Question Paper

Integrated Case Studies III (361) : January 2007

Case Study (100 Marks)
This section consists of questions with serial number 1 - 9.
Answer all questions.
Marks are indicated against each question.
Read the case carefully and answer the following questions:
1.

The new Basel Capital Accord is driving banks to adopt more comprehensive risk management systems. In this
context discuss how is Bank of Baroda geared to take care of various kinds of risk.

(15 marks) < Answer >

2.

Describe the salient features of Real Time Gross Settlement System?

3.

(10 marks) < Answer >

Describe RBI guidelines for restructuring assets. Evaluate debt restructuring mechanism of Bank of Baroda?

4.

Explaining the capital adequacy norms in detail, distinguish the items qualified for Tier-I and Tier-II Capital.
Does the Bank satisfy the required CAR as per the RBI guidelines?

5.

(10 marks) < Answer >

(10 marks) < Answer >

Using Annexure-1 and Annexure-2 determine the NDTL (Net Demand and Time Liabilities) and the CRR and
SLR to be maintained by Bank of Baroda.
6.
7.

(15 marks) < Answer >

(10 marks) < Answer >

(10 marks) < Answer >

Discuss the financial position of Bank of Baroda.

Discuss the NPA position of Bank of Baroda.

8.

Analyze the treasury and foreign exchange operations of the bank.

9.

(10 marks) < Answer >

Explain the Specialized Integration Treasury Branch (SITB) services of the bank.

(10 marks) < Answer >

Bank of Baroda
Bank of Barodas greatest strength is its uninterrupted profit and dividend
payments record.
Dr. Anil K. Khandelwal, Chairman and Managing Director

Indian banking industry had the services of several leaders of extreme caliber. Leaders like
RK Talwar, (Chairman of State Bank of India in the 1970s), D N Ghosh (Chairman of State Bank of India in the
1980s), KR Rammoorthy (Chairman and Managing Director of Corporation Bank in the 1990s) were among those who
provided a new paradigm to the Indian banking industry. Leadership qualities are put to test in times when a bank has
perform well even after the exit of such leaders. This is particularly true in case of banking industry as it has been
observed that several banks have faltered after the exit of high caliber leaders. The untimely and tragic collapse of the
Global Trust Bank and its subsequent merger with the Oriental Bank of Commerce stands testimony to the failure of
an existing leader.

On March 1, 2005, Mr. Anil Khandelwal was appointed the CMD of Bank of Baroda (BOB) for a three-year

term. Popularly known as AK, Mr. Khandelwal has a track record of being a consistent result-oriented leader. On 18th
June 2005, Mr. AC Mahajan was appointed the Executive Director of the bank for a five-year tenure. With such
leaders at the top management, level, BOB revealed a strong potential of being one of the top players in the Indian
banking sector. After a successful stint at the Dena Bank, AK brought in several measures such as technology
upgradation, ATM expansions, providing better customized retail services and more visibility through the appointment
of brand ambassadors. Most Government banks are beleaguered with a parallel authority between the union and the
management. With better coordination among the senior management and the union, BOB has successfully doubled its
business in a matter of just four years.
HISTORY OF INDIAN BANKING

The growth of modern commercial banking industry in India commenced with the establishment of Bank of
Bengal in 1786 in Calcutta. Three presidency banks were set-up in Madras, Bombay, and Calcutta and later limited
liability concept was introduced in 1860 resulting in the establishment of joint stock banks. In 1921, the three presidency
banks were combined to become a superlative power as the Imperial Bank of India for all the commercial banks, a
bankers bank and a banker to the government. The Reserve Bank of India (RBI) was establishment as the central bank
for the country marking the end of the quasi-central banking role of the Imperial Bank of India. All India Rural Credit
Survey Committee recommended the establishment of the RBI by taking over Imperial Bank of India to serve the
economy in general and to focus on the rural sector.

As a result the State Bank of India (SBI) was established in 1955 and an act was passed in 1959 for enabling
SBI to take over eight former state-associate banks as its subsidiaries. Fourteen private banks were nationalized in the
year 1969 followed by 6 private banks in 1980. Since 1991, many financial reforms have been introduced that
substantially transformed the banking industry in India.
Overview

Today RBI is the central regulatory, supervisory and monetary authority of India for its financial system. Many
financial intermediaries in the public and private sectors participate in Indias financial sector, that include:

a.

Commercial banks comprising:

Public sector banks;

Private sector banks; and

Foreign banks.

b.

Cooperative banks;

c.

Long-term lending institutions;

d.

Non-banking finance companies, including housing finance companies;

e.

Other specialized financial institutions, and state-level financial institutions;

f.

Insurance companies; and

g.

Mutual funds.

Till the early 1990s the financial system in India was very much under control interest rates were
administered, formal and informal parameters governed asset allocation, and strict controls restricted entry into and
expansion within the financial sector. Economic reform program of Indian Government that began in 1991 has taken
over the financial sector. The first phase of the reform process began with the implementation of the recommendations
of the Committee on the Financial System, the Narasimham Committee I. The second phase of the reform process
began in 1999.

Risk Management and Basel II

Compared with past risks, banks are now facing different types of risks like interest rate risk, liquidity risk,
and exchange risk in view of the dynamic nature of the financial market. While lending, they face credit risk that
includes default risk and portfolio risk. Operational risk is the other more important risk they face. In the process of
adopting the Basel II Accord, banks have been already required to take active measures in terms of risk management

systems, evaluation capital charges for operational risk and bringing about more transparency in financial reporting as
part of market discipline.

The risk profile of the banks would decide their supervisory cycles; The RBI has adopted Risk Based
Supervision (RBS). Under this, a bank with higher risk rating will undergo more frequent supervisory reviews than the
one with lower risk rating. For the implementation of the Basel II Accord, the RBI indicated that it would adopt a
phased approach. From the year ended 31 March, 2005, the implementation of market risk systems would be
completed within two years, and credit and operational risk systems with effect from 31 March, 2007.

RTGS Implementation in India

India crossed a major milestone in the development of electronic payment systems; it complied with the
requirements framed by the Bank for International Settlements, with the execution of operations of the Real Time
Gross Settlement (RTGS) system from March 26, 2004. As of March 31, 2005, there are 95 direct participants in the
RTGS system.

The salient features of the RTGS system are as follows:

Payments are settled transaction-by-transaction for high value and retail payments;

Settlement of funds is final and irrevocable;

Settlement is done on a real time basis and the funds settled can be further used immediately;

It is a fully secured system which uses digital signatures and public key infrastructure based inscription for safe
and secure message transmission;

There is a provision for intra-day collaterized liquidity support for member banks to smoothen the temporary
mismatch of fund flows; and

RTGS provides for transfer of funds relating to inter bank settlements as also for customer related fund transfers.

Earlier, more than 75% inter bank transfers were settled through the Deferred Net Settlement Systems (DNSS)
based inter-bank clearing, but are now done through RTGS.

Corporate Governance

Banks, and banking regulators are showing interest to adopt good corporate governance practices for the overall
audit, supervision of banks and financial institutions in India. Banks in India now have an audit committee of the
Board of Directors that is entrusted with the job of overseeing the organization, operationalization and quality control
of the internal audit function. Disclosure levels in bank Balance Sheets have been enhanced, while measures have also
been initiated to strengthen corporate governance in banks.

