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YES Bank, the best mid-sized bank, is focusing on retail growth

Suprotip Ghosh     November 22, 2013
Retail has become a big part of growth at YES Bank, which started out as a corporate bank a decade ago, dealing in advances to companies and wholesale deposits. In March 2010, it had 150 branches, says Managing Director and CEO Rana Kapoor. With the bread-and-butter corporate banking business in place, it was time to focus on retail. In the last three years, the number of branches has grown to about 500, while employee headcount has more than doubled to about 8,000, according to bank figures. By 2015, it aims to have 750 branches, 1,500 ATMs and 9,000 employees.

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Kapoor says that since 2010, the bank's largest investment has been in retail, both in terms of people as well as products and services. Kapoor calls this YES Bank version 2.0. The mission document targets a balance sheet size of Rs 150,000 crore by 2015 (it was close to Rs 1 lakh crore in March 2013). Version 2.0 would be built on growth, trust, human capital, technology, and transparency and responsible banking.

A major - and tricky - category of retail banking is home loans, which can stretch up to 20 years. Rather than trying to build its own products with its limited experience, YES Bank roped in Dewan Housing Finance Ltd, which has been in the business for some 30 years.

YES Bank tries to differentiate its products and services from the offerings of bigger rivals such as State Bank of India and ICICI Bank. So, for example, it adopted a novel approach to increase the number of accounts.

Two years ago, when executives went to companies marketing salary accounts, they faced a peculiar problem. Companies allowed the bank to pitch its product to their employees, but gave no guarantee that the employees will shift to YES Bank. So the bank came up with an auto-credit service that enables customers make payments such as EMIs from their existing salary account, and then transfer the remainder to YES Bank, where it could earn higher interest.

Chitra Pandeya, Senior President and Country Head for savings liabilities and direct banking, says the bank is focusing on a special seven per cent rate on savings accounts. But while this may attract a customer, it is not enough. And since the bank is much smaller than private-sector rivals such as ICICI and HDFC, its management believes the conventional salary-account approach will not work.

Its focus is slowly shifting from cross-selling products to existing customers, to garnering new customers using the business-to-business-to-consumer model (in B2B2C, two businesses jointly promote mutually beneficial products and services to consumers). So, for example, it is collaborating with partners to provide links on the websites of cooperative housing societies, to help members pay their dues.

Current Account and Savings Account (CASA), the basic unit of retail banking, has risen steadily to 20.4 per cent, from 15 per cent in March 2012. In the quarter ending September 2013, CASA deposits grew 52.5 per cent year-on-year to Rs 13,780 crore.

YES bank has a strong human resource focus. For example, it avoids transferring employees. "Our sales force is oriented towards customers in a particular area," says Pralay Mondal, Head of branch banking, business banking and retail. Deodutta Kurane, Group President for human resource management, adds that the bank prefers to hire rather than outsource. "The employee must feel, 'I have made a difference in the organisation'," he says. "Only if that happens will we achieve retail. Everything else is going to work around that."

It is a delicate balancing act. Siddharth Teli, analyst at Religare Capital Markets, says most retail banks have a significantly higher cost-to-income ratio than YES Bank (a lower ratio indicates better cost management). For example, three large private sector banks with a retail focus have a cost-to-income ratio of 0.40 to 0.50, while YES Bank's is 0.38. Analysts say that as the bank expands its branch network, the ratio will worsen, because branches require capital and people. But a higher retail mix will derisk the business model.

In a tough economy, YES Bank has managed to hold its ground. In 2012/13, its deposits grew by 36.22 per cent, and advances 23.72 per cent. The bank has the highest return on capital employed at 24.81 per cent, and a very comfortable capital adequacy ratio at 18.3 per cent. In September, it raised $255 million in overseas loans to lower its cost of funds. The net interest margin - the money it makes from interest - has risen steadily to 2.57 per cent, from 2.55 per cent five years ago. The branch will remain the key in the foreseeable future. YES Bank is following a hub-and-spoke model to ensure that each branch has only the capabilities that it needs, rather than setting up one-size-fits-all branches. This ties in with the goal of building customer relationships that span the bank's products and services.

Kapoor says that by 2020, he intends that the bank should have evolved comprehensively as a retail bank, and then it will be time for YES Bank version 3.0.

(Follow the author on Twitter: @suprotip)

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