Lending rates may be reduced by 200 bps
The Financial Express, April 20, 2009, Page 12
At a time when the Indian economy is slowing down, the domestic banking industry is under enormous pressure to go out of the way in responding positively to fund growth. That effectively means that banks have to change their mindset and find ways to reduce rates and start corporate and retail lending in a big way. Banks also expect more measures from regulator, Reserve Bank of India (RBI), to boost liquidity and facilitating further reduction in rates.
In an exclusive interview with Hemang Palan & Kumud Das, Rana Kapoor, managing director & CEO, YES Bank, presents and explains his perspective about the situation:
•There is a talk of economic recovery. Do you agree on this ?
The Indian economy is now back on its feet. It’s on an upturn path and is reviving gradually, mainly due to extraordinary and well-timed monetary-cum-fiscal action taken by the Indian government in the past few months. The worst time for the country’s economy is over. I certainly believe that given the market conditions at present, we need to see a significant reduction in real interest rates in the country. I hope that RBI would engineer a CRR change on April 21. Although there is ample liquidity at present, if a CRR-cut is announced by the regulator, it will invariably stimulate the Indian banking system as funds parked with RBI under CRR requirements do not fetch interest income to the banks. Thus such non-earning resources need to be passed back into the banking system either through a market interest rate payable on CRR funds, which could be at least equal to the repo rate or higher, or a significant reduction in the CRR as low as 3%, 2% or even 0% as our country is currently in dire need of a significant capital of a long-term nature to be ploughed back into growth.
•Do you think that currently banks are not willing to lend to the corporate sector?
I do not think that there exists an impasse in the credit growth of the banking system. Today, banks in India are keenly looking at getting back actively and prudently into funding good quality projects. Such a turnaround that is presently being witnessed in the country is fortunately led by the state-owned banks.
The credit offtake of the banking system was virtually frozen in the third quarter of the last fiscal. However in the last quarter of the financial year 2008-09, the banking system could have registered an average credit growth of around 22%-23%. These figures, when made public, are likely to reflect the state-owned banks’ credit growth more than that of the private sector banks during the January-March 2009 quarter.
•What is your bank’s position on credit offtake?
On a year-on-year basis, for the quarter ended March 31, 2009 , YES Bank’s credit offtake rose by over 25%. Our bank’s net interest margin (NIM) in third quarter of the last fiscal - the toughest quarter that I have witnessed till date in my entire banking career in the last 30 years - was 2.8%. In last quarter of the last fiscal, our NIM was 3%. It’s because there is a perceptible and meaningful reduction taking place in cost of funds for the entire Indian banking system.
•Do you see rates falling?
I foresee deposit rates of banking system to go down by 150-200 basis points in the near future in the bandwidth, of 5%-7.5%. The lending rates could correspondingly get reduced by about 200 basis points in the bandwidth, 8.5%-10%. I estimate that the credit offtake of the Indian banking system in the current fiscal could be around 23%. I believe that we will see a GDP growth of around 7% in the current fiscal.
•What are your plans to make YES Bank a bigger bank?
By March 2015, we wish to transform YES Bank into a world-class, best quality bank in India . We want to remain an India-focused knowledge-banking entity. We wish to focus more on promising sectors like agriculture, healthcare, tourism & hospitality, energy, infrastructure, retail, telecom, logistics, aviation, shipping & ports etc to promote our corporate banking model.
Also, we are keen to promote our retail banking model by opening branches in high-growth clusters of the country. Today, we are with 117 branches and 200 ATMs across the country. In the last four years, thus, we have become bigger than the biggest foreign bank that presently operates 90 branches in India.
In the current fiscal, we wish to open 33 new branches. We already hold the regulator’s approval to open 20 new branches in India. By 2015-end, we wish to cross 500 branches in the country. I strongly believe that between 2010-2012, we may acquire at least one bank in southern India to promote our retail banking expansion. The takeover target would have a good deposit base and an excellent regional branch distribution.
•Any other new initiatives you are planning this year ?
For promoting our private equity venture in India , we are very close to inking a $200-million South Asia Clean Energy Fund in partnership with the Global Environment Fund (Washington). We have already binding commitments worth $80 million. The fund is expected to go for its first investment in the country in September 2009. It’s YES Bank’s first PE venture. Also in partnership with Washington-based advisory body Accion which is also sponsored by the IMF and the World Bank, YES Bank is floating an NBFC arm in a bid to service urban slums of Mumbai by September 2009.
•What are your fund raising plans this year?
In the financial year 2008-09, YES Bank raised over Rs 1,000 crore worth capital funds. Our capital adequacy ratio is above 15% at present. It is our intent to raise funds over Rs 500 crore of tier II capital from domestic markets in the next 6-12 months.
•What kind of restructuring of loans have your performed?
We have restructured about 4-5 corporate loans in the recent past. In the current fiscal, we wish to add 1,000 people to our current workforce of about 2,700 employees. This recruitment is likely to happen after September 2009.
We recruited 20 IIM graduates in the last two months, maintaining parity with salary packages that were offered to our bank’s management graduates last year.
•Any large funding you have done in recent times?
We have made a commitment of Rs 175 crore to Tech Mahindra towards the Satyam acquisition through subscription of NCDs. We have recently done a term financing worth Rs 400 crore for Vodafone.
