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BW Businessworld

Pole Position

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It is a hat trick for Rana Kapoor, founder, managing director and CEO of Yes Bank, which, for the third year running, was adjudged topper in the Fastest Growing Bank-Mid Size category in the Businessworld-PwC Best Banks Survey 2011. In the first year, Yes Bank had won in the small bank group, but in the past two years, it has beaten competition in the mid-size category.

The survey measures performance over three years. In that sense, Yes Bank has been the fastest-growing bank over a five-year period in its nearly seven-year history. This reflection of consistency and sustainability is hard to beat. "It could be in the large bank league in the next four years," says an analyst with a leading securities firm.

How has Yes Bank done it? "The major factor is versatility and flexibility in our growth strategy," says Kapoor. "We have done that without compromising on P&L (profit and loss); that can actually change the pace of growth and yet be very much in sync with our strategy."

But moderation is likely. "We were operating in fifth gear in 2010-11,"says Kapoor. "But we will not be driving at 100-miles-an-hour through our entire journey. Speed breakers and roadblocks will slow down our growth in some years." And that is when the bank will consolidate, he says, before picking up again when it spots an opportunity.

Even now, Kapoor and his team are concerned about the deceleration in economic growth and the ‘heightened risk environment'. "In the current scheme of things, we have changed gears from top to middle," says Kapoor. But he is quick to add that the change in pace does not mean a substantial change in their strategy matrix. "We will use different permutations and combinations to get the same result in a lower-risk framework," says Kapoor.

Gears have been shifted in some ways already. There is greater focus on retail banking. Today, retail, and small and medium enterprises (SME) account for 15 per cent of Yes Bank's total loan book, compared to 12.4 per cent in June 2011. The bank believes it has the capital cushion to manage that growth rate. "We believe that capital adequacy should not be below 12 per cent," says Kapoor (the bank's capital adequacy is in excess of 15 per cent).

Somehow, one cannot help but get the feeling that the bank's idea of moderate pace is different from most other banks'. In 18 months, the bank's branch network has doubled to 325, and 4,000 employees; the goal is to have 750 branches and 12,000 employees by 2015. This is part of Kapoor's vision of Yes Bank Version 2.0.

The strategy for retail, SMEs, micro SMEs and corporate banking is being fine-tuned in line with the vision of creating India's "finest" bank in the shortest possible time. Kapoor acknowledges that these businesses grow at different rates. "But the average growth over a five-year period should be at least 35 per cent CAGR (compounded annual growth rate)," he says.

Is the pace worrisome? "One cannot ignore the downside risks — the impact on the bank's return on assets, for instance," says an analyst with a Mumbai-based broking firm who requested anonymity. "They will have to build a savings deposits and core deposit franchise, which has huge execution risk." But, the analyst adds, confidence in the management makes it a stockmarket favourite. To the market, Kapoor's ambition is to have 2 per cent of the country's banking business by 2015.

At the recent Formula 1 gala at Greater Noida, no one appears to have seen Kapoor. It is not clear if he even likes racing cars. But when it comes to his bank's growth, he does seem to be a speed freak.


(This story was published in Businessworld Issue Dated 28-11-2011)