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Illustration: David Manion |
Rana Kapoor is relaxing in the main offices of the London School of Economics when we meet. It is the day after the UK has voted in a referendum to leave the European Union – a decision he believes will prove to be good for both the UK and India – but at the moment he has other things on his mind.
Yes Bank, the private-sector lender he founded in 2004 and still oversees as its managing director and chief executive officer, has pledged £1 million to the LSE to support the IG Patel Chair, named after the man who saw the Reserve Bank of India through tough times in the late 1970s.
His daughter Roshini is set to graduate from the London Business School and, like a good father, he wanted to celebrate in person. After our meeting, he will lecture at the LSE’s annual India Forum, extolling the virtues of the world’s fastest growing big economy.
Then there is the Euromoney award he will receive at a ceremony at the Tower of London. Yes Bank’s nomination as Asia’s best bank for corporate and social responsibility in Asia for 2016 was well earned. Last year it became the first Indian lender to issue green infrastructure bonds, and it is helping to mobilize $5 billion to combat the impact of climate change. Other ambitious plans include improving drinking water for 100 million people and financing 5,000 megawatts of renewable energy projects by 2022.
If that all sounds rather un-bank-like, it is probably because neither lender nor founder quite fit the industry mould. Kapoor has to be prompted into talking about his chosen profession: “To be honest,” he says with a rueful smile, “banking is a bloody boring business.”
At times, his patter borders on the near-spiritual. He effuses about his bank’s “mission in life”, and of the “divine intervention of building a bank from scratch in a very complex environment where strategy is not easy to consummate.” Building a bank from scratch, he adds with a gentle wag of the finger, “requires a lot of cosmic forces.”
Beneath this fluff, though, is a hard-headed business mind. No one gets a licence to open India’s first new private-sector lender in a generation – as Kapoor did in 2003 – unless they are a deep thinker, an expert salesman and very good at their job. Yes Bank was formally launched in 2004 and listed on the Bombay Stock Exchange a year later at Rs65.9 ($0.99) a share. Its stock closed on July 14 at an all-time high of Rs1,169.25, up 61% year-to-date.
In that period Yes Bank has been transformed, rising to become the country’s fourth-largest private lender. It controls 1.5% of India’s Rs81 trillion banking industry (which is on track, KPMG reckons, to be the world’s third largest by 2025) and Kapoor wants to boost that share to 3% by 2020.
Net interest income jumped 31% in the year to the end of March 2016 to $684 million, with net profit up 26.6% to $380 million. Levels of advances, shareholder funds, deposits and assets all rose strongly, while non-performing assets as a share of total assets stood at 0.76% at end of March, compared with an industry average of 7.6%.
Standout
It is hard to overstate the scale of Kapoor’s success. In a country flooded with financial institutions (26 national-level public banks, 25 privately-run lenders, 56 regional rural banks, 1,589 urban cooperatives, 93,550 rural coops, not to mention thousands of non-bank lenders), Yes Bank consistently stands out from the crowd. It coated its branches in eye-catching blues and reds and was the first domestic bank to roll out a truly user-friendly transactional website.
Unsurprisingly it has also become a social media pioneer. Yes Bank boasts 3.55 million Facebook ‘likes’, against Axis Bank’s 3.22 million and Kotak Mahindra’s 653,000, and at 1.06 million it has more than 10 times the number of Twitter followers of ICICI Bank, the country’s largest private lender.
Kapoor’s face breaks into a big smile when he talks of the speed with which Facebook at Work, the corporate version of the social media network, took hold at the bank’s headquarters.
“We signed up on May 8,” he says. Later that day, he boarded a flight to Los Angeles. “By the time I landed, 9,000 of our 15,000 [white-collar] employees had signed up.”
Chasing Facebook likes is not a vanity project for Kapoor; it is a means to an end. Social media “is a great way of engaging with existing and potential customers on socially and culturally relevant topics”, he says. Yes Bank separates this region of the bank’s marketing approach into ‘stock’ and ‘flow’. The former is all about content – the dry data that, for example, analyses for public consumption a new wealth management product – while the latter is “the chat”, as Kapoor puts it, or what is trending in the digital world.
“Our aim is to get involved in the public chatter,” he says. “Not to get in their face. No one wants a company to do that on Twitter. But if I can explain the ramifications of Brexit to a 20-year-old – how he or she can profit from it by buying a wealth management product – then I have successfully mixed content and marketing.”
