Life has been exceptionally busy at Yes Bank in recent weeks, so what was meant to be a lunch with Yes Banks Rana Kapoor gets converted into a coffee, though the saving grace is that it is a leisurely one on a Saturday afternoon. If growing the banking business against the backdrop of a weak economy is not tough enough, Yes Bank has also been busy trying to stave off a controversy linked to the nomination of three board directors. We intend to speak about all that and much more.
We decide to get a caffeine fix even before we start the meeting, to shake off any Saturday morning lethargy that may have lingered on. Not surprisingly, the coffee arrives in specially designed cups prominently displaying the Yes Bank logojust one example of the importance given to symbolism at Indias youngest private sector bank. The team talks about the trademark money plants that Yes Bank sends out to clients and business partners as a symbol of sustainable banking and the iron replicas of the Cheetah that were distributed to top management members at the height of the financial crisis asking them to respond to the environment with agility.
Having eased in to the afternoon, we get down to serious business and make our way to the ninth floor boardroom at Yes Banks Nehru Centre office. The boardroom, which has been witness to the successes, trials and tribulation of Yes Bank over its nine-year history, is set to see another critical meeting take place this week as the bank tries to resolve a stand-off between the two promoter families on the issue of board directors.
The controversy came out of left field when Madhu Kapur, wife of late co-founder Ashok Kapur, asked that her daughter, Shagun Gogia, be considered for a board seat. A similar request made more than four years ago had been turned down because it was felt that Gogia would not meet RBIs fit & proper guidelines for bank board directors. Madhu Kapur holds roughly 12% in the bank, just a little below the 13% holding that Rana Kapoor has. The renewed request will now once again be considered by the board on June 27.
As we speak about the issue, the conversation turns to the late 1990s when Rana Kapoor and Ashok Kapur first decided to start the bank. It turns out that the partnership was first formalised almost exactly 15 years ago on July 1, 1998coincidentally, the date for which the next court hearing on the dispute between the two founder families is scheduled. We should be celebrating 15 years of a very successful partnership, observes Kapoor, but moves beyond the emotion to talk about the facts.
Rana Kapoor was the executive leader of the partnership right from the start and so it was only natural that when the bank was started, he took on the operational role of MD & CEO, while the late Ashok Kapur became non-executive chairman. In fact, the division of roles was part of the investment conditions laid down by the Rabobank, which initially held 20% in Yes Bank, we are told. Incidentally, Rabobank earned $400 million on its initial investment of a mere $20 millionan indication of the strong returns made by institutional and retail shareholders in the stock which listed at R65 per share in 2005 and today trades at near Rs 450.
Before steering the conversation back towards banking, we ask whether there is a way of resolving the issue between the two families so that Yes Bank can focus on tackling tougher issues like impending competition from new banks. Thats easier to tackle, jokes Kapoor, but agrees, on a more serious note, that the best way to resolve it would have been family to family. The lesson to be learnt here is that there needs to be significant communication, he says.
Its more than half an hour into our meeting by now, and we are only getting started. A plate of cookies lies temptingly on the table but no one reaches out for one, perhaps because the conversation has been too engrossing. The mood in the boardroom is relaxed and Kapoor is at his animated best talking about what will shape the banking industry and the Yes Bank in the coming days.
The sector is abuzz with the impending entry of new banks and the fear is that new aggressive players may sully the environment for mid-sized private sector banks like Yes Bank, specially at a time when economic growth is sluggish.
Kapoors take on this is slightly different. Once again he takes us back to the years when Yes Bank started operations. At that time, the GDP of the country was about $450-500 billion and the economy was recording growth rates of over 8% on that denominator. Today, Kapoor points out, the GDP base is much larger at close to $1.8 trillion. On a base of that size, even near 6% growth is not bad, he feels.
Against that economic backdrop, the market size is large enough to absorb new banks as well as allow existing banking players to flourish, says Kapoor. He points out that Yes Bank, with an asset book of close to R1 lakh crore, has only 1% of the market sharean indication of the opportunities that perhaps lie untapped, especially at the bottom of the pyramid.
But in a business of risk management, there will be no quick and easy returns and a steady approach will be required. Kapoor compares banking to driving, where changing gears is critical to ensuring a smooth ride. At the same times, he cautions that new banks will need to look for ways to do things differently to make a dent in the market.
For Yes Bank, too, change will remain a constant. The last five years have seen the bank grow at a CAGR of 44-48% in advances, deposits and profit-after-tax, with a return-on-assets of close to 1.5% and a return-on-equity of 22-24%.
Indias youngest private sector bank now has its eyes set on the next leg of growth under its Version 2.0 programme. Where will the growth come from, we ask Kapoor picks up a pen and starts to show us the maths, particularly on the SME sector where the bank intends to focus. The sector, which has roughly 30 million units, accounts for nearly 40% of the countrys GDP and 30-35% of exports out of India. Yet India has no bank that has specialised in SME banking.
Yes Bank hopes to become a comprehensive SME and micro SME bank over the coming years and then use that strength to catapult into the retail banking market.
Banks must also focus more closely on geographic segmentation and the specific needs of different industries and industry clusters, explains Kapoor, and goes on to relate his own banks experiences in serving the grape industry near Nasik in Maharashtra.
Kapoor, a Punjabi born and brought up in Delhi, switches to speaking in a mix of Hindi and Punjabi to narrate the story. You not only need to understand the type of the grapes grown and the growing cycle but you also need to understand that prices of grapes peak only in the months before Diwali when grapes are converted into raisins. You must understand each individual business to advise your client effectively, explains Kapoor. His point simply is that as a bank you must go beyond simply providing a loan and act as money doctor who offers diagnostic, prescriptive and monitoring services.
As the mood lightens, we ask Kapoor what he does to unwind in the midst of a heavy work agenda. He pauses for a moment and starts to tell us that he considers India a dream market for banking where the opportunities are far greater than what you see is most global markets.
We interrupt to remind him that the question was about what he does for fun but he seems to have limited time for fun outside of banking, which he insists is what he enjoys most.
Travel is mostly for work but Kapoor tries to make at least one trip a year with his family to pilgrimage sites like Vaishno Devi shrine. Religion was instilled into him by his mother, says Kapoor, and he has held on to that over the years. The familys most recent trip was to Rishikesh in Uttarakhand, says Kapoor, and goes on to note the tragedy in the region due to flash floods and landslides.
But the ever-optimistic Kapoor closes off by noting, Every adversity is an opportunity. After a short pause, he adds, I promise you over the next week to 10 days, we will show you how Yes Bank converts this adversity into an opportunity, referring seemingly to the recent controversy which Yes Bank is hoping to put behind it in the days to come.