Consolidation

Size matters for the banking sector and Indian banks are increasingly recognizing its importance. Their efforts
have received support from the publicly expressed views of the government for the consolidation of the Indian
banking sector. There were many issues of mergers and acquisitions and all are of financially distressed banks. Banks
saw consolidation as a means of attaining inorganic growth in size and meeting economies of scale and scope.
Government has its own policies in the process of consolidation of public sector banks and would not stand in the way
of mergers of the same, if the bank boards come up with the proposal of merger that would enhance the operational
efficiency based on synergies. The Government has provided tax breaks aimed at promoting mergers and acquisitions.
The Section 72(A) of the IT Act enables the obtaining company the benefit of carry forward and set-off of
accumulated losses and unabsorbed depreciation of the acquired entity, subject to specified conditions being fulfilled.
Accordingly, the act relating to the set-off and carry forward of loss and allowance for depreciation shall apply. It is
foreseen that the consolidation process in the public sector bank group is imminent. Banks will be required to attain
higher capital standards under Basel II and meet the force of competition by adoption of the extended universal
banking model.

Company Profile

On 20th of July 1908, Maharaja Sayajirao of Baroda founded the Bank of Baroda Limited with an initial paid
up capital of Rs.1 million. After independence, the bank with its 48 branches still remained more of a regional bank.

Between 1953-1958, 30 more branches were opened. The year 1953 witnessed the banks opening of its first overseas
branch in Kenya that was followed by three branches in Fiji, five more branches in Kenya, three in Uganda and one
each in London and Guyana. On 19th July 1969, the bank was rechristened as Bank of Baroda. The primary
objective of the bank was to serve the divergent needs of catering to the development of the economy, and to promote
the welfare of the people. Later, the bank established the Multi-Service Agency (MSA) model catering to urban micro
credit. In the year 1977, the bank initiated the Gram Vikas Kendra (GVK), an innovative model that aimed towards
integrated rural development. Exhibit 1 provides the key milestones attained by the bank over the years.

Date
1908
1910
1919
1953
1958
1962
1963
1964
1984
1988
1995
1996
1999
2000

2002
2004

2005

Exhibit 1

Event
Establishment of the Bank
Opened its first branch in the city of Ahmedabad
Opened its first branch in Mumbai City
First international branch opened at Mombasa, Kenya
The Hind Bank merged with BOB
The New Citizen Bank Limited merged with BOB
BOB acquire the Surat Banking Corporation
The Umargoan Peoples Bank & Tamilnadu Central Bank merged with BOB
Bank of Baroda launched its Credit Card Operations
The Traders Bank Limited merged with BOB
First bond issue of Rs.3,000 million
First public issue of Rs.8,500 million
Commenced operations as a depository.
Bareilly Corporation Bank merged.
Appointed Arthur Andersen India Private Limited as risk management consultant
for setting up a Comprehensive Risk Management Architecture for the Bank.
Establishment of a separate Risk Management Department, headed by a General
Manager and specialized integrated treasury branch.
The Benares State Bank Limited merged with BOB.
The south Gujarat Local Area Bank merged with BOB.
Signed MOU with National Insurance Company Limited June 1, 2004 for selling
their non-life insurance products under corporate agency arrangement.
Banks new logo launched.
Launched the IT Enabled Business Transformation Program and signed the
contract with Hewlett Packard in this regard.
Multicity cheque facility launched.
Upgradation to the Banks IT framework to ensure consonance with world-class
standards rolled out.

Source: Annual Report, BOB.

Today, Bank of Baroda is one of the leading commercial banks in India. As on 30th June 2005, the company has 2,689
branches in India that are spread over the entire territorial boundaries of the country. Apart from this, the company also
has its presence in 19 countries across the globe. As on the same date, the company has a total workforce of over
39,305 personnel and boasts of over 25 million customers. Bank of Baroda was established way back in the year 1908
as a private bank; it later became a nationalized entity along with some other banks in the year 1969. The company
went for an initial public offer in the year 1996 whereby the Government shareholding of the bank went diluted to the
extent of 66.83%. Further, in 2005 the bank went again for a public offer whereby the Government stake was further
reduced to 53.81%. BOB is also the first bank to have been credited with corporate governance rating of CGR-2,
from ICRA that spoke very high of the corporate governance of the bank. The following Exhibit 2 provides the details
of the organizational structure of the bank.

Exhibit 2

Source: Annual Report, Bank of Baroda.

Services

The banks business comprises primarily six lines of businesses, namely, (i) international operations, (ii) retail
financial services, (iii) business financial services, (iv) global treasury (v) rural financial services and (vi) Corporate
financial services include services in areas of commercial banking products and services to corporate customers that
also includes medium-and-small businesses and Government entities. The banks products range from deposits, term
loans and advances from the acquisition purposes, construction and also improvement of assets. Apart from this, the
bank provides fee-based services such as: cash management and remittance related services. In addition to this, the
banks subsidiary BOB Caps provides a wide range of appraisal and merchant banking services. The banks
international banking operations way back to the year 1953 when the bank opened its first offshore branch in
Mombassa in Kenya. Today, the total number of overseas branches of the bank is 59 that provide the bank with a
diversity of customers. In the fiscal year 2005, the banks international operations made up for 15.47% and 9.28% of
its total business and total income respectively; this is significant when compared to the 14.78% and 7.74% figures
recorded in the fiscal 2004. The retail financial services are its major strength. The bank caters to the retail banking
needs of its customers both within the country and abroad. The branch network is especially strong in the states of
Gujarat, Maharashtra and Uttar Pradesh. Its deposit products, retail loans, depository services, and debit cards cater to
the financial needs of the bank huge customer base. The bank provides its business financial services to the small-and
medium-sized entities and also to the commercial enterprises. Such services include deposits, loans and advances,
working capital finance, short-term corporate loans, project finance and cash management services. Its domestic
operations are well integrated through its Specialized Integrated Treasury Branch (SITB). The SITB facilitates the
bank in leveraging its arbitrage opportunities and ensures a better risk management and compliance. BOB focus is on
addressing the needs of the priority sector customers and offers several specialized products and services to them. The
rural financial service of the bank includes provisions of special offerings that extend credit facilities to small and
marginal-farmers, agricultural laborers and also cottage industry entrepreneurs. The success of its services stems
primarily out of the wide branch and ATM network. It also provides latest services like, Phone Banking and Internet
Banking. As on 31st August 2005, the banks Indian branch network comprised 1,170 rural, 539 semi-urban, 490
urban and 490 metropolitan branches all of which are either or almost completely computerized. Apart from this, all of
its overseas branches are completely computerized. Exhibit 3 and Exhibit 4 given below provides the summary
information relating to the banks operations as at the end of fiscal 2004 and fiscal 2005.

Geographic
Distribution
Northern India
North-Eastern
India
Eastern India

Exhibit 3: Domestic

As at March 31, 2004

As at March 31, 2005
Number
Deposits
Advances
Number
Deposits
Advances
of
(Rs. in
(Rs. in
of
(Rs. in
(Rs. in
branches
million)
million)
branches
million)
million)
479
110,324
45,847
483
131,858
58,889
25
4,900
1,639
25
5,610
2,153
250

47,644

23,371

255

51,420

28,444

Central India
Western India
Southern India
Total

693
984
261
2,692

110,055
310,453
60,087
643,463

35,283
167,035
39,350
312,525

692
984
261
2,700

119,013
335,155
66,866
709,922

40,174
201,714
45,081
376,455

Source: Annual Report, BOB.

During the period from April 2005 to June 2005, BOB had consolidated the branch operations on account of
which the operations of 11 of our branches were merged with other branches.

Type
Branches
Subsidiaries
Total

Countries
10
6
16

Exhibit 4: International

As at March 31, 2004

Deposits Advances
(Rs. in
Number
(Rs. in
million)
million)
38
86,209
65,809
16
10,511
4,414
54
96,720
70,223

Countries
10
7
17

As at March 31, 2005

Deposits Advances
(Rs. in
Number
(Rs. in
million)
million)
38
103,412
78,836
17
11,840
5,484
55
115,252
84,320

Source: Annual Report, BOB.

