Jayakumar’s Term At Bank Of Baroda: The See-Saw Years
Bank of Baroda informed stock exchanges that Jayakumar’s current 4-year term has expired. His initial 3-year term was extended.
In October 2015, when PS Jayakumar took office as the chief executive officer at Bank of Baroda, his entry coincided with one of the deepest clean-ups that Indian banking has seen in recent times.
The Reserve Bank of India, just a few months ago, had initiated an asset quality review of all lenders, which would eventually lead to a surge in bad loan disclosures and a drop in profitability and capital. Each lender, including Bank of Baroda, was thrown in the middle of the turmoil involved in recognising and then resolving large corporate defaults. There were other issues specific to Bank of Baroda as well. Like a Rs 6,000 crore remittance fraud that had been detected at the lender in 2015.
Jayakumar, a former Citibanker and the head of VBHC Value Homes, joined the more than hundred year old bank amid all these uncertainties. Along the way, other challenges were thrown in. The three-way merger of Bank of Baroda with Dena Bank and Vijaya Bank among them.
On Monday, Bank of Baroda informed stock exchanges that Jayakumar’s current four-year term has expired. His initial three-year term was extended to complete the initial work of the merger, which was announced in September 2018. A notification from the government on who will take over as CEO of the bank is still awaited.
The bank did not accept a request for an interview with the outgoing CEO for the story. Jayakumar’s personal mobile was not reachable.
Beyond Just Asset Quality
While Jayakumar’s term began with the challenge of assessing the true asset quality of the bank’s book, he knew that the changes needed went well beyond the accounting treatment of loan accounts.
According to BB Joshi, former executive director at Bank of Baroda, the first task that Jayakumar was faced with was the century-old legacy of the bank. An old public sector bank comes with its own issues and employees of the bank were accustomed to working in a certain way. Jayakumar had to break through some of these traditions to bring in a more modern approach to banking. Joshi served as Bank of Baroda’s executive director till December 2016.
“Typically new management comes in and conducts a kitchen sinking exercise. Jayakumar chose a more gradual approach, spread out over a few quarters to declare fresh bad loans and provide for them. This helped the bank deal with the stress in a more effective manner,” Joshi said.
Jayakumar’s next challenge was to standardise risk and compliance culture at the bank. For this, he brought in seasoned professionals from the private sector through lateral hiring processes. According to Joshi, this step faced some amount of opposition from the staff, as they felt that their own seniority was under threat.
“We had to explain to the staff that these specialists were being brought in on a contract and they were not taking away jobs which the staff had worked for. The idea behind this was to bring in the best-in-class risk and compliance systems and train the staff,” Joshi said.
In the initial period of his term at the bank, Jayakumar also introduced a more standardised way of credit appraisal and approval. Instead of leaving branches in charge of extending large credit, he ensured that they were responsible for garnering business and the credit appraisals happened from a centralised location.
According to Joshi, the bank, for the first time, started credit marketing functions, where instead of waiting of borrowers to approach them, the bank set out looking for lending opportunities.
A centralised system of credit appraisal and documentation also helped the bank avoid issues like the Rs 6,000 crore remittance fraud, Joshi said. “Since there was a clear paper trail of transactions, monitoring became much easier,” he added.
Jayakumar’s Guidance Problem
From the start of his term, Jayakumar was seen as a leader capable of seeing Bank of Baroda through the asset quality cycle. The street was optimistic about his term.
Yet, analysts were often frustrated when the bank’s financial performance did not keep pace with Jayakumar’s guidance, perhaps due to factors outside of his control.
For instance, when Jayakumar announced the bank’s October-December 2015 quarter results, questions from the press and analysts were flying thick and fast. The bank had reported a large Rs 3,342 crore loss during the quarter and its asset quality position had worsened considerably. The bank had reported more than Rs 15,000 crore in slippages during the quarter, about half of which came due to the RBI’s asset quality review.
Jayakumar assured that the bank had declared “everything which needed to be declared as NPA” and had front-ended these disclosures, to avoid future negative surprises.
The bank’s earnings, though, remained volatile just like those of the rest of the industry.
The bank reported a net profit of Rs 1,383 crore for FY17. In FY18, it reported another loss of Rs 2,432 crore. The bank’s management blamed this on stressed asset management rules, which had withdrawn all previous restructuring schemes.
Bank of Baroda’s performance on the stock markets, too, has been shaky. The series of challenges, including the year-old merger announcement, have meant that the bank has under-performed the broader markets.
While Bank of Baroda’s stock has lost 50 percent since October 2015, the NSE Nifty PSU Bank Index has lost a lesser 30 percent. The NSE Nifty is up 42 percent since then. Still, nearly 54 percent of all analysts have a ‘Buy’ call on the stock, according to data available on Bloomberg.
The Merger Specialists
The last year of Jayakumar’s tenure has seen him focused on a challenge of a different kind. Under pressure to show some restructuring of public-sector banking, which has guzzled government funds through recapitalisation, the government has chosen to consolidate these banks.
The first such merger was between State Bank of India and its associate banks, spearheaded by former chairman Arundhati Bhattacharya. Encouraged by the experience of SBI, in September 2018, the government announced a three-way merger of Bank of Baroda with Dena Bank and Vijaya Bank.
In doing so, the government handed Jayakumar his newest challenge.
The past one year, Jayakumar has overseen the merger of the balancesheets of the three lenders. Work on consolidating other processes, including IT systems and customer-centric operations is underway.
“He is easily the only public sector bank chief to have turned around a bank with a lot of asset quality stress and made it a viable franchise,” said Lalitabh Shrivastawa, banking analyst at Sharekhan. “While the bank is still not in its growth phase, you must note that this was at a time when other public sector banks were going into the PCA (prompt corrective action) framework,” he added.
Meanwhile, the government announced another round of consolidation of 10 public sector banks into four.
Punjab National Bank will take over United Bank of India and Oriental Bank of Commerce, Union Bank of India will absorb Andhra Bank and Corporation Bank, Canara Bank will take over Syndicate Bank and Allahabad Bank will be merged with Indian Bank.
According to a senior official at Union Bank of India, Jayakumar has acted as a voice of experience for all bankers going through the merger process. He held a session with the senior managements of all 10 lenders in early September. Jayakumar’s advise to leadership of these banks has helped them plan for these mergers better, the banker quoted above said, while speaking on condition of anonymity.