YES Bank can record growth and scale up operations without acquiring other banks, says Rana Kapoor, Founder and CEO. Edited excerpts from an interview with Business Today-
Q: Have you achieved the goals that you had set for yourself as per version 2.0 (of the bank's growth phase)?
A: We are almost there. However, as business in the last five years has been tempered with global challenges, India's own economic troubles, we had to change gears. We had to change gears to decelerate, amend and modulate the business model in accordance with market circumstances. We have 600 branches, investments in people almost crossing 10,000 people now. The goal was to have 750 branches, and we should have 650 branches by March 2015, 1500 ATMs, we should be ending at 1200 (currently 1150). In terms of balance sheet, last quarter we had just about touched Rs 1,20,000 crore. We should be at Rs 1,30,000 crore in the next four months. The overall deposit growth has been good. Most emphasis during this period has been on risk management, because of the heightened economic circumstances, since the macro economics went through a fairly significant adverse change, we had to focus on risk management with some compromise on growth, some adjustment in overall revenue, accretion. Naturally we had to keep our investments going in branches. Even ahead of the deadline we are present in all the 29 States, we are also present in seven union territories in the country. So, our brand is now competing with brands which are 25-30 years old in the financial services. We are just about 10 years old. The outcome is better than what we had anticipated. The quality of the bank has become the single biggest strength in Indian banking. Our teams are seasoned , as in their 10 year lifecycle, they have seen the US shocks, the domestic economic challenges, so the team has held together, matured together, overcome the challenges together, therefore, they have really grown as a team.
Q: Is there a version 3.0 on its way?
A: The version 3.0 will begin in April 2015 and will continue up to 2020, by which time we will be 16 years old.
Q: What kind of targets are you setting for yourself in version 3.0?
A: When we started in 2004, we started literally from scratch, from the drawing board. Version 1.0 took the bank from zero to the largest small size bank. Despite the tumultuous challenges, between April 2010 and till now we have emerged as the largest medium sized bank, far ahead of other mid-sized banks, who are on an average 40 to 50 years old. But the good thing is we are the largest medium sized bank. As we enter Version 3.0, we will be the smallest large private sector bank. As the smallest large private sector bank, naturally our aspiration is by 2020 to evolve as one of the medium-large private sector banks by March 2020. It is definitely possible, because if the policy environment, public and social policy environment is favourable, if its accompanied by improvement in the macroeconomic environment as is largely anticipated, then as a relatively young agile bank, which is nimble, we can gain a lot of mindshare and lot more market share in this phase. So, we should be a good medium-large bank by 2020. We will still be only 16 years old. Sweet 16.
Q: Do you think the new government is walking the talk? How do you see the macroeconomic environment change?
A: India needed shock treatment, so, this has been a pleasant shock treatment so far. So, through very energetic, positive communication the business confidence and resultant conviction has really improved. It is very important, in any economy, especially in an emerging economy such as ours, the atmospherics should be very positive. I would say India is in an interesting stratosphere. It is a stratospheric change which has happened in the last six months, as that motivates people to take positive directions. Secondly, the ball has started rolling, gears have started changing as far as the economy is concerned. Is it consistent across all industries? The answer is not yet, but some industries for sure. There was a complete deadlock in infrastructure and you can sense that we are coming out of the deadlock and we are taking some baby steps to move that with positive energy. My sense is we are heading into a good economic situation and the government is walking the talk and is also willing to run the talk.
Q: Are you open to inorganic growth? Kotak has recently acquired ING Vysya, would you be looking at acquisitions?
A: We are today larger than them as a bank. To answer your question, YES Bank's model is versatile enough and is a pure banking model. As a pure bank model when the economy steps up we can grow much better. We can grow at around 27-30 per cent quite easily. Purely as an organic play, as an organic outcome, adjusted for the changes over the last two-three years. My point is, as the economy improves, a bank like ours which is the new basket of growth, because ours is a basket of India's sunrise growth, as our sectoral strategies are knowledge driven, banking strategies have been driven by new sectors, not necessarily by matured and saturated sectors. So, we can grow at 27-30 per cent, hence, there is no compelling reason for us to look at acquisitions. However, there are some interesting opportunities, if they come in retail mutual funds management, if they come in the retail consumer lending portfolio or in SME lending portfolios, we would be more than receptive to evaluating opportunities.
There are enough banks in the market place where there is a consolidation opportunity, the point is why do you merge? You invariably merge for growth and scale, our model allows us to achieve both organically. At the same time it allows us to keep the HR (human resources) filters, as homogeneity of HR in banking is important. Homogeneity of systems is extremely important, then uniformity of culture as in the HR culture and ethos are extremely important. So, there are certain benefits to the organic model, as you can have the risk filters, quality filters, the brand filters and most importantly the HR and systems filters. Yes, it may seem like being fashionable to do M&As, but the fact of the matter is in the business of risk you also need to have lot of controls, because sometimes when cultures mismatch it can be a bitter experience. So, one needs to be cautious about M&As.
Q: What's your take on the new bank licensing policy?
