Rana Kapoor, founder, managing director and chief executive of YES Bank, in his early years worked in an assembly plant, as a library assistant and as a clerk to partially finance his management education at Rutgers University in the late seventies. This was before he interned at Citigroup in New York, that set the stage for the eventual founding of Yes Bank in 2004.
Romesh Sobti, managing director & chief executive, is a hard-charging banker with 33 years in the industry, and responsible for shaking up what was the first of a new generation of private banks in India, founded in 1994—albeit one that only truly woke up after he joined it.
Both men are responsible for taking their banks to stratospheric heights in a relatively short period of time. Now, they're planning on doing it all over again, and in remarkably similar ways, with one clearly defined goal—to build scale into their businesses without compromising on profitability.
Both Kapoor and Sobti recognise that their banks are deficient in one key area—they do not have a strong base of low-cost retail deposits, or so-called current-account-savings-account (CASA) deposits. This is destined to stall any plans of further growth unless the situation is remedied. Typically, banks prefer to have a high share of CASA in their total deposits as it helps them to keep the cost of funds low and provide scope for margin expansion.
For instance, large banks like ICICI Bank and HDFC Bank boast a large base of CASA deposits. ICICI Bank's CASA ratio [share of CASA deposits in total deposits] was 43.5 per cent while HDFC Bank's was 48.4 per cent as of March, 2012. Compare this to IndusInd Bank's ratio of 27.3 per cent and YES Bank's meagre 15 per cent.
In going for growth, YES Bank appears to be the more aggressive of the two. When the Reserve Bank of India (RBI) deregulated the interest rate on savings deposits in October, 2011, the private lender was the first bank to announce a hike in its rates. IndusInd Bank and three other private banks mirrored the move, only for YES Bank to increase its savings deposit rate for the second time. Currently, YES Bank offers the maximum rate of interest on savings deposits (seven per cent on deposits of Rs 100,000 or more among all banks in India).
The strategy has already started paying dividends. CASA ratio improved to 15 per cent at the end of March from 11 per cent six months earlier. In January-March quarter, the bank's savings deposit expanded 206 per cent from a year ago and 108 per cent sequentially.
The rate hike has also helped IndusInd Bank to increase its savings deposit base even though its CASA ratio did not improve significantly. The share of savings deposits in total deposits rose to 11.1 per cent as of March, 2012 from 8.6 per cent at the end of October, 2011.
Branching out
The process of expansion, which involves strengthening of the low-cost deposit base, means that both banks will also be blanketing the country with their branches. "Our branch network will provide us the platform to scale up our businesses. We plan to have 700 branches by March, 2014...This will bring us deposits, especially the low-cost deposits and increase our distribution capacity," Sobti, managing director and chief executive of IndusInd Bank, had said in an interview with Business Standard. IndusInd Bank closed last financial year with 400 branches.
YES Bank, which currently has 356 branches, had initially set a target of having 750 branches by March, 2015. "The bank, given the significant momentum on CASA and retail liabilities, along with a solid platform being built on retail assets, has raised its branch target numbers to 900 along with increasing the headcount to 12,750 (versus the previous target of 12,000) by March, 2015," Kapoor said in a recent conference.
Another area where IndusInd and YES are imitating each other is the retail housing loan business. Both lenders have decided to enter this market through distribution tie-ups and have no immediate plans to launch their own loan products.
"In retail, we would look at alliances and partnerships because we don't believe we would be a significant manufacturer of retail products. We really want to be an efficient distributor," Kapoor had told this newspaper in a recent interview.
While YES Bank has tied up with Dewan Housing Finance, IndusInd Bank has partnered Housing Development Finance Corporation (HDFC) for distribution of home loan products.
Srichand P Hinduja, a leading non-resident Indian businessman and head of the Hinduja Group, had originally conceived the vision of IndusInd Bank. Through collective contributions from the NRI community towards India's economic and social development, he set up the bank. The bank recruited Romesh Sobti in February, 2008, who joined as managing director & chief executive, taking charge from Bhaskar Ghose. Prior to this, Sobti was the executive vice-president and country executive, India and head, UAE and subcontinent, at ABN AMRO Bank NV. He joined ABN AMRO in November 1990 and graduated from the position of a chief manager to the country executive over a period of 18 years.
YES Bank, formed in 2004, is the youngest bank in the country. It is currently the fourth-largest private sector bank in India after ICICI Bank, HDFC Bank and Axis Bank. In 1995, Rana Kapoor along with his brother-in-law Ashok Kapur and colleague Harkirat Singh made a proposal to a visiting team from Rabo Bank for two joint ventures: A non-banking financial company and a bank. While Rabo Bank would control the NBFC, the bank would be run by the three partners. The NBFC was set up in 1997, with the three Indian partners chipping in with an equity capital of Rs 9 crore each. Kapoor had to actually contribute only Rs 40 lakh from his pocket, the rest comprising of the joining bonus from Rabo Bank. In 2003, the three sold their stake for a cool $10 million each, generating the seed fund for the bank.
The twins do differ in some areas. IndusInd is open to growing through acquisitions. In 2011, it acquired the credit cards portfolio of Deutsche Bank in India. The move marked its entry into cards business. The bank is currently in the process of ramping up this business. Yes prefers to remain a little conservative in this area. "Organic growth ensures control on quality, levers and pace of growth," Kapoor said.
