Indianomics: Have started the process of digitising, says Bank of Baroda’s Chairman Ravi Venkatesan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bank of Baroda has started the process of digitising and  from September  the bank branches will be paperless, said Ravi Venkatesan, chairman of the bank.

“If you are a new customer walking into our bank and you want to open an account, it is now less than 10 minutes you walk out with your account activated and your debit card,” he said

Managing directors of PSU banks need to be given five-year tenures, Ravi Venkatesan, in an exclusive interview with CNBC-TV18, said that the boards of public sector banks need to be empowered to fix governance in these banks.

Edited Excerpts:

Q: What have you done for Bank of Baroda? What do you think you have accomplished?

What we have accomplished is something that time will tell. We have started many things but they are still very much a work in progress and frankly, it is something others should say rather than me. I will perhaps talk about what it is we have tried to do. I started and in the very first week, there was this big issue which was called the Ashok Vihar scam.

It was a money laundering scam where people had exploited our bank and at that time PS Jayakumar had not joined, there was only one ED on board and that was the start of the adventure. Pretty soon Jayakumar came and what we decided is, there a whole host of legacy issues – NPAs, frauds and all bunch of stuff. Then there are a whole set of other issues which going forward are even more important – how do you prevent these things from happening again because they seem to happen with some regularity? How do you create a bank which is able to compete with State Bank of India and with the best of the private sector? How do you catch up on technology so that you don’t get disrupted by the fintech companies etc? We felt that the obsession with stressed assets shouldn’t distract us from this agenda and frankly I have been more focused on these issues.

So, one of the first things we started to do is rethink the architecture of the bank. We said if you look at a contemporary bank anywhere in the world, they have got what is called a frontend-backend architecture.

So your branches that serve customers but all the transaction processing is done in the backend. We said this is obviously happening for some good sound reasons. So we said we will migrate to that and we created a whole shared services subsidiary and took every process from account opening to loan processing, trade finance transactions, digitised them and put them in that subsidiary and this is still a work in progress.

However, it is going to be probably the single most lasting change when it is accomplished.

Q: I particularly had great expectations and I would assume a lot of people, investors from your combination because you come from Microsoft, you come from Infosys, you have come with a lot of technology experience and you came exactly at a time when fintech took over banking. So how much of that fintech could you incorporate in Bank of Baroda?

First we should talk about tech and fintech as a subset of that. When you talk about tech, as I said we started by digitising and centralising processes, we have taken all the paper-based systems and automated them, by October that should be complete. So, you go into a Bank of Baroda branch from September there shouldn’t be any paper. We have implemented tab banking. So if you are a new customer walking into our bank and you want to open an account, it is now less than 10 minutes with Aadhaar and you walk out with your account activated and your debit card.

You can dream about fintech but if you don’t have the core technology platform that is contemporary it is a problem. So we had to upgrade our core banking system which coincidentally was from Infosys and that proved to be a non-trivial transition, we upgraded our mobile banking, internet banking, we have implemented 40 enterprise applications, just enormous amount of work.

On fintech, in particular, we decided this is culturally very different, it requires a different mindset and we have to partner with fintechs and not compete with them. So, we set up fintech vertical and now we have 25 partnerships which are delivering even at Bank of Baroda’s scale a significant amount of business.

You can do all this but technology moves pretty fast. So in two years, you are obsolete again. How do you prevent it from happening? We have created an IT subsidiary and brought in Accenture and IBM as our partners to make sure that this bank stays contemporary.

Q: Have you been able to restrict the number of windows through which frauds can happen because that is the big problem that we are suddenly faced with, with the Punjab National Bank fraud. From your and PS Jayakumar’s experience could you identify the windows through which these seep in?

A: It is a great question particularly in a bank which has a larger surface area, that is a big deal. BoB is India’s most international bank, we have some 70 million plus customers and now you have got all these devices which are also accessing the bank, so it is a great question.

Our approach has rested on three things, one is, of course, centralising, automating and putting them in a shared service centre and separating responsibility. The second thing we have done was to set up a dedicated fraud risk management unit which reports into a third ED who doesn’t have any of the businesses and they are using technology to be able to continuously detect frauds more quickly etc.

The digitisation of the bank is actually the most interesting thing because it is throwing up a huge amount of transaction data and you can completely change the audit process. Today the audit process happens after the fact, it is incredibly manual, it happens in a decentralised way in the branches. Now what you can do is, be preventive, use analytics and you can do it in real time. So, all this thing reduces, probably will never eliminate, the possibility of fraud.

