Improving workplace decorum – ‘RBI’s recommendations can be seen as onerous but we have to move in that direction,’ says Yes Bank’s CEO

• If a bank wants to project itself as a customer-centric bank then it also has to be respectful and considerate towards its employees too.
  
• After fixing the problem of a very high ratio of bad loans, Yes Bank is ready to focus on growth. Depositor confidence appears to be back with deposits having more than doubled in less than three years.
  
• The bank’s rebranding exercise is to convey to stakeholders that a lot has changed around governance and transparency.
  

At the start of the millennium, private banks were not just the toast of investors but consumers too as they offered better technology and user experience. However, two decades down the road, these banks that positioned themselves as customer centric are now making headlines for their falling customer service as well as poor treatment of their own workforce. In conversation with Business Insider, Prashant Kumar, the CEO of Yes Bank, says that charity begins at home and even if the Reserve Bank of India’s recommendations on customer service standards may seem onerous, they need to be implemented. Edited Excerpts:

What about current service standards in Indian banking? The RBI recently came out with recommendations to improve the standards. What is your view?

Fundamentally, I think this is very important. If you provide the right service to your customers, you should not think it will hit your profit. The core issue for the sector is taking care of customers in a transparent way. The recommendations can be seen as onerous, but we have to move in that direction. