A bank to be positive about?

India’s burgeoning middle classes won’t tolerate a banking service that is anything less than first-rate. But YES BANK founder Rana Kapoor also faces risks from growing market consolidation, surging inflation and tight monetary control from the Reserve Bank of India. Can Kapoor pull it off?

Before launching YES BANK, Kapoor and his team spent a great deal of time analysing the best-of-breed banking competition. Kapoor and the YES BANK team knew they had not only to match current world-class standards but also, in some cases, exceed them. State-of-the-art technology and innovation combined with world-class service.Whether Kapoor’s dream will match the reality is as yet unknown, but with $4.5bn under management and a growing branch presence, YES BANK appears to be on track. But Kapoor knows he has his work cut out. “In the current constantly evolving and dynamic business and macro economic environment, as a young bank, it’s essential to change the business strategy to meet the growing customer demands. The global financial crisis has brought about new challenges faced by the Indian banking sector and specifically to YES BANK. Double-digit inflation rates and tight monitory control by the Reserve Bank of India has forced banks to rexamine their strategy.”

Yet YES BANK’s model appears to be genuinely different and should go some way to supporting its long∞term operational stability. “YES BANK has a well∞balanced combination of banking as well as industry experts,” says Kapoor, “each contributing in-depth knowledge and expertise individually and through collective thinking, thereby ensuring that every solution, product and service works in tandem with the bank’s customers, at every stage of evolution of their business.”

Starting from scratch
YES BANK has had the advantage of establishing its infrastructure from scratch – it is not encumbered with the age-old legacy systems many older banks have to live with. It’s a chance that Kapoor acknowledges doesn’t come along very often. And this opportunity means advantages for both retail and corporate clients, particularly for mobile banking services.

“YES BANK,” says Kapoor, “has gained substantial advantages of deploying the latest technology without investing huge amounts of capital, through an innovative IT outsourcing structure with Wipro Infotech for technology, networking and data centre operations and with e-funds for ATM switching and networking. This arrangement has led to significant reductions in the total cost of operations. Our IT systems and practices enhance the level of convenience, security and efficiency in banking operation.” Kapoor continues: “Our technological platform has helped us support the requirements of corporate and retail clients who access direct banking channels such as Internet, ATMs, Mobile and POS machines for fulfilling their banking, investment and payment needs with a real∞time interface. This has ensured the core IT team concentrated in designing a strong and scaleable IT architectural framework that builds efficiency at lower costs, right down the line.” Meanwhile YES BANK continues to forge strategic partnerships with some of the best-known IT players globally to develop innovative system features in order to improve process efficiencies and create sector-specific banking solutions.

Stupendous growth opportunities
India is currently hugely under-serviced in terms of banking services. A country of more than one billion people has only about 250 million bank account holders. Meanwhile India’s banking industry grows by 15-17 percent annually, versus the 1-2 percent growth rate of European banks. Enormous opportunities exist in Indian banking that simply don’t exist anywhere else: wealth management, private banking, doorstep banking, electronic banking, credit cards, investment advisory services, etc. “The potential for growth in the SME and agriculture sector is also huge,” says Kapoor. “The way forward is clearly through financial inclusion for as many as possible. The pressures on the Indian manufacturing sector are also considerable. Going global means India’s entrepreneurs need to have the opportunity and support from Indian banks to meet their growing needs.”And given India’s booming economy, it’s imperative for new players to expand quickly. Consumers are notoriously slow in moving from one bank to another, even if they are unhappy with the quality of service. Which means it’s critical that YES BANK gains market penetration as quickly as possible. Kapoor knows this and he is acting on it. “We are investing in branch expansion and infrastructure to grow our retail banking and wealth management operations in the country. YES BANK currently has 101 operational branches across 84 locations nationally, 81 offsite ATM’s and two national operations centres. We would like to have 250 branches by September 2010.”

YES BANK has now received Reserve Bank of India (RBI) approval to set up 117 branches and 200 off-site ATM centres across India. At key locations, YES BANK will be opening multi-functional branches with both business banking and retail bank offerings. The remaining branches, mainly in northern and eastern regions, says Kapoor, will be increasingly retail branches providing predominantly retail liability, third-party wealth management and retail asset products.
 
