PGPBF(2010-2012)

Page 61

The overseas presence of the Bank is further supported by a large number of correspondent Banks (more than 500) which gives Bank of Baroda access to every corner of the Globe. The main services provided are: 1. Collection of bills both Documentary and Clean. 2. Advising / confirming of L/Cs opened by Indian Banks. 3. Discounting of Bills drawn under L/Cs as well as outside L/Cs. 4. Maintenance of foreign currency accounts (Nostro in US$, Euro, GBP at New York, Brussels and London respectively) for settlement of transactions (Link). 5. Making foreign currency payments/ remittance on behalf of customers of Indian Banks. Bank of Baroda offers an excellent service with competitive charges to other Banks for providing the Correspondent Banking Services.

18.Trade Finance Bank of Baroda through its overseas branches and subsidiaries, is very active in financing of Usance post sales international trade bills by way of discounting of the same.

Anand Srivastava PGPBF(2010-2012)

Page 62

With its large foreign currency resources and overseas presence , Bank of Baroda is in a position to offer the most competitive rates for discounting of these bills. The bills under the L/Cs of the most of the Indian Banks as well as International Banks can be discounted at competitive rates.

19.External Commercial Borrowings The foreign currency borrowings raised by the Indian corporates from confirmed banking sources outside India are called "External Commercial Borrowings" (ECBs). These Foreign Currency borrowings can be raised within ECB Policy guidelines of Govt. of India/ Reserve Bank of India applicable from time to time.

ECBs at Bank Of Baroda (BOB) BOB is very active and is a leading player in granting and arranging various forms of foreign currency facilities through ECB route for the Indian Corporates. BOB focuses on all type of foreign currency credit requirements of Indian corporates in arranging the Foreign Currency Loans. Bank of Baroda , Indias International Bank , having a strong global presence with 86 branches / offices in 25 countries
Anand Srivastava PGPBF(2010-2012) Page 63

including the major global Financial Centers ( Brussels, Dubai, Hong Kong, London, New York and Singapore etc.) is very evenly placed and have an edge over all others in its capability to arrange/ grant the funds from the international market. BOB has a few decades of experience in arranging foreign currency loans. This long experience and wide presence across the globe brings leverage to BOB to understand the ECB market better thus offer best terms to the clientele . International Merchant Banking Cell (IMBC) With rising activities by Indian corporates in the global as well as back home in India , the quest for cheaper and quicker global fund is growing at a substantial pace. Mid-sized companies have also joined the bandwagon. The idea behind is to scale up operations, become globally competitive and getting access to foreign markets. They will also require the international Corporate/ Merchant/ Investment Banking Services to arrange the funds as well for other purposes. International Merchant Banking Cell (IMBC) has been set up at BCC, Mumbai to pay focused attention to the international merchant banking needs of Indian corporates with special emphasis on Externational Commercial Borrowing .

Anand Srivastava PGPBF(2010-2012)

Page 64

IMBC has been offering Corporate/ Merchant/ Investment Banking services with a range of products as enumerated below :

Arranging/ granting Foreign Currency Loans/ External Commercial Borrowing. Providing whole range of transactional banking services to Indian corporates for their offices, Joint Ventures, Subsidiaries abroad at places where we have branches. Offering Foreign Exchange/ Derivative products. Providing Buyers Credit/ Suppliers Credit. Arranging / underwriting/ participating in Syndicated Loan Raising funds for corporates through bilateral loans/ club deals Arranging funds from International Markets by way of Bonds, FRNs, FCCBs etc. Arranging loans from Export Credit Agencies of other countries Advisory services on overseas investments Innovative tailor-made solutions to the specific requirements of corporates. Structured financing for procuring specific assets such as rigs, ships, aircrafts etc. Financing and structuring cross border acquisition debt.

Regional Syndication Centres (RSCs)

Anand Srivastava PGPBF(2010-2012)

Page 65

BOB has set up Regional Syndication Centres at Dubai , London and Singapore to exclusively arrange tailor made solutions for foreign currency / services at a competitive price for Indian / non Indian corporates .