Treasury Operations

BOB had been successful in establishing dedicated desks at the specialized integrated treasury branch, which
headed by professionals with considerable experience. Apart from the regular activities of managing funds and
liquidity, the domestic operations of the bank includes handling commercial papers, certificates of deposits,
government securities, treasury bills, bonds and debentures, equities and various other derivatives along with various
other financial instruments. As on 30th June 2005, 39.94% of the banks net demand and time liabilities consisted of
Government and other approved securities; the same day, the bank maintained 4.82% of its net demand and time
liabilities in its current account with the central bank. Both these figures were in consonance with the RBIs stipulated
guidelines. BOBs treasury is the central point for the market risk management for the bank. The treasury undertakes
liquidity management by seeking to maintain a tradeoff level of liquidity while complying with the Cash Reserve
Ratio (CRR) and Statutory Liquidity Ratio (SLR). Exhibit 5 given below provides the details of the allocation of the
banks investment portfolio as at the end of fiscal 2003, 2004 and 2005.

Exhibit 5
March 31, 2003
March 31, 2004
March 31, 2005
In Rs.
In Rs.
In Rs.
%
%
%
Securities
million
million
million
SLR
Government Securities
211,664.90
74.59
271,898.21
75.41
278,611.40
79.90
Approved Securities
14,603.45
5.15
13,956.92
3.87
13,136.58
3.77
Subsidiaries and Joint
2,360.00
0.83
2,547.33
0.71
2,536.17
0.73
Ventures
Sub total
228,628.35
80.57
288,402.46
79.99
294,284.15
84.40
Non-SLR
Recap Bonds
1,820.00
0.64
1,820.00
0.50
1,820.00
0.52
Bonds and debentures
44,000.73
15.51
45,096.45
12.51
37,195.72
10.67
Shares
4,120.80
1.45
5,171.39
1.43
5,286.66
1.52
Commercial Paper,
5,203.41
1.83
20,068.14
5.57
10,107.20
2.90
Mutual Funds and Others
Sub total
55,144.94
19.43
72,155.98
20.01
54,409.58
15.60
Total (Domestic)
283,773.29
100.00
360,558.44
100.00
348,693.73
100.00
Outside India
18,020.54
19,629.66
22,050.68
Total
301,793.83
380,188.10
370,744.41

Source: Annual Report, BOB.

Exhibit 6

(Rs. in million)

Particulars
Business Segment Revenue(1):
Treasury Operations
Other Operations
Total Revenue

Fiscal
2003

Fiscal
2004

Fiscal
2005

35,049
38,543
73,592

42,902
35,759
78,661

40,855
36,507
77,362

Three
Months
ended
June 30,
2004

Three
Months
Ended
June 30, 2005

10,801
8,429
19,230

9,367
9,453
18,820

Note: (1) Segment revenue represents revenue from external customers.

Source: Annual Report, BOB.

Foreign Exchange Operations

Bank of Baroda has global presence and is thus credited as a leading foreign exchange dealers in the country.
The state of the art dealing room at the SITB, Mumbai, takes care of much of its foreign exchange activities that in
turn facilitate the bank to act as a market maker in both the spot and forward markets and also in the foreign swap
markets. The services offered by the bank include hedging foreign currency risk by providing forward covers and
various other derivatives products. BOB generally enters into foreign exchange and derivatives transactions for its
customers and also on their own account. BOB is also enabled with the SWIFT mechanism for worldwide inter-bank
communication at 97 of its foreign exchange branches in India and abroad. SWIFT provides international money
transfers to be carried out more accurately and also with greater speed. Exhibit 7 given below shows BOBs Forex
turnover till 30th June 2005.

Particulars
Merchant Turnover
Interbank Turnover
Total

March 31,
2002
(Rs.
in million)
57,279
221,523
278,802

Exhibit 7

March 31,
2003
(Rs.
in million)
177,860
953,204
1,131,064

March 31,
2004
(Rs.
in million)
337,533
1,440,238
1,777,771

March 31,
2005
(Rs.
in million)
417,286
1,691,352
21,086,38

June 30,
2005
(Rs.
in million)
102,960
532,962
635,922

Source: Annual Report, BOB.

Risk Management

In todays corporate scenario, risk management plays a crucial role in the success of an organization. Bank of
Baroda too lays a special emphasis on the management and control of risk management. In any financial services
company, there exists primarily three kinds of risks namely credit risk, market risk and operational risk. BOB has an
effective risk management framework that takes care of all these kinds of risks. The bank flows a flexible and dynamic
risk management module that enables it to keep pace with the changing risk management profile. Since the year 2001,
the bank has successfully implemented an internal risk management system headed by the banks General Managers.
Over the years, this has evolved into sophisticated and effective risk management tool for the banks business whereby
the complete responsibility for managing the risk lies with the sub-committee of the banks board. Apart from this, the
bank also has a Credit Policy Committee, Asset Liability Management (ALM) Committee and Operational Risk
Management Committee that takes care of the various kinds of risks at different levels.

Credit Risk

It goes beyond saying that credit risk forms an integral part of banking business that normally arises out of the
diminution of the credit quality of the borrower or the counter-party involved and the risk that the parties concerned
will default on the contractual repayment under the advance. There are four different credit management cells that
work together to (i) identify, (ii) measure, (iii) monitor and (iv) control the banks credit risk exposure. These cells are
the Corporate Research Cell, Portfolio Cell, Credit Review Cell and Economic Forecasting Cell. The bank maintains

credit exposure ceilings as a part of prudential measure as stipulated by the RBI norms. This is primarily aimed
towards improving the risk management and avoiding the concentration of credit risks. Exhibit 8 provides the banks
credit exposure ceilings as on 31st March 2005.

1.
2.
3.
4.

5.

6.

7.
8.
9.

Exhibit 8

Particulars
Tier I Capital (Eligible element)
Tier II Capital (Eligible element)
Total Capital Funds
Single Borrower Exposure Limit
15% of the total capital funds for AAA, A & A as per new rating
model and A & A as per old rating model.
Single Borrower Exposure Limit
12.5% of the total capital funds for BBB as per new rating model
and B+ as per old rating model.
Single Borrower Exposure Limit
10% of the total capital funds for below BBB as per new rating
model and below B+ as per old rating model.
Single Borrower Exposure Limit in case of Infrastructure
advances (20% of the total capital funds)
Group Borrower Exposure Limit (40% of the total capital funds)
Substantial Exposure (600% of the capital funds)

Rs. in Million
39,542.30
21,222.80
60,765.10
9,114.80

7,595.60

6,076.50

12,153.00
24,306.00
364,590.60

Source: Draft Red Herring Prospectus, Bank of Baroda.

As per the RBI guidelines, BOBs credit exposure ceilings are fixed to its capital adequacy standards. As per
the standards set, the bank introduced a risk based single borrower exposure that is linked to the credit rating of the
borrower. Exhibit 9 given below provides a summary of the same.

Credit Rating of
the Account
AAA, AA, A
BBB
Below BBB

Exhibit 9

Maximum Single
Borrower Exposure
Ceilings
15% of capital fund
12.5% of capital fund
10% of capital fund

Maximum Single
Borrower Exposure
Ceiling for Infrastructure
20% of capital fund
17.5% of capital fund
15% of capital fund

Source: Annual Report, BOB.

Market Risk

Market risk is another kind of risk that is inherent in the business of any financial service providing company. It
is the risk that arises out of the changes in the market variables such as interest rates, exchange rates and other asset
prices. The main objective of managing market risk is to prevent excessive exposure of the earnings and equity to loss
and also to reduce the exposure to the volatility that is inherently present in various financial instruments like
securities, foreign exchange contracts, equity and derivative instruments as well as Balance Sheet or structural
positions. Primarily, the risk that the bank faces as a financial intermediary is interest rate risk due to its asset and
liability management activities. The market risks that the bank is exposed to relates to foreign exchange risk on its
foreign currency positions, liquidity or funding risk and price risk on its trading portfolios. The ALM committee looks
after the overall management of market risk in the bank. The following are the main responsibilities the committee
shoulders:

Determining the pricing of products for the banks deposits and advances.

Estimating the maturity profiles and the mix of incremental assets and liabilities.

Framing future strategies for the bank after considering the future interest rate scenario.

Bringing in an effective transfer pricing.

Regular reviewing of the return on asset ratios.

As stated earlier the bank has successfully implemented the SITB facility since October 2001 equipped with the
latest technologies that coordinate the activities of money market, investments and foreign exchange functions. Apart
from this, the SITB also monitors the interest rate risk on a continuous basis. The following are the primary
responsibilities that rest with the SITB:

Ensuring that there is complete compliance with the various regulatory and prudential requirements.

Managing liquidity of the bank.

Providing efficiency to the delivery channels.

Occupying a major position in the debt market.

Acting as a major market maker in the foreign exchange market.

Foreign Exchange Risk

BOB conducts extensive foreign exchange operations that include trading and also taking positions in various
currencies both proprietary and also on behalf of its clients. As a result of these, a portion of the market risk that the
bank is exposed to are foreign exchange risk resulting due to adverse exchange rate movements during a period in
which the bank may have an open position in any combination of foreign currencies. In order to determine the market
risk position resulting out of foreign exchange operations, BOB uses combination measurement techniques that are
both static and dynamic in nature.

i.
The static analyses measures the market risk exposure of the foreign exchange product positions by
comparing the Value at Risk (VaR) positions both as an individual and on a portfolio basis. The VaR method is
used in order to assess the losses that would culminate on the trading positions due to the variations in currency
exchange rates for a particular given confidence level within a specified period of time. The bank manages the
foreign exchange market risk exposures by computing VaR at 95%, 97.5% and 99% confidence level for 1-day
and 10-day time spans.

ii.
The dynamic analysis seeks to measure the market risk exposure of the banks foreign exchange
products by estimating the potential future profits and losses and tries to capture the effect of both the current
and the future events that can occur during the said period. Through the stress testing analysis of a series of
potential stress scenarios, the bank measures market risk exposures. Once the bank carries out the static and the
dynamic analyses, it sets parameter and limits that are designed to prevent its foreign exchange operations from
violating predetermined market risk exposures. In the case of the VaR analysis, determining the limits
facilitates the bank in preventing exposures to risk that are not in accordance to its risk return profile.

Operational Risk

BOB faces operational risk mainly due to inadequate or failed internal process, people and systems or any
external events. The bank has successfully established systems and procedures that are available upto the branch level
in the form of books of instructions and circulars that cover different kinds of its activities. In an effort to monitor the
operational risk, the bank has created the Operational Risk Management Committee (ORMC) under the overall
supervision of the sub-committee of the board on ALM and Risk Management.

Financial Health

As on 31st March 2005, BOBs total income decreased by 1.79% from Rs.81,822.32 million in fiscal 2004 to
Rs.80,354.35 million in fiscal 2005 and its total expenditure increased by 1.08% from Rs.55,910.73 million in fiscal
2004 to Rs.56.515.69 million in fiscal 2005. The banks operating profit decreased by 8.0% from Rs.25,911.58 million
in fiscal 2004 to Rs.23,838.67 million in fiscal 2005. The net profit also decreased by 28.21% from Rs.10,447.19
million in fiscal 2004 to Rs.7,500.19 million in fiscal 2005. The net interest income of BOB increased by 16.15% from
Rs.26,628.88 million in fiscal 2004 to Rs.30,929.87 million in fiscal 2005.

Exhibit 10
Year ended March 31,
Particulars
2004
2005
(in Rs. million)
(in Rs. million)
Interest income
63,581.94
66,576.37

Interest expense
Net interest income

36,953.06
26,628.88

35,646.50
30,929.87

Various components of interest income:

Exhibit 11
Year ended March 31,
2004
2005
(in Rs. million)
(in Rs. million)
29,108.24
30,231.10
29,996,44
30,891.73
2,079.04
2,450.49
2,398.22
3,003.05
63,581.94
66,576.37

Particulars
Interest and Discount on advances/bills
Income on Investment
Interest on balance with RBI and other Inter Bank Lending
Others
Total interest income

Source: Annual Report, BOB.

Operating profit before provisions and contingencies decreased from Rs.25,911.58 million in
fiscal 2004 to Rs.23,838.67 million in fiscal 2005. This decrease was due to reduction in operating profit of the Parent
Company. As a percentage of total income, the operating profit also decreased from 31.67% in fiscal 2004 to 29.67%
in fiscal 2005. BOB has the record of being a consistent dividend payer. In the fiscal year 2005, the bank declared
marginally less dividend as compared to the previous fiscal.

Particulars
Face value of Equity Share
(per share)
Interim Dividend on Equity Shares
(in Rs. million)
Final Dividend on Equity Shares
(in Rs. million)
Total Dividend on Equity Shares
(in Rs. million)
Dividend rate (%)
Dividend tax (in Rs. million)

Exhibit 12

FY 2005
10.00

FY 2004
10.00

FY 2003
10.00

FY 2002
10.00

(in Rupees)
FY 2001
10.00

527.88

879.79

592.00

Nil

Nil

938.45

1,026.42

1,184.00

1,184.00

1,184.00

1,466.33

1,906.21

1,776.00

1,184.00

1,184.00

50.00
203.23

65.00
244.22

60.00
151.70

40.00
Nil

40.00
120.77

Source: Annual Report, BOB.

As on March 31, 2005, BOBs Gross Non-Performing Asset (GNPA) as a percentage of gross advances was
7.3% and its Net Non-Performing Assets (NNPA) as a percentage of net advances were 1.45% (considering floating
provisions). The bank defines net NPAs as gross NPAs less its loan loss provision, Deposit Insurance and Credit
Guarantee Corporation/Export Credit Guarantee Corporation (DICGC/ECGC) claims received and held, Amount of
Interest Suspense held, Amount of Suit filed sundry Deposit received and held, and the amount of floating provisions.
The bank has kept such provisions for 81.35% of the gross non-performing loans, as on 31-3-2005. As of March 31,
2005, 43.66% of the gross NPAs were from priority sector advances. The maximum NPAs is in textile and chemicals
industries that stood at 14.86% and 11.86%, respectively, of total gross domestic NPAs as on 30-6-2005.