Again, Yes Bank did not get to where it is by thinking inside the box. Kapoor has in effect had two distinct working lives, both spent in Mumbai. Life one spanned 17 years from 1980, during which he worked at a trio of foreign banks: Bank of America, Citi and finally ANZ Grindlays, later bought out by Standard Chartered.
Then in 1997 he shocked India’s staid banking community by setting up a non-bank finance company with three friends and Rabobank. When six years later Kapoor secured the first new onshore banking licence in 20 years, the quartet sold the NBFC, now called Rabo India Finance, to the Dutch banking group, pumping every rupee they had into their new project.
From the outset, Yes Bank was different. It did not cosy up to big state enterprises, or seek business from large private-sector firms. It has its fair share of big corporates and high net-worth customers, but never sought to bracket itself as a member of the financial elite. Its ambition was at that time both revolutionary and, in its way, more noble: to bank the start-up and the mom-and-pop shop, to extend basic financial services to the excluded and disenfranchised, such as the army of internal migrants eking out a fragile existence on the fringes of society.
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Yes Bank CEO Rana Kapoor says: ‘Maximum disruption is going to happen |
“Over the past 12 years we have built nine classic corporate businesses that are our bread and butter,” Kapoor says. That list includes classic investment banking, wealth management and corporate banking services. “But one of our mainstays has been the small and micro-sized enterprise, which now makes up 24% of our balance sheet. That part of our business has fantastic momentum – it’s the kind of banking that Bank of America and Wells Fargo did so well back in the 1970s, when America’s economy was about the same size as India’s.”
It is a part of the banking sector that has long been overlooked by rivals, he says.
But it is, he adds: “a very versatile model. It allows us to extend retail loans and secured loans to customers and, most importantly, it fulfils national objectives. Most of the new jobs in India in the decades to come will be generated by small and micro-sized enterprises. That’s where the real growth and the real profit will be.”
Yes Bank’s other chief focus will remain fixed on the individual. Kapoor has said he wants the share of retail deposits on the bank’s books to rise to at least 70% by 2020, from 55% in 2016.
The unbanked
‘Financial inclusion’ is the phrase that Kapoor uses throughout his conversation. The 58-year-old does not just pay the concept lip service, he lives it. In an earlier conversation with Euromoney he described its corollary, financial exclusion, as the “biggest challenge” facing the country as it makes the long and painful transition to a developed nation.
India’s working age population is on track to hit 900 million by 2020, the majority of which will be under 30 years of age. Too many of these people lack access to a simple bank account; the World Bank reckons that one-fifth of all the world’s unbanked adults live in India.
Kapoor wants to change that. His ‘Yes Leap’ campaign aims to give those at the bottom of the economic pyramid a leg-up, offering financial advice to 1.9 million of the poorest households across 19 Indian states.
When the lender launched its new domestic remittance platform, Yes Money, in 2015, it carried out an extensive customer survey across India’s 36 states and territories.
“What we found was that migrants from the rural hinterland didn’t want complex loan or savings products, just the ability to send money back to their hometown,” says Kapoor. “That should be easy, but it isn’t. Many [of them] work all week and have a few precious hours to spare at the weekend, yet they spend their time queuing at the post office and paying a hefty commission.”
Most Indians own a mobile phone – as of April 2016, there were 1.03 billion mobile phones in use, according to the Telecom Regulatory Authority of India. But the vast majority are old-style phones that lack complex features or internet access. With that unlikely to change soon – few blue-collar workers can afford a pricey smartphone – Yes Bank commissioned a Taiwanese firm, Taisys Technologies, to manufacture a wafer-thin plastic film that users paste over the SIM card in their phones.
This ‘SIM Sleeve’, unveiled in April, acts as a secure pre-paid wallet, allowing customers to load their phone with cash and transmit it digitally to family back home. Where no Yes Bank exists – the lender has 600 branches and 1,110 ATMs across India – cash can be digitally transferred to any one of 15 rural and urban cooperatives. Around 200,000 sleeves are being circulated to customers and Kapoor expects millions to be issued in the years ahead.
This is only possible because of Yes Bank’s obsession with cost-cutting, risk management and the pursuit of simple-but-effective technological solutions. Kapoor is acutely aware that financial services can only be efficiently rolled out to millions of poorer customers after as much extraneous cost as possible has been stripped from the system.
“Lower transaction costs should be the fundamental pursuit of any bank,” he says. “They should not cause a bank to make a loss. Lower costs should make good, frugal sense for everyone. It’s the only way to bridge the rich-poor divide.”
Yes Bank’s cost-to-income ratio fell for the fourth year in a row in the year to the end of March 2016, to 40.9%.