Brief Profile of the CFS-Branch 1. Date of Opening


Anand Srivastava PGPBF(2010-2012)

: 21.02.1994
Page 66

2. No of Corporate Clients 3. Total Staff Strength 5+Sub-staff 2 ) 4. Business Per Employee 31.03.2011 5. Business Per Employee 31.12.2011 6. Net Profit Per Employee 31.03.2011

: 33 : 18 (Officers 11+Clerical : Rs 77.01 Crs as on : Rs 101.33 Crs as on : Rs 2.43 Crs as on

Table No.4 PERFORMANCE HIGHLIGHTS AS ON 31.03.11(Rs Cr)


Anand Srivastava PGPBF(2010-2012) Page 67

Growth Particulars Total Deposits Total Advances Total Business Average Advances NFB Business Operating Profit HO Intt. Paid Net Profit - out of which Non Intt. Income Export Credit O/s Export Turnover Import Turnover Total Export -Import T/O Earnings on Forex Business Cost of Deposit Yield on Adv(%) Table No.5 Performance,of CFS Branches as on 31.03.11(RS CR) CFS Branches CFS - I Mumbai CFS , New Delhi
Anand Srivastava PGPBF(2010-2012)

31.03.2010 31.03.2011 31.03.2011 Actual Target Actual 231.57 290.00 167.87 1154.61 1750.00 1915.72 1386.18 2040.00 2083.59 816.00 631.41 94.54 50.89 43.65 17.00 130.80 521.34 844.23 1365.57 17.18 3.82 9.32 1388.00 NA 128.00 78.00 50.00 21.00 250.00 800.00 1200.00 2000.00 NA 3.98 9.13 1440.83 1185.60 172.80 84.97 87.83 19.30 191.37 985.43 1817.07 2802.50 19.38 4.36 11.17

(%) -27.51 65.92 50.31 76.57 87.77 82.78 66.97 101.21 13.53 46.31 89.02 115.23 204.25 12.81 NA NA

Total Deposit

Total Advances

Total Business

Profit

Profit Total /Adv. busine (%) 2.16 1.49 ss (%) 5.05 20.42

1280.14 24062.32 25342.46 518.7 2 2896.95 11293.35 14190.30 167.8 9

Page 68

CFS - II Mumbai CFS, Hyderaba d CFS,Ahm edabad CFS, Chennai CFS, Pune CFS, Baroda CFS,

284.33 397.32

4123.10 3680.06

4407.43 4077.38

82.40 141.3 7

2.00 3.84

6.45 9.74

151.38 24.03 167.87 59.50 515.98

2971.84 2205.69 1915.72 1354.49 1276.33 52882.9 0

3123.22 2229.72 2083.59 1413.99 1792.31 58660.4 0

53.51 76.42 87.83 25.61 53.42

1.80 3.46 4.58 1.89 4.19

4.85 1.08 8.06 4.21 28.79 9.85

Bangalore Total 5777.5 0

1207. 2.28 17

PROCESS FLOW FOR ADVANCES IN CFS


The character, capacity, credibility of the promoters, guarantors, Corporates are analysed thoroughly. Credit report from the existing bankers are sought. Various Licences and permissions are verified. Various returns are cross examined for their genuinity . Techno-Economic viability and feasibility study is carried out by various specialized firms (Outsourced).
Anand Srivastava PGPBF(2010-2012) Page 69

Group exposure norms and clearance obtained for exposure to the particular industry.
The proposals being processed are large and the exposure is

very high in most of the cases. The banks in order to minimize the risk to a single group and in order to satisfy the group exposure norms form a Consortium or Syndicate and finance according to their risk appetite. The proposals are generated by big Chartered Accountant firms and CFAs.

The banks decide a consortium leader who is having the highest exposure. The proposal is processed by the individual banks according to the individual banks credit policy guidelines. The proposals are then discussed by each of the banks under the leadership of Consortium leader and a common agreement regarding the terms and conditions is worked out. The same is then discussed with the Corporate and changes made to suit his capacity and requirement.
the Credit Committee at Central Office for their The

securities proposed to be charged are verified regarding their legal status, their chargeability, their ownership status etc.

Anand Srivastava PGPBF(2010-2012)

Page 70

The proposals are then sent to the the appropriate

authorities ,generally consideration and queries are replied and discrepancies removed. Deviations if any against the credit policy guidelines are considered for approval. After all the information is collected and all the queries are satisfied upon the proposal is sent to the Board for considerations and Sanction. The proposal after sanction is conveyed to CFS along with all the terms and conditions. The CFS conveys all the terms and conditions to the corporate in order to satisfy all the terms and conditions. Documentations is carried out by the consortium leader which clearly spells out the securities to be charged on a pro rata basis to the consortium members according to their exposure. The original documents are kept with the consortium leader and all the other members get a copy of the documents.
The Documents are then vetted by reputed law firms

regarding the enforceability of various documents executed. Each Consortium member opens a Parked advance with itself and separate limit is given at each bank while the main account lies with the leader. The charges on the securities are registered with Registrar of Companies and with land Revenue authorities.