Stability and opportunity
Given increasing money laundering concerns, how regulated is the current financial services jurisdiction in India? It’s a good question considering the financial concerns now raining down on much of the global financial community. The impact of Basel-II regulations, when they are implemented in 2009, will also demand higher standards of governance from many financial players. Rana Kapoor anticipates a mixture of challenges and opportunities from the coming rules, and points to levels of corporate standards that will ensure YES BANK adheres to Basel-II’s challenges. “YES BANK’s robust risk management machinery is specifically designed to scrutinise the exposure of the bank’s key risk areas and measure, monitor and manage them efficiently. The bank has appointed a risk management committee, a board level sub-committee that acts independently and articulates to put in place specific policies and procedures, for managing the credit policy framework of the bank, as per RBI’s guidance note on the same. As per RBI guidelines, the bank has moved to Basel II norms as per the standardised approach to calculate its capital charge.”

Kapoor also foresees a significant amount of capital relief that would be obtained by virtue of lower risk weights being assigned to better quality borrowers. YES BANK, Kapoor says, is assigning a differential risk weight based on the credit worthiness of the borrower as the banking industry gradually migrates towards a risk-based pricing approach. “We believe that risk∞based pricing approach on our current book will provide for an approximately one percent relief on our capital adequacy ratio. Basel II is a powerful risk management tool for the banks. Under the framework banks would be required to provide for more capital for ‘weaker’ credit and also for ‘operational’ and ‘market’ risk. The immediate impact of this is that it might result in increased capital requirement for banks which have credits below certain thresholds. Also it would drive computerisation and technology investment in the banking system as compliance with Basel II norms is very data-computational intensive.”

Furthermore the adoption, he says, of this methodology would result in overall better capital allocation and possibly provide the right environment for integration in the industry. “On the whole I believe this would result in greater innovation and stability in financial markets.”

Responsible banking in action
Rana Kapoor claims the principle of responsible banking and lending is at the heart of YES BANK’s operating model – it’s also one of the key platforms of YES BANK’s objective of developing innovative business solutions to social and environmental matters he says. “YES BANK operates in a Sustainability Zone, where wider economic, environmental and social objectives are met by supporting new emerging businesses. These businesses not only promote financial growth but also social and environmental causes across clients, which comprehensively constitutes the economic pyramid. YES BANK not only makes direct investments in sustainable development, it also leverages its position of indirect control over investment and management decisions of its partner clients, thereby influencing the business community at large. This allows YES BANK to lead by example by aligning itself with broader sustainability goals.”

YES BANK claims meanwhile it has created a genuine differentiated proposition in the cluttered financial services market-space by institutionalising sustainability as a key ingredient in all its internal and external processes, creating customised solutions for client-specific requirements. Kapoor claims this means the company has a proper, detailed approach to responsible banking in thought (providing cutting edge thought leadership) and in action (developing specific banking products and services in line with a responsible banking strategy).

Sustainable investment banking
Responsible banking also means Sustainable Investment Banking (SIB). 

YES BANK has established a dedicated business vertical that addresses the need for specialist investment advisory in sustainable ventures such as Social, Alternative Energy and the Environment. Additionally, the business provides support to several sectors being covered under Carbon Finance, such as:

• Renewable Energy
• Energy Efficiency
• Biofuels
• Carbon Sequestration
• Hydrofluoro Carbons
• Land Use/Land Use Change and Forestry

Looking to the future
YES BANK says branch design and aesthetics have been benchmarked against international standards and championed with the valuable inputs of some of the finest design consultants and architects in India. The result? A modern, classy ambience, ensuring superior service delivery standards unprecedented in Indian Banking, claims Kapoor. Through an intelligent and creative use of design, layout, materials and lighting, the YES BANK branch experience effectively captures, says Kapoor, the essence and values of the brand: positive, modern, efficient, comfortable, vibrant, tech∞savvy, friendly, dependable and transparent. 

Walk through a YES BANK branch
YES BANK’s signage employs advanced international materials, technology and design to create a unique façade. The original juxtaposition of the logo on a background with a ‘watermark effect’ adds a subtle element of depth and draws attention to the signage. Simultaneously, the use of a shaded blue background ensures visibility both day and night.