Exhibit 13

31-3-2001
Particulars
Gross Advances
Interest
Suspense

Amt

NPAs

296588
3608

41857
3608

31-3-2002
NPAs
as % of
Adv.
14.11

Amt

NPAs

362391
4022

44893
422

31-3-2003
NPAs
as % of
Adv.
12.39

Amt

NPAs

37820
3619

941679
3567

NPAs
as % of
Adv.
11.023

DICGC/ECGC
claims received
and held
SFSD held
Provisions
(as per RBI)
Other
Adjustments
Floating
Provisions
Total Deductions
Net Adv
(for Net NPA %)
Unapplied
Interest
(Domestic
NPAs)

Particulars

415

415

615

615

608

608

601
17757

591
17757

596
20528

581
20528

453
20048

453
20048

1212

1212

2498

2498

4019

4019

23593
272995

23583
18274

28259
34132

28244
16649

28747
34946

28695
212984

4.98

Not Available

Not Available

31-3-2004

31-3-2005

Amt

NPAs

Gross Advances

78334

39799

Interest
Suspense
DICGC/ECGC
claims received
and held
SFSD held

3221

Provisions
(as per RBI)
Other
Adjustments
Floating
Provisions
Total
Deductions
Net Adv
(for Net NPA %)
Unapplied
Interest
(Domestic
NPAs)

6.693

NPAs
as % of
Adv.
10.52

Amt

NPAs

455291

33218

3221

2983

449

449

385
18134

21367

31-3-2006
NPAs
as % of
Adv.
7.30

Amt

NPAs

467826

33714

2983

2897

2897

510

510

493

493

385

342

342

334

334

18134

17322

17322

17496

17497

137

130

7190

5864

5864

6020

6020

29516

29379

27151

27021

21373

27240

48818

10420

428140

6197

440453

6474

18752

13986

NPAs
as % of
Adv.
7.21

133

7190

2.99

3.723

1.45

1.47

14430

The central bank has separate guidelines for restructured assets. A fully secured standard asset can be
restructured by rescheduling the principal or interest payments; but it must be separately disclosed as a restructured
asset during the year of restructuring. Sub-standard assets that have been restructured are also eligible to be upgraded
to the standard assets category only after a specified period, which is one year after the date when first payment of
interest or of principal, whichever is earlier, falls due, subject to satisfactory performance during the period. Added to
this, in order to create an institutional mechanism for the restructuring of corporate debt, the RBI has also created a
Corporate Debt Restructuring (CDR) system in 2003. The objective of this framework is to provide a more timely and
transparent mechanism for the restructuring of corporate debts of viable entities facing financial difficulties. Exhibit 14

given below provides a summary of the banks assets restructured during the periods concerned:

Exhibit 14

RESTRICTED ASSETS

(Rs. in million)
31-3-2003

CDR Restructured Assets

Standard Assets
Substandard Assets
Doubtful Assets
Loss Assets
Total CDR Restructured Assets
Other Restructured Assets
Standard Assets
Substandard Assets
Doubtful Assets
Total Other Restructured Assets
Total Restructured Assets for the year

31-3-2004

31-3-2005

1,504.10
0.00
0.00
0.00
1,504.10

5,752.50
133.80
1,887.20
0.00
7,773.50

4,819.20
132.30
0.00
0.00
4,951.50

6,746.60
82.50
0.00
6,829.10
8,333.20

2,452.60
695.70
1,220.60
4,368.90
12,142.40

2,409.30
243.40
115.00
2,767.70
7,719.20

Source: Annual Reprot, BOB.

Exhibit 15: Sector-wise Analysis of Gross Non-Performing Assets

Particulars
SECTORS

June 05
GR-ADV

GRNPA

March 05
GRNPA%

GR-ADV

GRNPA

March 04
GRNPA%

GR-ADV

GRNPA

GRNPA%

Agriculture

51593.30

4509.60

8.74

44403.30

4451.80

10.03

30193.80

5096.00

16.88

SSI

36538.80

5805.60

15.89

37140.00

5827.50

15.69

35106.90

6246.00

17.79

Others

48894.50

3845.00

7.87

48614.00

3522.70

7.25

41231.20

3773.50

9.15

Total PS

137026.60

14161.20

10.33

130157.30

13802.00

10.60

106531.90

15115.50

14.19

Large and Med Industries

116735.60

13726.20

11.76

113647.50

13631.40

11.99

95902.30

18883.70

19.69

Trade and Others

62638.90

3691.00

5.89

71105.00

3524.40

4.96

59017.00

3706.50

6.28

PSUs

68591.80

656.60

0.96

61545.30

657.10

1.07

51073.70

283.80

0.56

Total NPS

247966.30

18073.80

7.29

246297.80

7812.90

7.23

205993.00

22874.00

11.10

Domestic Advances

384992.90

32235.00

8.37

376455.10

31614.90

8.40

312524.90

37989.50

12.16

Intl Advances
Gross Total Adv.

Particulars
SECTORS

82833.30

1478.80

1.79

78836.10

160.32

2.03

65809.10

1809.10

2.75

467826.20

33713.80

7.21

455291.20

33218.10

7.30

378334.00

39798.60

10.52

GR-ADV

March 03
GRNPA

GRNPA%

GR-ADV

March 02
GRNPA

GRNPA%

GR-ADV

March 01
GRNPA

GRNPA %

Agriculture

31989.60

5916.40

18.49

26877.80

6460.40

24.04

25867.10

6525.60

25.23

SSI

34587.40

7363.70

21.29

32837.40

7863.40

23.95

32354.70

7317.10

22.62

Others

33513.60

3457.30

10.32

26199.20

3971.00

15.16

21542.30

3641.40

16.90

100091.00

16737.40

16.72

85914.40

18294.80

21.29

79764.10

17484.10

21.92

Total PS

Large and Med Industries

96113.90

17809.00

18.53

97680.90

19323.40

19.78

58093.00

16255.60

27.98

Trade and Others

51671.10

4263.10

8.25

50101.20

4425.80

8.71

65492.70

4793.90

7.32

PSUs

63627.70

290.10

0.46

70497.90

510.80

0.72

51228.30

557.10

1.09

Total NPS

211413.00

22362.20

10.58

218980.00

24260.00

11.08

174814.00

21606.60

12.36

Domestic Advances

311503.00

39099.60

12.55

304894.40

42554.80

13.96

254578.10

39090.70

15.36

66705.40

2579.40

3.87

57497.00

2336.10

4.07

42009.60

2766.50

6.59

378209.00

41679.00

11.02

362391.40

44692.90

12.39

296587.70

41857.20

14.11

Intl Advances
Gross Total Adv.

Source: Annual Report, BOB.

The banks growth over the last three fiscal years and the three months ended June 30, 2005 has been financed
by a combination of cash generated from operations, increases in its customer deposits, and borrowings.

Exhibit 16

(Rs. in million)
Fiscal
2003

Fiscal
2004

(16,813.36)
(1,062.78)

6,270.20
(1,096.17)

(3,426.97)
(21,303.10)

(676.93)
4,497.10

Particulars
Cash Flow from Operations
Cash Flow from Investment
Activities
Cash Flow Financing Activities
Net Changes in Cash and Cash
Equivalents

Three Months Three Months

Fiscal
ended
ended
2005
June 30, 2004 June 30, 2005
24,495.71
(3,911.14)
15,922.71
(1,279.09)
(704.42)
(1,238.76)
(3,342.72)
19,873.91

2,598.94
(2,016.61)

(417.52)
14,266.43

Source: Annual Report, BOB.

The net cash from operating activities stood at Rs.16,813.36 million, Rs.6,270.20 million and Rs.24,495.71
million, in fiscal 2003, 2004 and 2005, respectively, and Rs.3,911.14 million and Rs.15,922.71 million in the three
months ended June 30, 2004 and 2005 respectively. The net cash from operating activities reflects interest received
during the period from advances and investments and other income and non-cash charges such as depreciation and
provisions (mainly for non-performing and standard assets) made during the period, as well as adjustments for cash
charges. In addition, the net cash from operating activities reflects changes in operating assets and liabilities, including
investments, advances, deposits and borrowings, as well as other assets and liabilities. Change in borrowings reflects
only short-term borrowings and not Tier II Bonds, which are included in financing activities. BOBs net cash flow
from investing activities was Rs.1,062.78 million and Rs.1,096.17 million in fiscal 2003 and 2004 respectively. Net
cash from investing activities was Rs.1,279.09 million in fiscal 2005. Net cash flow from investing activities was
Rs.704.42 million and Rs.1,238.76 million during the three months ended June 30, 2004 and 2005, respectively. The
net cash used in investing activities reflects investments consisting of the purchase of fixed assets and investments in
its subsidiaries and associates. Net cash flow from investing activities reflects dividends received from its subsidiaries
and associates. During the three months ended June 30, 2005, the bank made a total investment of Rs.1,084.73 million
in two of its subsidiaries, namely BOBCARDS and NBL and the net cash from financing activities was Rs.3,426.97
million,
Rs.676.93 million and Rs.3,342.72 million, in fiscal 2003, 2004 and 2005, respectively, and Rs.2,598.94 million and
Rs.417.52 million for the three months ended June 30, 2004 and 2005, respectively. The net cash from financing
activities fluctuated primarily due to payment of dividends and corporate tax related to dividends and interest on the
Tier II Bonds. The banks net cash from financing activities reflects cash received from the issuance of the Tier II
Bonds. BOB issued Rs.3,000 million Tier II Bonds in the first quarter of fiscal 2004.

