While YES Bank has no plans to go back on its 7% interest rate offer on savings bank accounts, it is trying hard to quickly broaden its retail banking business, says Rana Kapoor, MD and CEO. With the sector gearing up for new players, Kapoor feels existing banks should focus on building significant infrastructure and finding the right talent. In an interview to Vishwanath Nair, Kapoor says his bank is now focusing more on cross-selling engagement builders to strengthen its base. Excerpts:
The 7% rate on saving bank accounts has helped YES Bank garner deposits. What else could help the bank grow?
The 7% rate has really worked well for us. It has helped us get a foot in the door to the HNI customer base and has demonstrated brand benefits to retail customers. While we expect this growth momentum to continue and have done a significant amount of work in building a world-class branch and automated teller machine (ATM) network, we are now focusing more on cross-selling engagement builders such as retail assets, broking, wealth, trade, forex services and cash credit limits. That will help us upsell into becoming a customer?s primary banker.
Do you think the banking regulator’s new set of guidelines to manage stressed assets will help?
In our opinion, this regulatory development is essentially institutionalisation of early warning signals and proactive risk management systems within banks that need strengthening. We at YES Bank have been practising such a dynamic, growth-cyclical risk culture for the past several years. This circular shall make problem-account resolution a day-to-day business for banks, and is expected to also discipline erring customers.
How do you plan to grow the retail franchise and which segments are you focusing on?
The bank?s retail customer acquisition and book growth parameters have shown consistent growth. We specifically focus on the self-employed, micro, small and medium enterprise and merchant segments for current account and trade forex growth. Salary and HNI segments continue to be the cornerstones of our approach to savings account and retail fixed deposit growth. We also look forward to leveraging our recently received representative office licence in Abu Dhabi to propagate our global Indian banking proposition for NRIs.
Which are the other lending avenues in a weak macroeconomic environment?
One of the key manifestations of the weak macroeconomic environment in the recent past has been a substantial decline in the value of rupee vis-?-vis the dollar. Over the last two years, the rupee has depreciated by approximately 27%, with 14% weakness attributed to the sharp volatility observed in 2013 fuelled by the US Fed?s tapering-related concerns. The currency weakness has improved India?s price competitiveness for exports. This has also coincided with a revival in global demand, led by developed economies. As such, sectors like IT, pharma, textiles, hospitality, would present opportunities for higher growth.
With the formation of the new government in Q1 FY15, some of the brownfield infrastructure along with manufacturing related investment would start coming on board. With inflation expected to stay at moderate levels, such avenues will also add to incremental growth opportunities for the banking sector.
Deposit growth has been weak. How do you think banks can manage the high cost of funds?
Sluggish deposit growth in the banking industry is a reflection of slower momentum on economic growth….We should keep in mind that deposits and advances grow in tandem in the Indian banking system. The cost of funds has been high owing to tight monetary conditions in the economy. Once inflation eases and consequently interest rates fall, there would be an improvement in the cost of funds as well as in growth momentum.
In a matter of months there will be a set new banks. How do you view the competition?
The recent proposal of setting up exclusive payment banks and wholesale banks by the Nachiket Mor committee is a step in the right direction and would be complementary to the existing banking infrastructure and would optimally utilise the distribution network and lending skills of the existing non-bank service providers. It will serve the country well to have more players coming in the banking sector.
However, existing players have already reached significant size and scale and new players will require considerable time before they can catch up. Banks under the regular licencing structure would be facing challenges as they would be have to build significant infrastructure, product diversity, while providing for financial inclusion and CRR/SLR reserves. New banks would take at least 8-10 years to be meaningful competitors to existing banks. Rapid growth in the banking space is generally followed by periods of higher risk, hence new players may not expand rapidly in a meaningful way. That being said, the main risk for existing well-established banks with new banks coming in would be the hunt for talent. YES Bank has been able to attract and retain top quality talent through an owner-partner-manager model coupled with a sum-of-parts compensation structure, including significant equity participation.
It’s possible new banks will recruit from incumbents. Is YES Bank offering employees any incentives to retain them?
Human capital is the main and real source of sustainable competitive advantage in today?s times. The challenge, therefore, for any organisation is to attract, engage and retain high-quality human capital over a long-term period. The best way to retain and nurture stars is by offering them meaningful and challenging work responsibilities that provide continuous learning, growth opportunities, recognising and rewarding their contribution. We adhere to a credible and transparent performance management process that helps in aligning individual goals with corporate objectives.