Yes Bank was the last greenfield bank to get RBI licence in 2004. After five years at the helm, Rana Kapoor, the only founder and managing director currently in Indian banking, tells DNA that the bank is now poised to shift gears.
What do you think is the biggest achievement for the bank in the last five years?
The top achievement is building a strong asset while ensuring a relatively strong financial structure, consistent profitability and a steady growth in advances and the loan book. The robustness of our financial model that has been proven in the last five years is definitely an achievement.
We have built a team of around 2,700 people. Our human capital principle is to evolve as the ‘professional’ Indian bank. In the absence of a institutional sponsor, we think this is a achievement for the bank.
Our technology, payment and settlement systems are state-of-the-art. These things are taken for granted, but when you build something from scratch, this itself is a considerable achievement. Our mission is to become the best bank in India by 2015.
But that’s 2015… in the next one year what are the priorities?
We are a young bank with a total balance sheet base of around Rs 22,000 crore. We have three milestone points — March 2010, March 2012 and March 2015.
For the nine-and-half months of this fiscal we will stick to a strategy of positioning the bank strongly for the upturn. We are targeting a Rs 40,000 crore balance sheet size by 2010 from the March 2009 level of Rs 22,900 crore.
What are the indications from the first three months of the new financial year? What are the challenges for the year?
In the last 6-9 months, to preserve asset quality and capital, we sacrificed growth… it was more of consolidation. We are now changing gears to make sure that we build a very sustainable reservoir of long-term deposits. We are ensuring sustainable revenue growth.
Another thing we are investing in is human resources. We are in the process of hiring 500 people by September and this is a key component for our growth strategy. We expect to hire another 400 mid-to-junior level officers in the second half of the year to take our aggregate strength to 3600 by the end of this fiscal. About 60-65% of the new recruits will be in branches.
Why this hiring now?
We will open more branches. It is our plan to have 250 branches by December 2010 from 117 now. In this period we should be hiring people. We fortunately see a scenario of 7-7.5% growth coming back in the second half of the year.
We have achieved critical mass with our network and human resources. We think we should grow in this market especially at a time when there is an overall compression of credit by foreign banks. Some private sector banks are also going through introspection. For a no-legacy institution like ours, there is a distinct growth window. If we are able to grow at 35% on average, we can increase our balance sheet to Rs 1,50,000 crore ($30 million) by 2015, which means a loan book of Rs 1,00,000 crore.
Last year was tough for you because the price of wholesale deposits was sky high. Now, as these rates have come off substantially, how are your margins shaping up?
We believe that, with 100 branches in the last five years, we are larger than the largest foreign bank in India. The experience that we are providing is better than any foreign bank here. We have our home country, hard core Indian model.
After a point, the branch network itself gets very Casa friendly. Now we have critical mass to build our Casa deposits. Earlier we were at a stage of building up our bread and butter earnings.
About the other thing that you mentioned — wholesale — please remember there is nothing called ‘wholesale’ in India. In India deposits generally have a strong relationship character. So, whether they come from bigger companies (which means larger relationships), mid-size or smaller relationships, they are mostly recurring. So even through the challenges of 2008-09, our deposits actually grew by 29%.When interest rates become benign, generally, bank deposits grow faster. At 9% Casa we are at 2.9% NIM, which can actually improve. As we build more Casa, and if we take it to our goal of 25% by March 2012, we expect a NIM of 3.75-4%. That is the potential of the branch network, which is why we are still investing in people.
Last year also saw a lot of high-profile exits from your bank. What was the reason for this? Also, in the current scenario, is competition for people a challenge for your bank?
I think our single biggest strength is our people and I dare to say that we have by far the best management team and execution platform at all levels. Our execution skills have been developed on the job. In a bank, the most important thing is execution. With the strength and demonstrated skills of people, we will execute better and better. Now that the ecosystem of the bank is in place, the relatively easier part is execution like building deposits, sustainable revenue.
But aren’t you more susceptible to poaching than other banks in India?
Our professional character actually allows us to attract some of the best talent in the country. Our recent attempts to hire management got almost a couple of thousand applicants only through HR networks. And, as we stabilise, our ability to track people will get better. The people on board, who had taken up positions vacated 12-18 months ago, have done even better. To me that is the key.
The SME sector bore the brunt of the current economic crisis. What is the bank’s exposure to the sector? Is the worst over for the sector?
I think the worst, give or take 1-2-3-4%, is definitely over. Our exposure to SMEs is small (at only 6.7%). We define SMEs as companies with a turnover of up to Rs 100 crore and we see great opportunity in these. A lot of our branch banking will thus revolve around small businesses.
Last week one of your investors Rabo came out and said something…
I don’t understand why this is big news. The capital is already in. To give you a formal response, I have a formal answer from Rabo on this. Rabo has the fullest intent to remain invested in our bank. They have been an NBFC since 1998…. They are an important financial investor and have stood the test of time…last year they gave us $85 million, of which $80 million was 15-year upper Tier-II, $5 million was hybrid Tier-I. They have also given lower Tier-II of Rs 100 crore in the past. So they have given Rs 360 crore of 15-year money and Rs 100 crore for seven years.
About a year ago, you had said that you were scouting for an acquisition. Do you think there is till something there to be acquired?
There was a time when there could have been an attractive possibility. But under the present circumstances, we have realised the importance of quality of growth — asset quality, revenue quality, deposit quality, systems, control, brand, service etc.
Our model is best grown organically. We have time-tested and proven skillsets to build the model organically. The days of big banks are gone and ours is an India-centric strategy, which we believe we can build on our own.
What’s the outlook on fee income?
Our fee income model has achieved a 50% fee to total income ratio till March 2009. We want to maintain it at 45% till 2012. Our fee income model is very diversified. It had a high treasury contribution two years ago, but that has got adjusted through the development in other revenue lines.
How is your asset quality shaping up? What is your outlook?
As of March 31, we had net NPAs of 0.33% and it will only get better. Our NPA ratio of 0.5% will be a steady straight average. In the medium term, gross NPAs should stabilise around 0.5% and net NPAs should stabilise around 0.25-0.3%. We are not seeing any spikes going forward.
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