Steady Ascent

In the unforgiving world of banking, YES Bank has been upping its competitive ante. Till recently, it was focusing on the corporate and commercial lending side of the business that has seen it rake up a balance sheet size of Rs 1.36 lakh crore in merely 11 years of operations. Even as this Mumbai-headquartered bank is rolling out its retail banking products for its next phase of growth, this mid-sized topper in the BT-KPMG Study has also seen an all-round improvement in its financials.

YES Bank's chief, Rana Kapoor, is quite sanguine about the future as he plans to increase the retail banking pie one step at a time. He says, "There is a tremendous growth projection for retail and consumer banking in a steady manner because this is not a business where you can grow and get millions of volumes, but one that is driven by a very concerted, laser-focused strategy. We are ensuring that we have an array of products in our retail bouquet, as they are complementary to savings in our country."

YES Bank, started by first generation entrepreneurs, is a late entrant in the retail banking space, which is a cash guzzler, requiring thousands of branches, a well-established brand and an army of people. But the bank, with 18 per cent retail portfolio, plans to catch up real fast. To scale up its retail book, YES Bank is launching its credit card business in April 2016, rolling out a fund management arm to provide investment options for retail customers. A suite of retail products is needed to complement its retail brokerage business launched last year. Will it manage to ramp up its retail operations just as quickly as it did its commercial business?

Kolkata-based United Bank of India came under the RBI scanner two years ago for its deteriorating asset quality but now appears to be on the mend. P. Srinivas, MD and CEO of the PSU bank, is tackling NPAs differently. In 2015, he visited several regions where the bank has a presence and worked out strategies to boost productivity. Weekly review meetings are conducted to spot 'probable NPAs'. "We are monitoring the situation in such a way to ensure that slippages come down," says Srinivas. NPAs have already come down to 8.9 per cent in September 2015 from 10.78 per cent in September 2014. The bank reported a net profit of Rs 256 crore in 2014/ 15 as against a loss of Rs 1,213 crore in the previous year. Its cost to income ratio has improved - down to 0.43 per cent from 0.45 per cent in 2013/14. The bank credits its encouraging performance to higher fee P. Srinivas income and trading gains. It has also reduced its reliance on high cost deposits.

Some of the problems of stressed assets in banking cropped up five years ago, and YES Bank has been able to avoid those because of its smaller balance sheet. When Bhushan Steel sought term loans around five years ago, YES Bank was not a lender, although the bank financed working capital loans to the company. This allays the worries of refinancing. Taking corporate disclosure levels one step further, the bank has begun the practice of providing a detailed break-up of its exposure to sensitive sectors, which analysts believe is a positive step.

But somewhere the message is lost on investors. The market is not assigning a high price-earnings multiple to YES Bank (PE 12.75), as it has given to some of the marquee names in the private sector with low stressed assets. A fierce boardroom battle with Madhu Kapur, the widow of YES Bank's Co-founder Ashok Kapur, last year, has not helped market sentiments either. The challenge is to restore the confidence of the market in the growth rates of the bank.

Kapoor, though, is not perturbed as the bank is busy rolling out the next stage of growth and aiming to become a large-sized bank. He believes that the bank has navigated the stress in the economy quite well in the past four years, starting October 2011, and that will stand it in good stead in the coming years. But challenges will come from many quarters.

Deven Choksey, MD, KR Choksey, considers YES Bank to be among the better-placed banks. "It has been having some issues in terms of cost of borrowing, as it is paying higher on savings deposits. But it will get rationalised. On April 1, when marginal cost of lending comes in, banks that are retail focused will be better off as borrowing costs will come down over time," he says.

Improvement in the position of the YES Bank franchise in the retail segment is being watched by analysts for signs of rapid ramp-up. The question, however, is how soon can the bank actually ramp-up and transition to a large-scale bank? "We have practically ended our innings as the largest medium-sized private sector bank," Kapoor states. "We are aiming to be in the large bank category by March 2020." The competition has just begun.