Financial sector needs to rebuild trust, says YES Bank CEO Ravneet Gill

Edited excerpts from a discussion at the Business Standard Banking Round Table held in Mumbai

On whether business will take a backseat as Andhra Bank and Corporation Bank merge with Union Bank of India

Rajkiran Rai G:  We have segregated the business department so that it is not affected. Branches continue to function normally, since they don’t have anything to do with the merger directly. Only the business departments which may be working from the corporate office would have been affected. But they have been kept separate. So it is business as usual.

On there being only one CEO

Rai: In the public sector we have sufficiently good clarity on such issues. We can work with any CEO. Often we come to know about the CEO just one day in advance, or sometimes on the same day. We are absolutely comfortable and for us it is not an issue.

Public sector banks look similar from the outside. But there are a lot of differences if one looks at our system, products and processes. Even with the technology platform Finacle 10, the customisation that I have done for our products and processes is different from others. There are about 30 teams drawn from all the three banks. They are looking at every department, every product and every process. The initiative is almost in its final stages.

On the importance of current and savings accounts (CASA)

V Vaidyanathan: CASA is still very important, because it brings in stability and stickiness of money.

For three quarters, the loan book (for IDFC First Bank) has not moved. Only the CASA ratio has doubled. So my game plan is that one year forward, the loan book will probably grow at 4-5 per cent, but the CASA will double again.

Once you have 30-40 per cent CASA in India, you can grow forever. It is a bank after all. We have seen that with other private sector banks. My game plan is to fix CASA, fix liabilities, and get stability in the first three years.

On the growing retail share in the business

Vaidyanathan: The lending yield for Capital First (the finance company which merged with IDFC Bank to form IDFC First Bank) was 16.5-17 per cent. The borrowing cost was about 8.8 per cent. For IDFC Bank, the borrowing cost was 7.5 per cent and lending was at 9.3 per cent. You take Capital First’s borrowing and replace it with IDFC Bank’s borrowing cost of 7.5 per cent. You replace IDFC’s infrastructure lending with retail loans of 16.5 per cent. So you end up with a bank which has a borrowing cost of 7.5 per cent and lending yield of 16.5 per cent. People who are next few quarters.

On the present issues in Indian banking

Ashu Khullar: It’s important to distance ourselves a little from what’s happened in the last four-five months in the economy, or perhaps what happened in the non-banking financial company (NBFC) sector and its overhang on the financial sector over the last 12 months. One of the interesting things is that once you come back to the country after a long time, you do take an outsider’s view, which is very much centred on the medium-term secular opportunity in India, and to me, none of that has changed. Compared to twenty years ago, there is better recognition of non-performing assets.

The digital infrastructure which you see in India is probably, barring China, the best among many large emerging markets. We have to be careful not to be overly swayed by some of the recent negative sentiments.

On whether there is a victor-vanquished narrative in mergers

Rai: It is a different narrative this time. Even in the Bank of Baroda merger, an equal opportunity has been given to everyone. Care is taken so that smaller banks don’t feel left out or sidelined. There is no big brother attitude. The number of executive director vacancies have gone up; the opportunities for people will remain.

On foreign banks benefiting from the current issues plaguing domestic institutions

Khullar: One of the lessons after the great financial crisis is that as a bank you have to play to your core competencies, your main strengths. We have been in this country since 1902, so in a lot of ways we are very embedded. We were always an institutional bank.

But if you go back to the late-1980s, in a lot of ways Citi created a lot of what consumer banking is understood to be today, with the first ATMs (Automated Teller Machines), the first credit cards, and so on. We are going to play to our strengths. We believe that there are secular, medium-term opportunities which will carry on. Among them is the global theme of helping investors come into the country. Others include digitisation, urbanisation and consumerisation. India is a young nation. I think those aspirations of consumers will remain.

On the timeline for IDBI Bank coming back into the black
 

Rakesh Sharma: While it may be a little price-sensitive information, I would like to say that the Essar Steel judgment will add to our bottom line. Many other recoveries will also start coming with that. So within this financial year, perhaps the third or fourth quarter...

On the ultimate objective to make IDBI Bank a retail bank

Sharma: IDBI Bank started as a corporate finance bank. Today 53 per cent of our advances are in retail and the rest in corporate. The target that we have set for ourselves is that 55 per cent should be retail by the end of this financial year. I want to go to 60-40, because we have sufficient expertise. The things that we have learnt from the past will help us going ahead. Not all corporate loans are bad. There may be good companies even in sectors which are not doing well. But there is a need to be selective.

On the risk of all banks getting into the retail business

Sharma: Whether it is corporate or retail lending, you will incur losses if you don’t understand the nitty-gritties. So one needs to develop expertise. Given India’s demographic profile and demand, there is sufficient scope and demand.

On bargaining hard when raising money at YES Bank

Ravneet Gill: I have never said that I will not raise equity below a certain price.

You have to understand that the first task before us was to stabilise the bank. We had to balance a lot of expectations of stakeholders, employees, etc. We are a large bank, don’t forget that. Having stabilised our Common Equity Tier 1 capital at the end of the first quarter at 8 per cent, we were able to organically increase it to 8.7 per cent over the next quarter, though we did a small qualified institutional placement (QIP) in between.

At the end of the day you are not just looking for growth capital, you are looking for transformational capital. It’s been a journey in terms of how we’ve dealt with internal and external stakeholders and potential investors. I would say that we are nearing the end of that journey, and hopefully, we are getting past that hump in very short order.

On the trust deficit in the financial sector

Gill: The trust deficit is the single biggest problem right now plaguing the financial sector. It is not just between a depositor and the bank, it is also between financial institutions. If an institution says its problem is X, others could feel that it is actually 1.5x. This needs to be addressed at multiple levels. At the end of the day, financial services is a business built on trust. If you cannot restore that trust, this industry can’t grow.

And this industry needs to grow because it is such an underserved economy from a credit standpoint. If you ask me, “Did you feel some of that heat?” the answer is yes. Especially during September and October, when some of the promoters’ stake was sold by mutual funds and there was a big drop in share prices. I think this is not just restricted to us, but I think the whole industry per se needs to rebuild trust.

On the new narrative for Indian banks

Vaidyanathan: The new narrative of banking is that there is huge and unbelievable opportunity. Three times growth of asset books in the next ten years is coming our way, just like we have grown in the last 10 years. Second, there is a huge amount of digitisation and change in the ecosystem which is playing out, and we need to know how to play that game. 

Gill: Historically, the market gain accretion that has happened in Indian banking is very slow. That is set to change with technology, and the winner will take all. That is a transformation all of us should be prepared for.

Rai: We need to look at inclusive banking. The system as a whole has to grow. Our country is starved for credit and good banking institutions. We need to do inclusive banking, which is going to benefit everyone. We need not look at the short-term valuation of these institutions, you need to look at their long-term value. 

Khullar: I don’t think there is enough capital to be supplied only by banks and NBFCs. I think the capital market is going to become an important supplier of capital, both domestic as well as foreign.

Sharma: I would like to see the bank turnaround and give sufficient returns to its stakeholders. Whatever it has taken from the government, it should be able to pay back.