The Road Ahead

As seen from the various data, BOB relies heavily on its treasury income and as such it recorded lower
operating growth. But the bank enjoys a very good credit rating. One can safely say that the leadership will deliver in
years to come. The bank faces hurdles in its inability to grow its business, in the higher interest rate risk and in its slow
moving
technology
implementation
plan.

All these issues are being addressed and continuously reviewed by the bank. With improvement in the asset quality in
the industry as a result of the general revival of the economy and the efforts undertaken by banks, the difference
between the book value and adjusted Book Value (adjusted for net NPLs and restructured standard loans) is
narrowing; for example, for BOB in FY2002 ABV was 54% of the reported BV, the difference narrowed to 80% in
FY2005 and one can expect the bank to deliver better results in years ahead.

Annexure 1

Capital and Liabilities:

Bank Of Baroda

(Rs. in crore)

Mar 2001

Mar 2002

Mar 2003

Mar 2004

Mar 2005

12 mths

12 mths

12 mths

12 mths

12 mths

Capital

294.34

294.34

294.34

293.27

293.27

1500

1500

1500

1500

1500

296

296

296

296

296

294.34

294.34

294.34

293.27

293.27

Preference capital

Share capital deposit with RBI

Bonus equity capital

Authorised capital
Issued equity capital
Paid-up equity capital

Reserves & surplus

Free reserves

3061.93

3533.42

4092.63

4836.39

5333.23

1915.41

1983.93

2036.12

2071.18

2403.59

737.31

737.32

737.35

738.76

738.77

1178.1

Share premium reserves

Other free reserves

1246.61

1298.77

1332.42

1664.82

1146.52

1549.49

2056.51

2765.21

2929.64

Revaluation reserves

Accumulated losses

54070.44

61804.47

66441.41

72967.32

81333.46

Specific reserves

Deposits

5709.69

6328.01

6039.45

6771.64

6871.09

Saving deposits

Demand deposits

12184.88

14047.07

16419.42

19780.21

22776.93

Term deposits

36175.87

41429.39

43982.54

46415.47

51685.44

Deposits of financial institutions

Demand deposits from banks

495.05

440.53

551.01

476.58

391.44

Term deposits from bank

2765.95

3643.01

2196.54

2923.37

3194.02

Deposits outside India

6201.65

7272.33

7039.83

8620.99

10341.23

Borrowings

2051.62

1892.65

1825.33

2375.11

3140.83

Capital and Liabilities:

Bank Of Baroda

RBI
Banks
Short term bank borrowings

Mar 2001

Mar 2002

Mar 2003

Mar 2004

Mar 2005

12 mths

12 mths

12 mths

12 mths

12 mths

140

1.46

166.54

12.26

9.18

281.16

1.46

166.54

12.26

9.18

281.16

Financial institutional borrowings

850.16

386.11

613.07

225.45

354.88

Debentures & bonds

Government

Foreign borrowings

640.48

1004.79

1200

1200

1200

1500

1500

Secured borrowings

385.01

613.07

225.45

Total foreign currency borrowings

Deferred tax liabilities

Other borrowings

Other liabilities & provisions

3843.71

3385.19

3770.87

4635.31

4562.19

Current liabilities

3768.78

3087.77

3393.63

3705.59

3696.55

Bills payable

701.83

1004.17

1255.77

1032.09

1453.41

Inter office adjustment

308.27

Interest accured / due

3066.95

2083.6

2137.86

2365.23

2243.14

74.93

297.42

377.24

929.72

865.64

Tax provision

Dividend provision

Others current liabilities

Share application money
Provisions

Dividend tax provision

Dimunition of investment

74.93

297.42

377.24

929.72

865.64

63322.04

70910.07

76424.58

85108.66

94664.24

3931.76

4310.3

4227.34

4831.01

6200.98

0
3567.29

Other provisions
Total liabilities
Contingent liabilties
Bills for collection
Bills discounted
Endorsement obligation

2121.69

1985.94

2527.22

2753.78

Disputed taxes

Letters of credit

Total guarantees
Forward exchange contracts

3450.57

3260.92

3485.06

3358.37

3863.18

13313.44

8874.82

17616.15

22309.3

23662.8

Future lease rent payable

Annexure 2

(Rs. in crore)

Assets:
Bank Of Baroda

Mar 2001
12 mths

Cash & bank balance

Cash in hand
Bank balance

Mar 2002

Mar 2003

12 mths

12 mths

Mar 2004
12 mths

Mar 2005
12 mths

12436.36

8947.41

6817.1

7266.83

9254.2

354.55

328.35

417.89

402.02

397.23

1581.61

1366.44

1160.54

1911.44

2347.79

Current account

247.66

203.35

149.98

149.83

479.5

Deposit account

878.95

1163.09

400.56

687.61

468.29

455

610

1074

1400

Money at call

Balance outside India

Current account
Deposit account

6484.97

4999.9

2190.73

2298.6

4194.09

414.38

342.8

265.77

234.67

342.63

2212.2

1360.19

386.28

584.48

1477.45

Money at call

3858.39

3296.91

1538.68

1479.45

2374.01

Balance with RBI

4015.23

2252.72

3047.94

2654.77

2315.09

Investments

19857.12

23833.14

30179.39

38018.79

37074.44

Government securities

12051.9

15361.94

22028.61

28088.61

29007.85

Approved securities

1648.17

1596.42

1460.35

1395.69

1313.66

Subsidiaries / associates

287.84

347.83

366.93

429.73

355.45

Other companies

299.21

331.87

412.08

517.14

528.67

Debentures / PSU bonds

3299.74

3834.27

4400.07

4509.64

3719.57

Others

2270.26

2360.81

1511.35

3077.98

2149.24

Investments outside India

Assisted companies (FI specific)

Mutual funds

1394.61

1946.43

1802.05

1962.97

2216.17

Quoted investment

Market value of quoted investment

Advances & loans

27420.68

33662.99

35348.07

35600.88

43400.38

Bills receivables

16654.13

19601.52

19536.56

18393.6

21809.57

9231.01

12059.24

13472.86

14710.91

17597.14

Short term / demand advances

Term advances
Assisted companies (FI specific)
Institutions & banks
Other advances

1535.54

2002.23

2338.65

2496.37

3993.67

Foreign currency advances

24705.11

29907.07

30889.49

28501.49

36808.48

Unsecured advances

2715.57

3755.92

4458.58

7099.39

6591.9

Advances to priority sector

6660.45

7675.73

9176.21

9925.42

12265.8

3400.39

5784.76

5159.83

3576.66

4338.31

Secured advances

Advances to public sector

Assets:
Bank Of Baroda

Mar 2001

Mar 2002

12 mths
Deferred tax assets

Mar 2003

12 mths

Mar 2004

12 mths

Mar 2005

12 mths

12 mths

4.36

4.29

3.82

5.71

5.06

2276.25

3256.77

3036.82

3230.15

4069.35

865.91

989.57

988.74

1081.66

1103.91

Inter office adjustments

100.71

953.81

578.19

554.25

Advance payment of tax

860.02

846.83

837.14

1025.9

812.83

Other recievables

449.61

466.56

632.75

1122.59

1598.36

1151.13

1273.56

1391.16

1561.08

1707.68

504.07

581.18

693.84

745.81

846.87

647.06

692.38

697.32

815.27

860.81

587.61

624.6

706.65

845.28

892.44

Other assets / stocks

Receivables
Accrued income
Non-banking assets

Future lease rent receivable

Gross fixed assets
Less: cumulative depreciation
Net fixed assets
Land & building

Revalued assets
Intangible/ DRE not written off
Intangible assets (goodwill, etc.)
DRE not written off
VRS expenses not written off
Other misc. expenses not written off
Total assets

References

1.
2.
3.
4.
5.
6.
7.

