‘Penalty for closing bank a/cs isn’t unethical’

No large bank in India has hiked the interest rate on savings bank accounts in recent months. But that has not deterred YES Bank which now offers 7% on accounts with Rs1 lakh and above in balance. Jaideep Iyer, senior president, financial management, talks to DNA about the bank’s thinking behind this move, the struggle behind the bank’s growth and future plans.

You have been gung-ho about your 7% interest rate on savings accounts. Do you think this is the only reason why a customer should come to you?
I would consider the 7% interest rate offering as just another reason for us as a bank to get customers. We have been improving our productivity as an ongoing process, in terms of account acquisitions, and have witnessed a consistently improving trend between May and August because the number of branches has grown and the product proposition has been improving. Our momentum got a spurt with the savings accounts rate deregulation.

A leading private sector bank has introduced penalty charges for closing accounts. Do you think this affects competition since customers may think twice before switching banks? Is this ethical?
Before commenting on whether this is ethical or not, I would construe an act like this as a reinforcement of the fact that YES Bank is making a difference in the market. It emphasises that this (presence of YES Bank in India) is a huge positive for the customer, and one should definitely consider banking with institutions that do not undertake such measures. Theoretically speaking, a bank is free to introduce or increase charges at any point in time. So, if your question is whether such banks are doing something unethical, the answer would be a no. But whether this is a good marketing practice, well, each bank is free to decide.

In an environment where competition is so high, how does a new-age bank like yours grow?
I think the good thing for a bank like ours is that we have a small base. We have managed to grow our current account balances significantly, and leverage on our corporate relationships. Further, we have strong cash management and IT processes in place, which helped increase our focus. But to focus on individual savings accounts can be expensive; and so naturally in the past, we were sub-optimal in our brand perception, image distribution, et cetera, to really go out and hunt down individual customers for opening accounts. Today, when we have an improved value proposition and distribution network, barriers for customers to come into our banks are much lower.

Which are the new areas of business you would be looking at in the coming year?
We will introduce more retail asset products with an increased thrust on retail fee businesses. We will possibly look at getting into portfolio management services (PMS) as well. We have received the RBI licence (for PMS) and should be receiving the licence from the Securities and Exchanges Board of India too. I think asset management is a very difficult business, given that it is not an easy environment currently, so we do not have immediate plans there. And it is probably easier to be a distributor right now. Our first priority is broking and we are waiting for the RBI licence for that.

What were the major issues that banks faced last year?
I think the industry started 2011 with a lot of event risks and uncertainties regarding corruption scandals. A bank can only do financial analysis, but it is hard to predict that a coal project or a telecom project that you financed will receive some personal kickbacks and get involved in a scandal, causing asset quality concerns to banks.