YES TOUCH, the electronic gateway to the branch, allows clients to bank round the clock. Combining state-of-the-art smart technology and convenience, the YES TOUCH Point has an ATM as well as a Wincor Nixdorf touch∞screen Internet kiosk which truly facilitates 24/7 banking for clients.

As a client walks through the YES TOUCH Point and enters the branch, the first interactive point is the ‘YES for YOU’ desk, prominently placed at the entrance. It encompasses YES BANK’s unique service differentiators, including a dedicated relationship manager for each client, extended banking hours for increased convenience and highly customised wealth management solutions.

The YES Money Plant is synonymous with growth and prosperity, the key tenets of customer promise. The plant has been converted into an extremely successful direct marketing campaign and has also been incorporated in key customer touch-points, such as the debit card and cheque book. All YES BANK Branches have money plants as well as a plaque that conveys the significance of the plant portraying the symbiotic relationship that YES BANK looks to enter into with clients. Given YES BANK’s philosophy of partnering the growth of our clients to prosperity, it is only apt that YES BANK’s mass affluent section be branded as ‘YES Prosperity’. This is an area where YES BANK’s experts engage with clients to provide advisory services ranging from liabilities products to insurance and mutual fund advisory services.

The Knowledge Café  has been designed to cater to our business banking clients. This area showcases YES BANK’s knowledge-based, industry-specific expertise in key growth sectors. It’s an area for discussions, advisory services and information dissemination. The café is also completely wi-fi enabled to allow convenient Internet access and research for our client. This innovative technology has been introduced for the first time in any bank worldwide and is powered by Intel & Cisco technology. 

The YES Lounge is an exclusive banking enclave for the Bank’s YES FIRST, Global Indian and YES private clients. The YES Lounge has a relaxed, premium ambience and has been designed to offer comfort, privacy and intimacy for business and financial discussions. This area is also a wireless environment that should substantially enrich the client experience.

Leadership counts
Phrases like ‘sustainability’ and ‘corporate social responsibility’ are regularly bandied around but Kapoor says the meaning behind them still carries a lot of weight, especially in times of economic hardship when many businesses struggle for investors. “It’s about thought leadership and incubates new business opportunities in the development space through corporate social responsibility and sustainability initiatives while establishing linkages with likeminded players of repute, both locally and internationally. It also actively finds innovative business approaches to development, along with a new set of investors, i.e. the socially responsible investor community as well as community development organisations. The division serves as a specialised resource cell for mainstreaming sustainability into other key business groups in YES Bank.”

YES BANK is the first Indian bank to become signatory to UNEP-FI principals for sustainable development and it remains committed to work with UNEP-FI to influence the financial sector in India and internationally. Additionally, Kapoor says YES BANK is also the first Indian signatory to the Carbon Disclosure Project (CDP). “In recognition of these initiatives at such a nascent stage, YES BANK received the Best Corporate Social Responsibility Practice Award 2007, instituted by the Bombay Stock Exchange and NASSCOM Foundation.”

The road ahead
YES BANK is obviously an extremely ambitious bank. The temptation to partner with a major global player must pass through Rana Kapoor’s mind every so often. Is he open to such a move? “YES BANK is going through a strong phase of growth. The objective is to build a bank of the finest quality. YES BANK wants to create a network of 250 branches by 2010 across the country. It is expected to take another two years to reach that stage when we will become a comprehensive domestic bank with a network of 250 branches. At that stage, we would welcome a strategic partner to globalise the bank. Our model will flourish in its entirety by September 2010.”

More recognition for YES BANK
YES BANK has been garlanded with multiple awards and accolades across product and service categories since its inception. YES BANK was ranked number one for credit quality in comparison to 55 of its closest competitors. It was also ranked overall second and Fastest Growing Bank among Medium-Size Banks from the Business Today- KPMG Survey of India’s Best Banks 2007.

On the technology front, YES BANK has received the much∞lauded Financial Insights Innovation Award (FIIA) for the Most Innovative E-Payments Solution, Asia. YES BANK has also emerged within the Top 10 in the Banking Segment with a ranking of number seven in the annual Business Today-Cirrus Report 2007, which tracks India’s biggest news-making corporations.