In turn, the Mumbai based lender is only able to crush costs by investing heavily in technology. “Building a state-of-the-art technology backbone might seem like a cost to many, but it is what makes us competitively frugal,” says Kapoor.
He pithily describes Yes Bank as a “technology firm that happens to be in the business of banking”. Customers, he adds, do not want to be amazed by their banking experience. “It’s not about ‘wow’. Customers don’t want the wow factor. We don’t do wow. We can’t do wow. Consistent and good is enough.”
Risk management is another fixation. He reels off a list of lenders that have hit the skids over the past 20 years, before equating their failure with an inability to plan for the future by spotting existing threats and hazards: “We have the ability to build a very beautiful bank, because we are driven by the hunger and desire to build the best-quality bank in the world.”
Achieving that “has a hell of a lot to do with risk management, of digitization of processes, of building the best future branches. And if we don’t succeed, I tell you honestly that my management team is to blame, as we have all the benefits of hardware and software, every architectural advantage, every ability to build the most frugal and intelligent banking model around.”
Kapoor is also acutely aware of the shortcomings of some of his former bulge-bracket employers – and is determined not to make the same mistakes.
“I worked in large banks in the first half of my career, where no risk manager was mapped to a specific corporate relationship,” he says. “So many of the problems in global banking can be solved by getting the risk architecture right. Every industry has experts who specialize in risk management. Why the hell not in banking?”
Like every good entrepreneur, Kapoor has also been quick to sense the winds of change. He recognizes that the disruptive forces that have troubled so many industries are set to upend the banking sector, and he wants Yes Bank to be ready.
“Maximum disruption is going to happen in the global financial services industry,” he says, “and our management team believes we need to be deeply disruptive ourselves.”
Key to health
Kapoor only needs to look around him to see evidence of how to get things wrong. India’s public lenders account for 70% of the country’s banking system, yet most are in dire straits: unprofitable, overstaffed and riddled with bad debts. Kapoor says the problem stems from them being treated for decades as if they were “public or social utilities. The state of these banks is key to the overall health of the Indian economy, so it’s in our interest to see them change their nature, from public utilities to profitable prudential institutions.”
He accepts that New Delhi will have to recapitalize many of these “dinosaurs”, as he calls them in the years ahead, but stresses the need to break the cycle of codependency.
“Indian state banks need capital, but they need to deserve and earn the capital,” he says. “They need better governance, better risk management, proper executive boards and credit committees, veto rights, well-crafted specialist products and proactive and forward-looking management. Today the really good customers want you to go to them. That’s what we do. But state banks expect you to go to them. That culture has to change.”
Kapoor has no current plan to see Yes Bank expand into new geographies. “We are a hard-core home-country bank,” he says fervently. “We want to be in Lakshadweep and Pondicherry and other places I haven’t been to.” The chief geographic focus will be on the Mumbai-New Delhi industrial corridor in the west and north.
Elsewhere, Yes Bank aims to tap into fast-growing sectors – such as hospitality and agribusiness – on its eastern seaboard and to strengthen its ties with the powerful regional banks of the far south. Maharashtra, a vast state that stretches east from Mumbai to the central city of Nagpur, will be vital to the bank’s future, Kapoor believes.
“Maharashtra has everything,” he says, “a long coastline, fisheries, natural resources, water terrains and great manufacturing. It has all the characteristics to become the Germany of India.”
He says wherever the bank goes it will ensure that it opens branches with strong links to the surrounding community.
“In the good old days in Europe and the United States, banks were part of the community, along with post offices, churches and general stores, often based close to local railway stations. That model still applies in India, where bank branches have to be an integral part of the community.”
Kapoor runs through some of the events and challenges in the years ahead. Yes Bank has hired Goldman Sachs to help the lender raise up to $1 billion through a qualified institutional placement between now and March 2017. The sale will help the bank raise cash for future projects while giving global institutions the chance to buy into its success story. A long-stated aim is to transform the lender he founded 12 years ago into India’s “finest bank” by 2020.
Kapoor is coy about what that label means in real terms, preferring to paint an abstract picture of Yes Bank as “the professional’s bank of India”. He’s far more comfortable discussing financial targets.
“Our compound annual growth rate over the past six years was 30%,” he says. “We should be able to maintain that momentum for at least the next five years.”
Before we part company, we fall into a brief discussion about the merits of his leading domestic private-sector peers. Euromoney mentions a trio of names, widely seen as the best, along with Yes Bank, that India has to offer.
“They’re all good,” Euromoney suggests.
“Well,” he replies with a wink. “One of them is, at any rate.”