The Financial Express, April 20, 2009, Page 12
At a time when the Indian economy is slowing down, the domestic banking industry is under enormous pressure to go out of the way in responding positively to fund growth. That effectively means that banks have to change their mindset and find ways to reduce rates and start corporate and retail lending in a big way. Banks also expect more measures from regulator, Reserve Bank of India (RBI), to boost liquidity and facilitating further reduction in rates.
In an exclusive interview with Hemang Palan & Kumud Das, Rana Kapoor, managing director & CEO, YES Bank, presents and explains his perspective about the situation:
•There is a talk of economic recovery. Do you agree on this ?
The Indian economy is now back on its feet. It’s on an upturn path and is reviving gradually, mainly due to extraordinary and well-timed monetary-cum-fiscal action taken by the Indian government in the past few months. The worst time for the country’s economy is over. I certainly believe that given the market conditions at present, we need to see a significant reduction in real interest rates in the country. I hope that RBI would engineer a CRR change on April 21. Although there is ample liquidity at present, if a CRR-cut is announced by the regulator, it will invariably stimulate the Indian banking system as funds parked with RBI under CRR requirements do not fetch interest income to the banks. Thus such non-earning resources need to be passed back into the banking system either through a market interest rate payable on CRR funds, which could be at least equal to the repo rate or higher, or a significant reduction in the CRR as low as 3%, 2% or even 0% as our country is currently in dire need of a significant capital of a long-term nature to be ploughed back into growth.
•Do you think that currently banks are not willing to lend to the corporate sector?
I do not think that there exists an impasse in the credit growth of the banking system. Today, banks in India are keenly looking at getting back actively and prudently into funding good quality projects. Such a turnaround that is presently being witnessed in the country is fortunately led by the state-owned banks.
The credit offtake of the banking system was virtually frozen in the third quarter of the last fiscal. However in the last quarter of the financial year 2008-09, the banking system could have registered an average credit growth of around 22%-23%. These figures, when made public, are likely to reflect the state-owned banks’ credit growth more than that of the private sector banks during the January-March 2009 quarter.
•What is your bank’s position on credit offtake?
On a year-on-year basis, for the quarter ended March 31, 2009 , YES Bank’s credit offtake rose by over 25%. Our bank’s net interest margin (NIM) in third quarter of the last fiscal - the toughest quarter that I have witnessed till date in my entire banking career in the last 30 years - was 2.8%. In last quarter of the last fiscal, our NIM was 3%. It’s because there is a perceptible and meaningful reduction taking place in cost of funds for the entire Indian banking system.
•Do you see rates falling?
I foresee deposit rates of banking system to go down by 150-200 basis points in the near future in the bandwidth, of 5%-7.5%. The lending rates could correspondingly get reduced by about 200 basis points in the bandwidth, 8.5%-10%. I estimate that the credit offtake of the Indian banking system in the current fiscal could be around 23%. I believe that we will see a GDP growth of around 7% in the current fiscal.
•What are your plans to make YES Bank a bigger bank?
By March 2015, we wish to transform YES Bank into a world-class, best quality bank in India . We want to remain an India-focused knowledge-banking entity. We wish to focus more on promising sectors like agriculture, healthcare, tourism & hospitality, energy, infrastructure, retail, telecom, logistics, aviation, shipping & ports etc to promote our corporate banking model.
Also, we are keen to promote our retail banking model by opening branches in high-growth clusters of the country. Today, we are with 117 branches and 200 ATMs across the country. In the last four years, thus, we have become bigger than the biggest foreign bank that presently operates 90 branches in India.
In the current fiscal, we wish to open 33 new branches. We already hold the regulator’s approval to open 20 new branches in India. By 2015-end, we wish to cross 500 branches in the country. I strongly believe that between 2010-2012, we may acquire at least one bank in southern India to promote our retail banking expansion. The takeover target would have a good deposit base and an excellent regional branch distribution.
•Any other new initiatives you are planning this year ?
For promoting our private equity venture in India , we are very close to inking a $200-million South Asia Clean Energy Fund in partnership with the Global Environment Fund (Washington). We have already binding commitments worth $80 million. The fund is expected to go for its first investment in the country in September 2009. It’s YES Bank’s first PE venture. Also in partnership with Washington-based advisory body Accion which is also sponsored by the IMF and the World Bank, YES Bank is floating an NBFC arm in a bid to service urban slums of Mumbai by September 2009.
•What are your fund raising plans this year?
In the financial year 2008-09, YES Bank raised over Rs 1,000 crore worth capital funds. Our capital adequacy ratio is above 15% at present. It is our intent to raise funds over Rs 500 crore of tier II capital from domestic markets in the next 6-12 months.
•What kind of restructuring of loans have your performed?
We have restructured about 4-5 corporate loans in the recent past. In the current fiscal, we wish to add 1,000 people to our current workforce of about 2,700 employees. This recruitment is likely to happen after September 2009.
We recruited 20 IIM graduates in the last two months, maintaining parity with salary packages that were offered to our bank’s management graduates last year.
•Any large funding you have done in recent times?
We have made a commitment of Rs 175 crore to Tech Mahindra towards the Satyam acquisition through subscription of NCDs. We have recently done a term financing worth Rs 400 crore for Vodafone.
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