YES Bank, established in 2004, has emerged as a full service commercial bank with a long-term goal of being the best quality bank of the world in India. The bank has maintained a healthy asset quality with strong risk management systems in place and has grown steadily since incorporation. It came out with its maiden IPO of 70 million shares in July 2005 raising Rs. 315 crore at a price of Rs. 45 per share. Its stock is currently being traded at Rs. 380.95 discounting its latest earnings 13 times.
Based on the opportunities seen in the banking sector, the bank, in April 2010, embarked on its next growth phase by launching its Version 2.0, which is about transforming itself from a medium sized bank to a large sized commercial bank. The Version 2.0 is a five-year growth plan from FY 2010 to FY 2015 focused on building scale along with increasing granularity and diversity in both assets and liabilities. The bank had envisioned a compounded annual growth rate (CAGR) of 35 per cent on advances and deposits over the five years along with maintaining healthy profitability ratio like return on assets (RoA) of 1.5 per cent to 1.75 per cent and return on equity (RoE) of 22 per cent to 24 per cent. In this phase, the bank has a target of establishing 900 branches and 2,000 ATMs; increasing the employee count to 12,750, deposit base to Rs. 1,25,000 crore, loan book to Rs. 1,00,000 crore and a Rs. 1,50,000 crore balance sheet size by 2015.
To achieve its Version 2.0, the bank has assumed a relationship-driven, service-centric approach to deliver customised and comprehensive financial solutions to suit the specific requirements of its customers. Its most important objective is to increase the quantum of Current and Savings Account (CASA) deposits and granular term deposits. For this purpose, it has a business-to-business-to-customer (B2B2C) strategy along with a focused target segment approach by offering products according to customer needs. The other objectives of the Version 2.0 is optimal risk management, sustainable or diversified revenue generation, consistent customer service and brand management, finest human capital management, effective cost management and continuous strengthening of systems, controls, processes and procedures.
On the right path
Having completed two and half years of the Version 2.0, the bank is on track to achieve its objectives. It has been steadily acquiring the savings account balances after the savings rate deregulation by the Reserve Bank of India. It was the first bank in the country to increase rates for all savings accounts from 4 per cent per annum (p.a) to 6 per cent p.a. and 7 per cent p.a (on balances over 1 lakh). To popularise the higher rate of return, there was a television campaign undertaken during January 2012 to March 2012. Accordingly, the bank’s CASA deposits grew by 71.5 per cent on a year-on-year basis to Rs. 8,170.2 crore taking the CASA ratio to 16.3 per cent during the first quarter of the current fiscal up from 10.9 per cent for the quarter ended June 30, 2011. “The seven per cent savings interest rate offering has witnessed greater penetration in corporate salary accounts, and other savings accounts especially in key metro and urban areas, which is now being cascaded to semi-urban and rural markets as well,” says Kapoor.
“By the end of September or early October, we will be present in all 29 states,” says Kapoor. The bank is present in 27 states currently. It has increased its branch network from 150 in March 2010 to 381 in June 2012 with 167 branches opened in the latest five quarters. YES Bank has added 387 ATMs to its network since June 2011, taking the total count to 642 ATMs as on June 30, 2012. The bank has also been increasing its workforce at a rapid pace in line with its branch expansion and increasing focus on the retail banking business. It has increased its employee strength from 3,034 in March 2010 to 6,183 as of June 2012, with about 1,800 hired in the last 12 months.
For the first quarter of the current fiscal, the bank’s net interest income has grown by 33.30 per cent to Rs. 472.20 crore while it has maintained a healthy profit growth of 34.30 per cent. The bank has witnessed a growth of 74 .3 per cent in its non-interest income as it has focused on deepening and mining relationships established with corporate companies in FY ‘10 and FY ‘11 and cross-selling them other products like cash management and trade-related products among others.
The key differentiator
Yes Bank has adopted a knowledge-driven approach to lending and has setup teams dedicated to a particular sector. This has not only acted as a differentiator on the lending side but has also helped in identifying stress sectors and being proactive in reducing exposure to these sectors. According to Kapoor, “We have strategised the bank to look at the sunrise sectors of the nation.” He continues, “We are focused on agribusiness, healthcare and life sciences, education, hospitality, infrastructure – particularly logistics and transportation, renewable energy and selectively in retailing and media and entertainment.”
The bank has built corporate, retail and SME banking with a product suite of financial markets, investment banking, corporate finance, branch banking, business and transaction banking and wealth management business lines across the country. “As a bank, we have tried to provide lifecycle products – a comprehensive range of products – which is a not just lending, but a combination of trade finance, foreign exchange, cash management, retail banking, investment banking, growth banking, structured finance and project finance,” says Kapoor. It has launched a full array of retail assets products in the last six months including auto loans, commercial vehicle, loan against property, loans against shares, dealer financing and education loan, among others. It is establishing processes, risk management systems, and partnerships to be able to succeed in this line of business.
The bank’s focus for the next two and half years is to achieve the growth targets chalked out as per its Version 2.0. In the Version 3.0 (from 2016 to 2020), which is about building scale, the bank has a CAGR target of 25 per cent. “Our mission is to uncompromisingly work towards building a high quality institution. In this endeavour, what is most vital for us is to spread quality. Quality filters are best achieved by changing gears. Right now, we are operating between gear two and gear three as against the gear four and five that we were operating two years ago,” concludes Kapoor.
YES Bank’s Key Milestones:
2003 – Incorporation of YES Bank Ltd. in November
2004 – Capital infusion by promoters and key investors; RBI license to commence banking business; first branch at Mumbai and inclusion in second schedule of the RBI Act; launch of corporate and business banking; financial markets business; transaction banking business
2005 – ISO 9001:2000 certification for back office operations; maiden public offering of equity shares by the Bank
2006 – First full year of commercial operations; profit of Rs. 55.30 crore, ROA 2%; foreign currency loan agreement with Wachovia Bank, N.A; raised INR 1.8 billion of long-term subordinated Tier II debt
2007 – Launch of YES-International Banking; selected as a founding member of the community of global growth companies at the World Economic Forum, Geneva
2008 – Raised Rs. 364 crore in a combination of upper Tier II subordinated debt and hybrid Tier I capital from Rabobank; launch of YES COMMUNITY, a Responsible Banking initiative across retail branches nationally; launched Money Monitor – an innovative online aggregation service, powered by Yodlee
2009 – Raised hybrid Tier I capital of Rs. 154 crore; strategic alliance with First Data Corp for convenience ATMs; strategic agreement with PROPARCO to raise USD 20 million subordinated debt
2010 – Announcement of maiden dividend of 15%; launch of Version 2.0 – YES BANK’s next phase of growth; Launch of YES BANK’s north east India and West Bengal operations by the Hon’ble Union Finance Minister, Shri Pranab Mukherjee
2011 – Rana Kapoor awarded BMA Entrepreneurial Banker of the Decade (2001 – 2010); Received ‘Sustainable Bank of the Year (Asia/Pacific)’ Award at FT/IFC Sustainable Finance Awards 2011, London; Hiked savings deposit rate to 7% p.a. and NRE fixed deposit rates to a peak of 9.6% p.a.
2012 – Agreement with IFC to raise USD 75 million subordinated debt