Q: Would you say that now chances of this kind of a fraud – Punjab National Bank fraud passed through so many fingers – it slipped through internal auditor, it slipped through the external auditor, it slipped through bank’s elementary things like change of personnel at a regular level, as well it passed a lot of external tests as well, would you say that in Bank of Baroda, such a thing is now less likely?

A: Yes less likely, one of the things I am expected to do is chair the high-value fraud committee of the bank’s board. I come from a manufacturing background, way before Microsoft, I spent 16 years of building engines and in manufacturing what you do is every time there is a defect, you don’t just fix the defect, you go back and look at the system that produced the defect and make the changes. So we have tried to bring that mindset into each of the frauds. What is the fraud? What is the modus operandi and have we gone back and fixed the system so that this modus operandi is defeated? I think we have moved the needle.

Q: No one can perhaps say never again?

A: Yes but knock on wood, we have made considerable progress.

Q: So you would be able to by August 13, put down a set of standard operating procedures (SOPs) that can be employed in other banks as well?

A: Exactly, I think the whole point of running experiments like BoB is to see what worked, see what didn’t work and why and try and replicate that in the system and I hope wise people do that.

Q: What is your sense is this an experiment worth repeating -getting two private sector people at the highest level, would you say it is a successful experiment?

A: First of all, what the government has decided to do and is a good thing is separate the role of chairman and managing director across the board and that is so sensible.

Now, what you do about the managing directors because there are now several Chairmen who are not very dissimilar to me. I think the crucial role is of the CEO of the bank. I don’t want to say that you should only go to the private sector, I think there is plenty of good talent inside as well.

The crucial issue is to pick the best possible people for the job and give them enough time – three years is not enough time. We (the whole banking system) think CEOs need to have five years to see things through because it is ‘the’ crucial issue.

If you look at why does the State Bank of India so significantly outperform the rest, a lot of it has to do with the fact that they operate under a separate Act, which allows them to grow their own talent – their CMD, their joint-MDs they all come from within and therefore they are able to create a coherent culture, they are able to see through strategic change and transformation which can take five years and seven years.

I think that is an incredibly important thing and I would hope that the government can find a way to replicate this not just at BoB but others as well.

Whether this can be done with government majority ownership is a big question.

The government was mooting the idea of consolidating public sector banks. There was the talk of merging BoB with IDBI Bank, OBC, and Central Bank. Your thoughts?

These were speculative statements. I am unaware of the latest thinking within the government, but from a purely BoB perspective, a merger at this time particularly with a weak bank would not be prudent. In fact, uncertainty about this is one of the factors that is depressing the stock price which indicates that shareholders are also not in favour of a merger.

However as a banking system, India needs fewer, better capitalised and better run PSU banks so consolidation is probably inevitable. But the sequence of events matters. It would be best to start by addressing the fundamental governance and talent framework first, then hive off the bad loans into one or more ARCs, recapitalise and finally merge a few banks.

In other words, consolidation must be part of a broader strategy to fix the banking system- it is not a strategy or panacea in itself.  My sense is that fortunately the idea that merging two weak banks to create a strong one has faded and good sense will prevail.

You referred to the Nayak Committee report. This report urged the government to bring down its stake below 50 percent. Now the biggest private sector bank is also facing regulatory scrutiny. Your thoughts on privatisation as an answer to the PSU banking problems.

Privatisation does not guarantee good governance. However, there are three crucial facts. First, PSU banks have been steadily losing market share to private sector banks and collective share will likely dip below 60 percent in just a few years; margins and operating profits have also been declining.

In other words, they are not competitive. Second, the latest Financial Stability Report from RBI shows that 85 percent of the frauds happened in PSU banks even though they account for 65 percent of the sector. Therefore, they are systematically more accident-prone.

Finally, unlike private banks, PSU banks have had to repeatedly be bailed out by the taxpayer.  These things are happening not by accident but by design because the system of governance and talent management is ineffective. If the government will not reform these, the decline will accelerate.

The Nayak Committee report suggested a thoughtful glide path of reforms which would eventually lead to at least some banks being privatised. What is happening now is privatisation by default rather than by intent as PSU banks hemorrhage market share and capital.

The answer is not to abandon banking to the private sector as we’ve done with healthcare and education; that would be a huge mistake. For the foreseeable future, India will need a few well run PSU banks like SBI.

What is needed is to think through the banking architecture that India will need and develop a strategy to get there. Perhaps this will happen if the next election returns a government with a clear majority.

Q: If you are asked to stay on for another term, will you?

A: Actually, there was an informal request that I do but unfortunately I have made a commitment to start my next adventure in September, and so much as I would like to see things through, it will fall to someone else.

Q: Can you tell us what the next venture is?

A: Not yet.

Q: So that is for the next interview?

A: Yes, never waste an opportunity to talk again.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow