For Rana Kapoor, 7% savings rate is the USP

Yes Bank is one of the youngest lenders in India. Rana Kapoor, founder, MD & CEO, Yes Bank, speaks about how the lender is geared up to stand out in the industry even as new banking licences are just round the corner in an interview with Megha Mandavia and Parnika Sokhi.

We start by going back in time a bit  — to when you got the banking licence. Was that a far better time for entry compared with the barriers of regulation now?

When we got a licence in 2003-04, it was the beginning of a new century, new decade, new economic upcycle, which lasted for almost five years. The opportunity is as good today, because even as the India story may have slowed down, banking continues to be grossly underpenetrated at the retail level. Products such as consumer loans, mortgages and personal loans are a fraction of the market’s potential. So, the timing is better now. What were green shoots in 2003 are larger opportunities now. Yes Bank built a model in 2003-04 that catered to the sunrise sectors of the economy. Therefore, we took on the platform of knowledge banking. If you look at the regulations dated January 3, 2001 for bank licences, I think there would be very few applicants who would qualify. New banks need to respond to the critical need of the Indian socio-economic fabric, which is financial inclusion.

How do you see the landscape changing once new banks come in?
As the finance minister said recently, there should be 3-4 globally ranked Indian banks. The opportunity for being in the top 50 banks of the world is very much in the reach of public sector banks should they consolidate. In the private segment, it is not difficult to grow credit at rate of 1.5-2 times depending on the size.

In case the RBI decides to cut rates this month, would you consider cutting the savings rate?
Given that inflation is stable though still on the higher side, there is an overall macroeconomic expectation that growth needs a kickstart. The best catalyst would be a reduction in the repo rate. Therefore, we have a reason to expect a 50 bps reduction in January-March quarter and probably another 50-100 bps reduction through the next financial year. As far as Yes Bank is concerned, out savings rate (7%) is a unique selling proposition. This is a sticky rate, a fairly medium-long term rate. It is the centre of gravity of a consumer-banking customer as it allows the bank to tap into many byproducts. At 7%, it is not very high, in fact, it is inflation-neutral. The policy rate cut would adjust the fixed deposit rates that are hovering at 8-9%. We will also adjust them downwards as and when such meaningful rate cuts happen. Still, our savings rate would be a substitute to liquidity, transactional management, cross-selling etc. It is a long-term play for us. We are adding a number of features to make it even more attractive.

Wouldn’t it crimp your net interest margins (NIMs) if lending rates drop?
When interest rates come down, NIMs improve, because the adjustment in the cost of funds is sharper than on the lending side. Consumer volumes pick up, which are higher margin businesses. You see much more credit growth at lower rates.

Would unsecured loans still be out of your retail offering?
We are not averse to unsecured personal loans or business loans. If unsecured personal loans are going to employees of our corporate customers, then we know there is a safety net with the employer. However, open market unsecured loans where we don’t have any experience with the client, and where KYC itself is questionable, there we are risk-averse.

Are you planning to originate home loans rather than continue distributing third-party products?
For housing loans, you have to set up a very big back office, literally like a factory. But when you get into strategic alliances, the factory is managed by a strategic partner, and you do the risk and revenue sharing. So, the model for banks like ours and for the new banks would not to set up a factory for everything. We want to be a very good distributor of financial products.