xbox , You may start the topic here.  We had discussed Yes Bank very briefly in the section Which private Bank will the foreigners buy?


Edited by basant - 26/Sep/2007 at 11:11am

Here, I start this topic with one interview of Rana Kapoor. It could be good starting point for the discussions. Please feel free to support or critisize your points. Needless to say I am quite bullish on this. Promotors of YES Bank are pioneers of banking system.Interview starts ...

Rana Kapoor, managing director and CEO, of the bank speaks to Priya Kansara about his growth plans. The Yes Bank stock trades at a price to book value of 4.7 times and 3.5 times for FY07E and FY08E respectively.

How is your branch expansion coming up?

By March 2007, we target to have at least 50 branches from our existing 24 branches. In aggregate, we have licenses for opening 60 branches, all of which will be operational by June 2007. We plan to have 100 branches by FY08 and 250 branches by 2010.

Why are the bank뭩 branches concentrated in the North? Is the region-wise mix expected to change?

Our branch network is skewed more towards the northern region due to the agricultural belt and the region being fairly deposit-rich. It has been observed that banks, which operate mainly in the North, have better CASA (current and savings accounts) and thus low-cost deposits.

However, we also have substantial presence in the West, especially Maharashtra, Gujarat and Goa.

Going ahead, for our organic growth, out of the first lot of 60 branches, almost 50 per cent of our branches will be in the north, 30 per cent in the West and the balance in the South and East.

Do you have plans to open international branches?

Right now, we want to build a very strong Indian and high quality home country model. That means we must be able to run at least 100 branches efficiently and effectively.

But in the life of the bank, we will embark on high density global Indian locations like the Middle East and Singapore in the first phase till 2010, and after that as we get more solid and strong, we will embark in the other markets meaningfully as well.

What is the expected deposit and advances growth in the next two years?

In the next two years, we plan to grow our deposits and advances (on a lower base) in the range of 75-100 per cent.

Your CASA is quite small right now. What is your strategy for achieving higher share of low cost deposits ?

We have a two-year old CD (certificate of deposit) programme of Rs 1000 crore, which is rated favourably by rating agencies. Our CD costs are relatively lower than corporate deposits (by at least 0.5 per cent).

Since inception, it has been a very good source of fund for the bank. We are planning to take it to a minimum of Rs 1500 crore and may even got up to Rs 1700 crore.

However, in percentage terms, we are reducing our dependence on CDs, as was seen in the last quarter where our deposit growth (excluding CDs) was 35 per cent (q-o-q).

We want to bring our CASA ratio to 10 per cent by March 2007 from around 5 per cent now. Thereafter, every year we will increase it by 5 per cent to take it to 25 per cent by March 2010. One of the strategies to achieve this is our branches.

Besides, our ATM network, Internet and mobile services will also help. Our two national centralised processing centres will help build capacity and ease the burden on branches. We have specialised team for deposit generation. We are the first bank to launch the 8 per cent deposit.

Which businesses will be your growth drivers?

Corporate and institutional banking (C&IB) business is our bread and butter today contributing 70 per cent of our business.

Our second division, business banking, consisting of two units, namely emerging corporates (with a turnover of Rs 100-750 crore) and SME (small and medium enterprises), is going to be one of our dominant businesses over the medium to long term.

Our third division, retail and wealth management banking, which is under development, is going to be the key value driver in the long term (by 2010, it will our Number 1 business driver). All three should contribute equally to the bank뭩 business and product mix.

In terms of sectors, we have a knowledge banking strategy where we want to be the benchmarking bank in agri, life science and textiles among others. We target sectors which are less cyclical and where India is building a competitive advantage.

Non-conventional energy is also an emerging and promising sector for us. However, we want to maintain a balance among the sectors.

What뭩 your view on real estate sector exposure since RBI has been giving warning signals for funding the sector?

Real estate forms about 8-9 per cent of total advances and we lend to various residential and commercial projects. As a strategy we do not plan to exceed beyond 10 per cent.

What makes you enter new businesses like retail broking and micro finance when you are still emerging as a banking entity?

While the highest emphasis is on building the mother bank, there are certain very strong product linkages to complete a total proposition. Today, retail broking is seamlessly integrated with and is a very essential component of a wealth proposition.

As far as micro finance is concerned, a huge part of the population is not serviced. Banking does not reach about 51 per cent of agri-India and 74 per cent of rural (non-agri) India. There is a huge opportunity in urban and semi-urban India, and definitely in rural India, which is partly addressed by moneylenders and partly unserviced.

Though the ticket size is small and volumes are high, the business has good internal rates of return.

However, it requires low cost transactional platforms, smart technologies and special human skill sets. We hope to scale this business meaningfully by April 2008. It will also help us fulfill our priority sector lending at a respective pricing.

How will your business mix affect the net interest margins (NIMs) in future?

Our NIMs are expected to be in the range of 2.7-3 per cent for the next year and a half (3 per cent by March 2008).

However, once our retail strategy starts penetrating deeper and CASA starts stepping up, we expect NIMs to be higher at 3.5 per cent by 2010. The increasing share of SME and retail assets will also contribute to higher margins.

Between interest income and non-interest income, what is your focus likely to be since the latter also contributes significantly to your total net income?

We will focus on both simultaneously. Our long term strategy is that non-interest income should not fall below 40 per cent by 2010 and 45 per cent by 2008. We have maintained the share at 50 per cent in the past few quarters.

Around 45-50 per cent of our non-interest income is non-credit based services like advisory services, third party distribution and payments.

This will also help improve our RoE (return on equity) and RoA (return on assets). We want the RoE and RoA to be 22-24 per cent and 2 per cent respectively by 2010 on a normalised basis. This will happen if we have high fee content.

What are your initiatives for improving your capital adequacy ratio (CAR)?

As on September 2006 quarter, our CAR is 12 per cent with Tier-I capital at 10 per cent. We raised Rs 180 crore lower Tier-II capital.

We also issued shares worth Rs 120 crore on a preferential basis to Swiss Re. We plan to raise another $90-100mn (Tier-I and Tier-II), which will take our CAR to 15 per cent by March 2007.

Edited by vipul - 06/Nov/2006 at 7:27am

I do not think competition should be an issue the market is very large.YES Bank is not a stock to be seen from an EPS point of view because EPS could rise exponentially once branches are rolled out and customers cretaed fee based income could be significant i.e selling MF,Insurance, advisory etc. The management is very strong and should definetely be able to create value for long term investors. We discussed the same in the section   Which private Bank will the foreigners buy?

Edited by basant - 07/Nov/2006 at 12:21pm

I am not but the company/stock is good and should give above market returns if you see that link we did discuss it and all the private banks irrespective of takeover or not should do very well.