680.21

513.09

342.06

171.03

680.21

513.09

342.06

171.03

680.21

513.09

342.06

171.03

63322.04

70910.07

76424.58

85108.66

94664.24

Business Today
The Hindubusiness Line
Business Standard
www.bankofbaroda.com
www.sharekhan.com
www.myiris.com
www.moneycontrol.com

END OF QUESTION PAPER

Suggested Answers
Integrated Case Studies III (361) : January 2007
Case Study
1.

2.

Bank of Baroda lays a special emphasis on the management and control of risk management. Since the year
2001, the bank has successfully implemented an internal risk management system headed by the banks
General Managers. Over the years, this has evolved into sophisticated and effective risk management tool
for the banks business whereby the complete responsibility for managing the risk lies with the subcommittee of the banks board. Apart from this, the bank also has a Credit Policy Committee, Asset
Liability Management (ALM) Committee and Operational Risk Management Committee that takes care of
the various kinds of risks at different levels
Credit Risk
There are four different credit management cells that work together to (i) identify, (ii) measure, (iii)
monitor and (iv) control the banks credit risk exposure. These cells are the Corporate Research Cell,
Portfolio Cell, Credit Review Cell and Economic Forecasting Cell.
The bank maintains credit exposure ceilings as a part of prudential measure as stipulated by the RBI norms.
This is primarily aimed towards improving the risk management and avoiding the concentration of credit
risks. Exhibit 8 provides the banks credit exposure ceilings as on 31st March 2005.
The market risks that the bank is exposed to relates to foreign exchange risk on its foreign currency
positions, liquidity or funding risk and price risk on its trading portfolios. The ALM committee looks after
the overall management of market risk in the bank. The following are the main responsibilities the
committee shoulders:

Determining the pricing of products for the banks deposits and advances.

Estimating the maturity profiles and the mix of incremental assets and liabilities.

Framing future strategies for the bank after considering the future interest rate scenario.

Bringing in an effective transfer pricing.

Regular reviewing of the return on asset ratios.

Foreign Exchange Risk
BOB conducts extensive foreign exchange operations that include trading and also taking positions in
various currencies both proprietary and also on behalf of its clients. As a result of these, a portion of the
market risk that the bank is exposed to are foreign exchange risk resulting due to adverse exchange rate
movements during a period in which the bank may have an open position in any combination of foreign
currencies. In order to determine the market risk position resulting out of foreign exchange operations,
BOB uses combination measurement techniques that are both static and dynamic in nature.
Operational Risk
BOB faces operational risk mainly due to inadequate or failed internal process, people and systems or any
external events. The bank has successfully established systems and procedures that are available upto the
branch level in the form of books of instructions and circulars that cover different kinds of its activities. In
an effort to monitor the operational risk, the bank has created the Operational Risk Management Committee
(ORMC) under the overall supervision of the sub-committee of the board on ALMM and Risk Management
< TOP >
The salient features of the RTGS system are as follows:

Payments are settled transaction-by-transaction for high value and retail payments;

Settlement of funds is final and irrevocable;

Settlement is done on a real time basis and the funds settled can be further used immediately;

It is a fully secured system which uses digital signatures and public key Infrastructure based
inscription for safe and secure message transmission;

There is a provision for intra-day collaterized liquidity support for member banks to smoothen the

temporary mismatch of fund flows; and

RTGS provides for transfer of funds relating to inter bank settlements as also for customer related
fund transfers.
Earlier, more than 75% inter bank transfers were settled through the Deferred Net Settlement Systems
(DNSS) based inter-bank clearing, but are now done through RTGS.

3.

< TOP >

The central bank has separate guidelines for restructured assets. A fully secured standard asset can be
restructured by rescheduling the principal or interest payments; but it must be separately disclosed as a
restructured asset during the year of restructuring. Sub-standard assets that have been restructured are also
eligible to be upgraded to the standard assets category only after a specified period, which is one year
after the date when first payment of interest or of principal, whichever is earlier, falls due, subject to
satisfactory performance during the period. Added to this, in order to create an institutional mechanism for
the restructuring of corporate debt, the RBI has also created a Corporate Debt Restructuring (CDR) system
in 2003. The objective of this framework is to provide a more timely and transparent mechanism for the
restructuring of corporate debts of viable entities facing financial difficulties. Exhibit 14 given below
provides a summary of the banks assets restructured during the periods concerned:
(Rs. in million)
RESTRICTED ASSETS
31-3-2003
CDR Restructured Assets
Standard Assets
Substandard Assets
Doubtful Assets
Loss Assets
Total CDR Restructured Assets
Other Restructured Assets
Standard Assets
Substandard Assets
Doubtful Assets
Total Other Restructured Assets
Total Restructured Assets for the year

4.

31-3-2004

1,504.10
0.00
0.00
0.00
1,504.10

5,752.50
133.80
1,887.20
0.00
7,773.50

6,746.60
82.50
0.00
6,829.10
8,333.20

2,452.60
695.70
1,220.60
4,368.90
12,142.40

31-3-2005
4,819.20
132.30
0.00
0.00
4,951.50

2,409.30
243.40
115.00
2,767.70
7,719.20
< TOP >
The Basle committee has defined capital in two tiers Tier I and Tier-II. While Tier-1 capital is the core
capital which provides the most permanent and readily available support against unexpected losses, Tier-II
capital will consist of elements that are not permanent in nature or not readily available.
Tier-I capital consists of equity capital, statutory reserves and other disclosed free reserves, capital reserves
representing surplus arising out of sale proceeds of assets will not be reckoned for this purpose. Equity
investment in subsidiaries, intangible assets, and losses in the current period and those brought forward
from previous periods will be deducted from Tier I Capital
Tier-II consists undisclosed reserves and cumulative perpetual preference shares often have characteristics
similar to equity and disclosed reserves. The elements have capacity to absorb losses and can be included in
capital, if they represent accumulation of post tax profits and are not encumbered by any unknown liability
and should not be routinely used for absorbing normal loan or operating losses. Cumulative perpetual
preferences should be fully paid-up and should not contain clauses which permit redemption by the holder.
Capital Adequacy of the Bank = (Tier I + Tier II) * 100 / (Bank Risk Exposure)
= 60765.10/423836.5 = 14.33692
The current CAR requirement by banks according to RBI guidelines is 9%, therefore the capital adequacy
requirement is satisfied.
< TOP >

