Bank of Baroda’s new CEO looks to cut cost-to-income ratio to 40%

The new Chairman of the Bank of Baroda (BoB’s) has emphasized cost management in order to achieve healthy profits and ensure high compliance standards while growing the book, which will drive business in the bank.

Shortly after taking over as managing director and chief executive officer on July 1, Dipadata Chand, in a webcast to staff, explained his thinking of lowering his cost-to-income ratio (C/I ratio) to about 40 percent.

This is expected to happen in the medium term (about three years), when the benefits of digitization are expected to increase.

The lower the C/I ratio, the higher the efficiency and profitability of the bank.

The Bank of England’s C/I ratio was 47.72 per cent at the end of March 2023, down from 49.24 per cent in FY22. It was over 49 per cent in FY20 and FY21.

The ratio was seen rising after the merger of two public sector lenders – Dena Bank and Vijaya Bank – with BoB Bank from April 2019.

Senior bank executives said that while Chand had moved into the head office at the weekend, he had a fair understanding of the situation since he had been working with the bank as CEO since 2021.

The rise in net interest income certainly helped improve the C/I ratio.

Also, digitization – shifting process-intensive work to digital platforms as a cost management step is starting to yield results.

But these gains will only spread gradually over a period. Hence, it is a medium-term trend, as bank executives have pointed out.

According to BoB research, the C/I ratio of public sector banks as a group, including BoB, was 50.42 percent in FY22, 50.9 percent in FY21 and 50.8 percent in FY2020.

The C/I ratio of private banks is much lower at 44.12 percent in FY22, 41.1 percent in FY21 and 44.2 percent in FY2020.