A: There is a huge consolidation opportunity within public sector banks. It will be more efficient from a capital standpoint, from a human resource standpoint, from a risk management stand point and naturally the government can benefit significantly. We have 26-27 public sector banks and there is a real opportunity between public to combine regional strengths and merge them.
The second opportunity is for new private sector banks to merge with approximately 15 old private sector banks. A lot of the old private sector banks have chosen to remain very regional or very community driven. They are very restricted in their operations even though they enjoy a pan-Indian banking license.
As far as new licenses are concerned, I am not very sure if there is enough HR talent, risk management, because it adds to lot of systematic risks when you start to look at Greenfield banks. So, it is probably better to look at an existing operation converting into a bank as in the case of IDFC or Bandhan, as I think it's a better decision for those to become banks. But it takes very long to build a Greenfield bank, it could take 10-15 years, which is why RBI's policy is a good policy that gives opportunity to build small banks. In the small banks space as they develop, I am sure there will be consolidation between small banks to become medium banks, as has happened in the US and in parts of Europe. To allow specialized telcos and specialized players to enter the payments business subject to validation of the business model is also a good decision.
Q: How would it affect your business?
A: The most difficult phase in the establishment of a bank and I think we are the only Greenfield bank in India today which has remained organic, which started without a brand. The most difficult phase in the establishment of a bank is the zero to small phase, slightly less complicated phase is the small to medium phase, but as you build scale, market share and mind share with the brand, the scalability of the brand comes. The economies of scale start coming in, so we are not seeing impact of any of these. When we started in 2004, we had no impact on a HDFC bank or ICICI Bank, they have grown well so have we. I think there is enough space, enough latent demand for specialised players, sectoral and regional players, payment banks which are product driven, also, any new banks, which are more specialised. There is specialisation required in banking. We need sectoral specialisations, sectoral regulators. So, banking models are transforming rapidly as the economy also transforms. So, a bank like ours, we are seeing ourselves at an inflection point, at a sweet spot in our lifecycle. The demanding years of our lifecycle are substantially over, we are at the inflection point, where we are all set right now, with economic improvement to straddle the bank from a medium bank to a large bank. So, we are making the entry from a medium bank to a large bank category.
Q: Where are you in terms of digital banking?
A: We are the pioneers of digital banking in India. We have been the most innovative bank not just in social media but also all forms of alternate channels. Our Yes Money product, our payments product, our cash management and ERP solutions for example. Our branches have been smart branches from the very beginning. Our ATM centre is also like a smart branch. If you enter one of our branches, just the ATM, the entry point, is a smart branch. Then you go into the main branch. When the main branch closes in the evening, the smart branch is still on. If you see the roadmap of any of our branches, the first centre is the smart centre, and from there you go to the Yes For You Desk which is like a concierge. then you go the lounge centre of the bank. We are the fastest growing financial brand on Facebook and Twitter. We are the second fastest growing financial brand on Twitter worldwide. The bank's resonance attracts lot of social media, therefore, we are seeing lot more eyeballs coming into our web site, lot more Internet-based transactions coming into the bank. We see a lot of NRI transactions as we are a hardcore Indian bank. We are attracting lot of eyeballs in the areas where NRIs are present worldwide. We are also putting lot of our events on YouTube.
Q: Can you tell me about your retail banking initiative?
A: We are at 600 branches today, but at a 500 cut off we have become a full blown retail bank. The cut off in our case was 500 branches and 1000 ATMs and of course about 7,000 people out of the 10,000 people are working in retail banking. 70 per cent of our human resources in the bank are deployed in retail sales and services. Yes as a retail brand itself is beginning to resonate, and our strategy has been prioritising retail liabilities, our single biggest USP as a bank has been the combo rate we have been giving on savings accounts at six-seven per cent. That has been a key differentiator, accompanied by service and good quality assurance, good turnaround time to our customers, also offering alternate channels to our service. Liabilities as in deposits has been a very big focus area for us. We are doing mortgages in alliance with others and credit cards we are doing in alliance with American Express. So, technically speaking we are a full service retail brand. We have got all forms of consumer loans, SME loans, micro SME loans, so the bank has been building its product strength in retail. While retail is still one of our smallest businesses, around 17 to 18 per cent of our total business pie, given the impetus we expect this to be our single largest business by 2020. We expect retail on the loan side to be roughly about 40 per cent including SME and the liabilities side it should be 60% to 65% by the time we end version 3.0. The single biggest focus area in the bank, is to build a granularity, to build diversity, as I mentioned to you our footprint covers all 29 states and all the union territories. We have 15 regions in the country, we have 75 clusters in the country. We just need to build momentum. We will introduce our own credit cards in the next 12-18 months. We have recently introduced retail internet broking with Yes Securities. If all gives well, in the next 12 months we will introduce mutual funds as well. So, there is a lot of retail augmentation, retail acceleration in the bank.
We want to become a brand with not just the largest market share but also mind share. Today our markets share as a brand is approximately 1 per cent of domestic Indian banking, but the fact is that our mind share is a lot more. So, with the intelligentsia, we command much higher mind share. The biggest opportunity for us is to convert the mind share into far more market share. Unless you get market share, you can't demonstrate growth. Our target would be to get to at least 3.5 per cent market share of Indian banking by 2020.