5.
Liabiliites

Bank Of Baroda
Capital
Reserves & surplus
Demand deposits from banks
Other deposits
Borrowings
RBI
other banks
Other borrowings
Other Liabilities
Assets
Cash in hand
Money at call
Balance with RBI
Bank Balance
Current account
Deposit account
Investments
Advances
fixed assets
Other assets
Borrowing from banks
Deposits from banks
Liabilities to the banking system
Other deposits
Other Liabilities
Liabilities to others
Bank Balance
Money at call
Assets with Banking Systems
NDTL
(Net Demand and Time Liabilities
Reserves & surplus
CRR (3% of NDTL)
SLR = 25 % NDTL

Mar
2001
294.34
3061.93
3261
54070.44

Mar
2002
294.34
3533.42
4083.54
61804.47

Mar
2003
294.34
4092.63
2747.55
66441.41

Mar
2004
293.27
4836.39
3399.95
72967.32

Mar
2005
293.27
5333.23
3585.46
81333.46

0
1.46
1200
3843.71

140
166.54
1200
3385.19

0
12.26
1200
3770.87

0
9.18
1500
4635.31

0
281.16
1500
4562.19

354.55
455
4015.23
1126.61
247.66
878.95
19857.12
27420.68
647.06
4.36
1.46
3261
3262.46
54070.44
3843.71
57914.15
1126.61
455
1581.61
1680.85

328.35
0
2252.72
1366.44
203.35
1163.09
23833.14
33662.99
692.38
4.29
166.54
4083.54
4250.08
61804.47
3385.19
65189.66
1366.44
0
1366.44
2883.64

417.89
610
3047.94
550.54
149.98
400.56
30179.39
35348.07
697.32
3.82
12.26
2747.55
2759.81
66441.41
3770.87
70212.28
550.54
610
1160.54
1599.27

402.02
1074
2654.77
837.44
149.83
687.61
38018.79
35600.88
815.27
5.71
9.18
3399.95
3409.13
72967.32
4635.31
77602.63
837.44
1074
1911.44
1497.69

397.23
1400
2315.09
947.79
479.5
468.29
37074.44
43400.38
860.81
5.06
281.16
3585.46
3866.62
81333.46
4562.19
85895.65
947.79
1400
2347.79
1518.83

59595
3061.93
1787.85
14898.75

68073.3
3533.42
2042.20
17018.33

71811.55
4092.63
2154.35
17952.89

79100.32
4836.39
2373.01
19775.08

87414.48
5333.23
2622.43
21853.62
< TOP >

6.

Financial Health
As on 31st March 2005, BOBs total income decreased by 1.79% from Rs.81,822.32 million in fiscal 2004
to Rs.80,354.35 million in fiscal 2005 and its total expenditure increased by 1.08% from Rs.55,910.73
million in fiscal 2004 to Rs.56.515.69 million in fiscal 2005. The banks operating profit decreased by
8.0% from Rs.25,911.58 million in fiscal 2004 to Rs.23,838.67 million in fiscal 2005. The net profit also
decreased by 28.21% from Rs.10,447.19 million in fiscal 2004 to Rs.7,500.19 million in fiscal 2005. The
net interest income of BOB increased by 16.15% from Rs.26,628.88 million in fiscal 2004 to Rs.30,929.87
million in fiscal 2005.
Operating profit before provisions and contingencies decreased from Rs.25,911.58 million in
fiscal 2004 to Rs.23,838.67 million in fiscal 2005. This decrease was due to reduction in operating profit of
the Parent Company. As a percentage of total income, the operating profit also decreased from 31.67% in
fiscal 2004 to 29.67% in fiscal 2005. BOB has the record of being a consistent dividend payer. In the fiscal
year 2005, the bank declared marginally less dividend as compared to the previous fiscal.

7.

8.

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As on March 31, 2005, BOBs Gross Non-Performing Asset (GNPA) as a percentage of gross advances
was 7.3% and its Net Non-Performing Assets (NNPA) as a percentage of net advances were 1.45%
(considering floating provisions). The bank defines net NPAs as gross NPAs less its loan loss provision,
Deposit Insurance and Credit Guarantee Corporation/Export Credit Guarantee Corporation
(DICGC/ECGC) claims received and held, Amount of Interest Suspense held, Amount of Suit filed sundry
Deposit received and held, and the amount of floating provisions. The bank has kept such provisions for
81.35% of the gross non-performing loans, as on 31-3-2005. As of March 31, 2005, 43.66% of the gross
NPAs were from priority sector advances. The maximum NPAs is in textile and chemicals industries that
stood at 14.86% and 11.86%, respectively, of total gross domestic NPAs as on 30-6-2005.
< TOP >
BOB had been successful in establishing dedicated desks at the specialized integrated treasury branch,
which headed by professionals with considerable experience. Apart from the regular activities of managing
funds and liquidity, the domestic operations of the bank includes handling commercial papers, certificates
of deposits, government securities, treasury bills, bonds and debentures, equities and various other
derivatives along with various other financial instruments. As on 30th June 2005, 39.94% of the banks net
demand and time liabilities consisted of Government and other approved securities; the same day, the bank
maintained 4.82% of its net demand and time liabilities in its current account with the central bank. Both
these figures were in consonance with the RBIs stipulated guidelines. BOBs treasury is the central point
for the market risk management for the bank. The treasury undertakes liquidity management by seeking to
maintain a tradeoff level of liquidity while complying with the Cash Reserve Ratio (CRR) and Statutory
Liquidity Ratio (SLR). Exhibit 5 given provides the details of the allocation of the banks investment
portfolio.
Foreign Exchange Operations
Bank of Baroda has global presence and is thus credited as a leading foreign exchange dealers in the
country. The state of the art dealing room at the SITB, Mumbai, takes care of much of its foreign exchange
activities that in turn facilitate the bank to act as a market maker in both the spot and forward markets and
also in the foreign swap markets. The services offered by the bank include hedging foreign currency risk by
providing forward covers and various other derivatives products. BOB generally enters into foreign
exchange and derivatives transactions for its customers and also on their own account. BOB is also enabled
with the SWIFT mechanism for worldwide inter-bank communication at 97 of its foreign exchange
branches in India and abroad. SWIFT provides international money transfers to be carried out more
accurately and also with greater speed. Exhibit 7 given below shows BOBs Forex turnover till 30th June
2005.
Exhibit 7
March 31,
March 31, 2003 March 31, 2004 March 31, June 30,
2002
(Rs. in million) (Rs. in million)
2005
2005
(Rs. in million)
Merchant Turnover
57,279
17,7860
337,533
417,286 102,960
Interbank Turnover
221,523
953,204
1,440,238
1,691,352 532,962
Total
278,802
1,131,064
1,777,771
21,086,38 635,922
< TOP >

9.

The SITB facilitates the bank in leveraging its arbitrage opportunities and ensures a better risk management
and compliance is in place. BOB focus is on addressing the needs of the priority sector customers and
offers several specialized products and services to them. The rural financial service of the bank includes
provisions of special offerings that extend credit facilities to small and marginal-farmers, agricultural
laborers and also cottage industry entrepreneurs. The success of its services stems primarily out of the wide
branch and ATM network. It also provides latest services like, Phone Banking and Internet Banking. As on
31st August 2005, the banks Indian branch network comprised 1,170 rural, 539 semi-urban, 490 urban and
490 metropolitan branches all of which are either completely or almost completely computerized. Apart
from this, all of its overseas branches are completely computerized. Exhibit 3 given below provides the
summary information relating to the banks operations as at the end of fiscal 2004 and fiscal 2005.

The SITB also monitors the interest rate risk on a continuous basis. The following are the primary
responsibilities that rest with the SITB:

Ensuring that there is complete compliance with the various regulatory and prudential requirements.

Managing liquidity of the bank.

Providing efficiency to the delivery channels.

Occupying a major position in the debt market.

Acting as a major market maker in the foreign exchange market.

< TOP >
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