A Star Indeed

If yes bank were to be summed up in a sentence, it would be — Yes, it’s unlike any other bank. Just open YES Bank’s annual report on its first full year of operations (2005-06) and you will find what Rana Kapoor said: “Our vision is to build one of the ‘world’s best quality banks’ in India.” Note the stress on “quality” and the orbit the founder, managing director and CEO of the bank aspired to be in: “One of the best” on the world stage.

Now it is not known if Kapoor has a penchant for drama, but if you were to open the early annual reports of any other new-generation private banks which set up shop in the country after the 1991 liberalisaton, you are unlikely to come across a sentence that sums up its ambitions in such clear terms. “World-class” perhaps, but that’s about it.

And for a bank which places so much emphasis on quality, the fact that it has grown at such a fast clip again makes it unlike any other. Conventional wisdom says there’s a trade-off involved between quality and hectic growth — for any firm. We will explore this aspect in detail. But first things first.

Yes Bank is the Fastest Growing Medium-size Bank in the BW Businessworld Best Banks Survey 2014-15; it beat all in its peer group hands down. In a tough year, it grew its balance sheet to Rs 1,36,170.40 crore at end-March 2015, up by 24.9 per cent in 2014; advances stood at Rs 75,549.80 crore, up by 35.8 per cent in 2014. And this growth rate is not the result of any “fillip” provided by a low base. Look closer: the run-rate under both heads (growth in the balanced-sheet and in advances) are almost double the secular growth in credit for the banking system.

In the annual report for 2014-15, Kapoor speaks of the multiple initiatives aimed at readying the bank for accelerated growth, with a focus on action and quality to achieve size and scale as a large bank in India. It has achieved critical mass and momentum with 631 branches and 1,194 ATMs. “We have invested significantly in offering ‘digital banking’ services while continuing to ramp up our existing branch network. We believe that the future of banking lies in establishing a ‘DIGICAL: Digital plus physical’ infrastructure,” he says.

So How Does YES Bank Do It
The fast pace in book growth has not resulted in an explosion of dud loans at the bank. That’s the trade-off we alluded to earlier. Both gross and net non-performing asset ratios were in decimals — at 0.41 per cent (up from 0.31 per cent in 2014) and 0.12 per cent (up from 0.05 per cent in 2014). Of course, if you are the kind who quibbles, then yes, NPAs were indeed up — but in decimals!

Explaining how the bank handles credit, Rajat Monga, senior group president of YES Bank, says, “First, there’s the mathematical advantage of fast growth — the NPA ratio tends to be lower.” What’s suggested here is one has to view the growth in advances over a longer period — say three years — and then look at current year’s NPAs. It’s legacy that rears its head in the current.

Ask Monga how come others run up NPAs while lending to much the same folks in India Inc., and he notes: “It’s how you structure a deal that matters; not the name you lend to.” What YES Bank has succeeded in is tailoring its offerings to suit clients, whichever be the universe they reside in.

The bank terms it the “Money Doctor” approach — given the high-growth nature of its clients, it balances their needs with the bank’s risk strategies and offers a customised product suite. As on date, the bank interfaces hugely with what can be termed the “Knowledge sectors” — media, telecom, hospitality, travel, aviation and renewables, to name a few.

Lending to these verticals is not quite the same as doing so to a large manufacturing company. Take aviation, for example. The bank has exposure to the sector, but no dud-loans on account of it. It has secured against an airline’s ticket sales. Contrast this with how some of our state-run banks have crash-landed their loans to the sector; and you get the drift. That’s because most banks lend largely based on collateral — it’s not necessarily a bright strategy. YES Bank can teach them a few lessons.

For what’s gone below the radar is that the bank has not been gung-ho to get into banking consortia. One, the bigger state-run banks get to call the shots in such arrangements; and second, it leads to a certain line of thinking. Says Monga: “… expecting others to solve your problems”. He elaborates: “Either we lead the financing and help syndicate, or we are into bilaterals.”

Kapoor mentions in his annual report that the bank is keen to establish itself as the ‘finest large bank’ in India. Is it an indication that it’s on the lookout for a suitable target to acquire?
Not really. If you were to look at all major private banks in India, two in particular took the inorganic route to grow — ICICI Bank (inclusive of a reverse-merger with its parent, ICICI) and HDFC Bank. But if you were to net the gains due to this (and its not to suggest acquisitions are undesirable) no green-field bank has put on the kind of bulk Yes Bank has in its 12-year journey so far. Point is if your regular run-rate helps you to put enough runs on the board, why mess it up by going in for a fancy shot?

Yes, we say: YES Bank is unlike any other!

raghu@businessworldin; @tabonyou

(This story was published in BW | Businessworld Issue Dated 08-02-2016)