Anand Srivastava PGPBF(2010-2012)

Page 71

The disbursal is made after obtaining permission from the sanctioning authority, conveying that all the terms and conditions are complied with and the documents are valid, properly charged and enforceable. Disbursals are made after deducting the various processing charges.

Regular follow up and monitoring is made to maintain the health of the account. Early warning signals are noted to take corrective actions. Recovery measures are initiated when there is default in payment as per the terms and conditions of sanction.

RECOMMENDATIONS
CFS BRANCHES INCREASING THEIR EFFECTIVENESS DECREASING THE TURNAROUND TIME : The greatest thrust of the bank is to reduce the turnaround time of proposals i.e. the time taken to process the proposals from the time complete information/papers are provided to the bank. Normally the process takes 2 months. The following actions can be taken to reduce the turnaround time :

Anand Srivastava PGPBF(2010-2012)

Page 72

1.A detailed checklist of papers/ documents can be designed for SME and wholesale proposals. The biggest hurdle for first time entrepreneurs is to have the complete idea of the paper/documents required for the bank in order to process the proposals. The piecemeal basis approach followed by the banks delays the proposals and wastes valuable time. The corporates also get irritated if each time a new paper is asked for .If the detailed checklist is provided and relevant papers required for the corporate are ticked and given along with the application form itself ,things would be easy for both the bank and the corporate .The same can be provided at the banks website . 2.The Banks website should be made more user friendly providing complete information rather than giving general information that our bank provides all type of services to the corporate. The portal should be made more interactive, wherein the corporate can fill the application form online and a detailed checklist of supporting papers is displayed at the web itself and the application form is forwarded to the concerned CFS along with the concerned Zonal Office and Corporate Office of the Bank so that it can track the proposal. We have online application facility for retail loans but not for wholesale banking proposals. I have visited the websites of major players of banking in the private sector and noticed that they have made full use of technological platform to provide information whereas we lack in this field and depend on branches only for all sort of information sharing. On their website itself the
Anand Srivastava PGPBF(2010-2012) Page 73

name and details of the contact persons are provided. We have to learn from our counterparts in making use of technology to the fullest. 3.The proposals should be forwarded electronically at each stage and turnaround time monitored at each stage. The sanctioning authority to authenticate it in the system in addition to physical documents. 4.We have LAPS(Lending Automation Process System) software for processing of retail proposals in our Bank. A similar software is urgently needed for wholesale proposals also so as to speed up the processing part at the CFS. This can also lead to uniform documentation also, though this software would require greater flexibility as there is a lot of customization in wholesale banking proposals. 5.The CRISIL rating software is exceptionally slow. It takes a lot of time at each stage. An offline model may be used which should later on be uploaded to the platform. This would save a lot of time for the processing officers. INCREASING THE PENETRATION OF CFS BRANCHES: The other issue is to increase the business of CFS branches. The following are some of the suggestions for increasing the business volume of the CFS branches
Anand Srivastava PGPBF(2010-2012) Page 74

1.Most of our Ads are on retail loans whereas wholesale loans are low transaction cost businesses though the risk component is high and concentrated. We need to concentrate our ads on wholesale advances also specially in business magazines, dailies and business channels like Economic Times, ZEE Business etc. This would help us in having space of mind for the Corporates while deciding their financial needs. The ads should carry name and contact address of the concerned persons. 2. Marketing is still not considered a full fledged function for wholesale advances, the same is true at least for CFS branches. No marketing person is engaged for CFS Pune and the branch is not getting any lead from the regional or Zonal marketing departments .Though there has been good business growth for CFS Pune but the full potential has not been tapped and the branch is heavily dependent on walk-in business. Had there been full fledged marketing officer it could have been better. 3.The processing officers at CFS branches have been designated as relationship officers which itself is misleading nomenclature or designation. Every credit processing officer has been allocated certain no. of accounts to handle for which he is designated as the relationship officer and he is supposed to serve all their needs. They are busy the whole day in processing of proposals so it is impossible to expect the role of a relationship officer from
Anand Srivastava PGPBF(2010-2012) Page 75

