Even as the Reserve Bank of India (RBI) prepares to allow the next lot of private banks to set up shop in India by way of new bank licenses, Rana Kapoor, founder, managing director and CEO of YES Bank, the fourth largest private sector bank in India, says there’s enough opportunity for the new banks but those will largely have to come from differentiated business and financial models.
In an interview to Entrepreneur magazine, Kapoor, who was a professional banker before setting up YES Bank eight years ago, said that differentiation would be a necessity, given the opportunity to diversify the banking and financial landscape in India. He said the new banks would have to exploit opportunities in financial inclusion in unbanked or underbanked areas.
“I believe in the long run it is also an opportunity if there is application of newer technologies, if there is an outreach, because the reach and depth of Indian banking needs to widen and deepen. New bank models will have to focus on such opportunities predominantly,” Kapoor said. He, however, made it clear that it would be a long haul for the new entrants. Citing YES Bank’s example, Kapoor pointed out that despite being around for eight years, being the fourth-largest with over 400 ATMs and a balance sheet size of over Rs 90,000 crore, the bank’s market share still stands at less than one percent on most parameters. “Almost a case in point of how long a greenfield bank would take to get where we are,” he said.
On whether India needs more banks or bigger banks with deeper and wider reach, Kapoor said India was still a highly unbanked country, with over 50 percent of the population financially excluded.
“Even among the banked population, the current penetration of credit or other banking products is minimal when compared to other Asian countries. Hence, newer banks would only mean an opportunity for the overall banking system to innovate with newer product offerings‚ latest technological applications and devising newer mechanisms to reach not only the vast rural populace but also the semi-urban landscape of the country. This translates to a diversification of the banking landscape rather than a pressure on market share or a business opportunity loss,” he said.
Kapoor said YES Bank had recently received RBI approval to set up its retail broking business. The bank, he said, was in the process of establishing the subsidiary for the purpose and building an organic business, primarily to complement its savings account offering for retail customers.
“We will largely depend on the powerful ongoing retail customer acquisition of the bank to leverage our broking business. However, we are also open to acquisitions across our banking, broking and asset management businesses. We now have a very seasoned top and senior management team to execute organic and inorganic opportunities,” Kapoor said. The bank’s key strategy, however, continues to be an organic one by way of what it calls its Version 2.0 strategic plan. This envisions a balance sheet size of Rs 1.5 lakh crore, a deposit base of Rs 1.25 lakh crore, advances of Rs 1 lakh crore and a branch network of 900 by March 2015.
(For the full interview, read the June 2013 issue of Entrepreneur magazine, now on stands.)