BoB leverages outbound M&As for foreign gains

Plans more specialised hubs to help improve lending due diligence and enhance credit quality, says chairman

HONG KONG: Bank of Baroda is tracking the path blazed by Indian corporates on a global buying spree and is expanding its overseas branch network, which already contributes to a fifth of the overall business, its chairman said on Monday.

India’s fourth biggest state-run bank, 53% owned by the government, also plans to set up more specialised hubs to help improve lending due diligence and enhance credit quality, M D Mallya said in an interview.

“A lot of Indian corporates are moving overseas in pursuit of mergers and acquisitions,” he said while in Hong Kong returning from Guangzhou, China, where the bank opened its 72nd offshore branch.

Indian companies have announced nearly $50 billion worth of outbound acquisitions in the past two years.

“Thus we are leveraging our domestic presence to expand our overseas operations and vice versa,” Mallya said, adding the bank plans to open 10 more overseas branches in the current financial year to March 2009.

The new branches will be located in New Zealand, Canada, the US, Uganda, Kenya and Trinidad & Tobago, among other countries, to bring the total to 82 by year-end.

Overseas business, based on the aggregate of deposits and advances, has grown by 50% over the past year and accounts for 22% of the bank’s overall business, Mallya said. Almost a third of total profit is from its international operations.

Mallya said the overseas presence is also allowing the bank to serve international firms which are launching Indian operations, citing the case of Dubai’s Emaar Properties, which has a real estate joint venture in India.

On the domestic front, Mallya said his bank would continue expanding its network of “loan factories” — so-called hubs which would centralise activities such as loan identification, borrower selection and due diligence, for specific segments such as small and medium enterprises.

Mallya said strategies such as these were helping improve credit monitoring and borrower selection and leading to a decline in non-performing loan ratios.

Bank of Baroda is targeting a reduction in its gross non-performing loan ratio to 1.6% by March 2009 from 1.84% in April this year.

He said the bank was optimistic about achieving a 20-22% growth in net profit despite the pressure on interest margins due to fiscal measures announced by the Reserve Bank of India in its fight against inflation.

This year, the central bank has raised both interest rates and cash reserve ratio requirements for banks as it battles inflation of around 12%.

Mallya said profitability would be maintained because of the focus on increasing low-cost current and savings deposits, higher fee-based income and improved asset quality.