them. I noted that for matters related to credit proposals the officers respond but for any other matter other than credit they advise them to contact the other departments. The role of a central coordinator for all the needs of the Corporate is to be entrusted to a certain person so as to bring customer delight. Corporate call the Relationship officer to know the fate of their RTGS etc stressing that they are the relationship officers and the officer overloaded with a new proposal continuously advises the representative of the corporate to contact the operations department for these petty queries.CFS is working as airtight separate unit and has no coordination with other units of the bank. In the absence of a coordinating person CFS is only concerned with the Corporate credit needs of the corporate. Various other businesses which could be easily tapped have been left unattended. Do we have the data on how many corporate have the salary accounts of their employees with us?. How many Directors of the corporate have availed their retail loans also with us?. Who advises and satisfies the investment needs or financial planning at the individual level of the directors of these corporate? Do we have a coordinating agency to leverage the relationship build with these corporate for cross selling? Due to standalone nature of different units these opportunities are mostly untapped. We need a relationship officer in real sense to cater to the other banking needs of these HNIs and make BOB as the real one stop solution for all the banking needs. These things would further strengthen the relationships on the individual level
Anand Srivastava PGPBF(2010-2012) Page 76

also. Cross-selling also puts a restriction on attrition of these corporate from us. MIS and data mining can help a lot in this. INCREASING NON FUND BASED INCOME Non Fund based advance is a good source of credit related fee based income for the bank. The following can be done to increase the non fund based income:

The fee charged by corporate for non fund based facilities is not related to the rating of the borrowers as in case of fund based income. Whether the corporate is AAA or CCC the fee for non fund based facilities has the same rate where as the same has to be differentiated according to risk return approach. The corporate have to ask for concessions from the bank for these. The corporate utilize non fund based facilities from those banks in the consortium which charge the lowest fee.

The bank is not having major presence in ancillary business like cash management, Merchant banking services, loan syndication services etc offer good fee based income opportunities as well as good name for the bank. IMPROVING THE HR FRONT Bank is hiring new recruits from Campuses and trains them for future. When these freshers are not having value and experience they stay with BOB but leave the bank for greener pastures when they have experience and exposure.
Anand Srivastava PGPBF(2010-2012) Page 77

In order to bring out a sea change bank should go for lateral entry of marketing and credit professionals having experience. But this cannot be achieved with in the existing framework of salary. Its high time that the bank cares for its most precious assets that is its human resources and differentiate performers from non performers in this era of cut throat competition and when improving the bottom line of the bank has also become quite important in addition to social obligations. There should be clear cut advantage and incentive to human resources which are of greater value to the bank. If we continue to offer peanuts only monkeys will be attracted.

IMPROVING THE OPERATIONAL FRONT a)Though the bank talks of paperless banking but the number of statements is increasing day by day. The same information is sought from different controlling units increasing repetition of work.Even for information which is already available at the controlling office due to CBS is asked to the branches which consumes time. One person is fully engaged in CFS for this work only . b)A lot of inspection and audits are conducted to monitor the accounts by different units of the bank. There is overlapping of work and it wastes lot of time for the manpower deployed at CFS.
Anand Srivastava PGPBF(2010-2012) Page 78

d)There are lot of charges advised by different departments of the bank. The charges should be unified. e)During RTGS,NEFT the system does not allow to look at the customers signature during verification stage. Looking at the amount of transactions at CFS it can lead to problems. The system does not allow to use comma, full stop or any dot and is somewhat not user friendly. f)Export realization advice should be automatically mailed to the customers as is the case with other banks. g)In case of overdue export bill discounting in foreign currency interest is not calculated automatically, it has to be charged manually at present. h)Statements are not generated in excel format to be mailed to the customers as they demand. i)Interest calculation sheet printout cannot be generated as most of the customers are demanding to recheck the interest. This needs to be done to bring transparency in operations.

Anand Srivastava PGPBF(2010-2012)

Page 79

SUGGESTIONS FOR FUTURE RESEARCH

The current research was carried with limitations of time and reach. This research was carried out with in the scope of CFS Pune only. Further researcher can cover all the CFS branches of BOB in the country and cover the corporate finance branches of all major players of the banking industry so as to compare BOBs position in this area in comparison to peers.

Anand Srivastava PGPBF(2010-2012)

Page 80

BIBLIOGRAPHY Books/ Journals/Magzines/Newspapers :

Annual Report of BOB as on 31-03-2011 Domestic Loan Policy 2009. The Economic Times, etc. Business Policy Guidelines 2011-12. Banks circulars.

Websites : Icici.com Pnb.com


Anand Srivastava PGPBF(2010-2012) Page 81

google.co.in rbi.org.in bankofbaroda.com intranet.bankofbaroda.com

Anand Srivastava PGPBF(2010-2012)

Page 82