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Feb 27, 2013, 04.27 PM IST
Rana Kapoor, Founder & CEO of Yes Bank believes there are diverse opportunities in the banking and financial landscape of our country and therefore, the new banking licenses must set up differentiated business models to cater to under-served areas.
Given the opportunity to diversify the banking and financial landscape in our country, new bank licensing will have to have differentiated business and financial models
Q: That is because you are not counting restructured assets. This is understated also because you don’t count State Electricity Board (SEB) restructuring even in the restructured assets. We are not counting a large part of what Air India did. I don't think a large mass of investors or even professionals quite believe that number at the moment or the fact that the Indian markets or Indian banking sector is stress free, it is a high level of stress. Yours has ring fenced itself, so, do you think this is possible because this is a tidal wave that is enveloping the economy?
A: I don't think that is rough and tough, it is not that. If one has a good risk architecture, if the systems are proactive, if the origination, the approval process, the provisioning process and most of all, the collection process which is the risk architecture in totality is proactive and responsive, at least I like to believe that every bank depending on their own risk culture can defend itself under the current duress in the market as you point out.
Q: You expect your prorate would be as good as this?
A: We would like to certainly believe that we will maintain gross NPAs around 25 bps and certainly net NPAs below 10 basis points. This has been demonstrated consistently for the last four and half years. We have been through the US crisis, European crisis, somewhat of the Indian crisis also and we are not technically out of some of the crisis.
Q: Stress accumulates, you are able to take it in the first year, second year but then as the stress accumulates, what will you do and I am asking you because I went through your division of assets to various sectors.
A: If you look at it, there is hardly concentration.
Q: Normally what does an investor think? High yield is high risk, high return is high risk, hence the question.
A: There are two parts here. First part is risk is not necessarily accumulative or accretive. Risk needs to be solved as and when it is spotted. So I believe that risk management deserves immediate attention and the pre-emptive derisking and de-stressing. So we are not carrying forward risk in our books because there is no way that the banking system will appreciate that or investors will not be able to recognize that.
On the yield question, we have to recognize that Yes Bank has a 90 percent plus floating rate book. So our yields are also repricing because if you see 2009-10 or 2010-11, our yields were lower than some of the larger private sector banks. As we moved up significantly on the interest rate curve, our loans have also repriced to higher levels.
Second point is that we are predominantly a rupee bank. We don’t have international loans on our books. And international loan yields are lower.
Third point, I hope we prove it in the future, as we have in the last four and half years, the risk culture and architecture of the bank has been tested through fairly severe shocks at a fairly young age in its life cycle. We are less than 10 years old but, we have been through some very deep shocks.
So I believe that the spirit of the bank, the risk culture of the bank should be able to tackle any residual challenges that are there.
Q: Given the weakness that we have seen in general in the market environment, do you see a reason for perhaps being a little cautious in terms of lending? The Net Interest Income (NII) has been growing at 35 percent growth run rate for so many quarters now. Is there a reason that perhaps it will slowdown or you all will choose to slow it down?
A: As we have been in the last two years, we will continue to be cautious well into 2013-14. There maybe green shoots but still we have to be cautious.
The Net Interest Margins (NIM) and NII in our bank to a large extent are accreting now because we are ratcheting Current Account Savings Account (CASA) by 1-1.25 percent sequentially every year, ever since the deregulation of savings rates happened about a year and a quarter ago.
So it is actually the CASA which is truly contributing to our pan India branch network. We are truly a retail bank today with over 400 plus branches. We expect to be about 900 branches by 2015.
It is really the conversion of our corporate customer employee accounts, new customers to the banks who are contributing to the CASA and secondly, there is a retail expansion. We have really revamped our retail asset team or retail liabilities team. There are new sources of revenue which are somewhat less riskier and more diversified.
So both from a revenue, risk and liability formation standpoint the bank is going through a very good phase in its life cycle of transforming and diversifying its risk basket.
Q: What would make the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and you give a 9/10 to the Finance Minister's Budget?
A: I personally believe that ASSOCHAM and Yes Bank have some common denominators here. I believe that the scope for expenditure reduction and switching that expenditure to capital formation, new investment formation is one turning point we definitely want to see in this Budget.
Conversion of physical savings into financial savings, which also is absolutely a stepping stone to the next wave of new growth is another very major signal that we are expecting. The Finance Minister has had two dream budgets in the past, in 1997 and 2003. If he can once again demonstrate that fiscal consolidation and this year if he has hardwired 5.3 percent as the deficit and if he can get to 4.8 percent it is a very good signal for the markets. Moreover, his plan to get around 3 percent or so in the 2018 plan gets hardwired, it is a very good signal for the markets.
The Current Account Deficit (CAD) which is at an unacceptable level will resolve through Foreign Direct Investment (FDI) measures which are not necessarily part of the Budget. But, definitely gold imports through creation of a gold account is something that will happen in this Budget because it is an overdue step and I see the writing on the wall on that one.
So there are three-four things which can be very consequential apart from many good reform measures that have been announced pre-Budget, the implementation of which I believe will make a very big difference in the future.
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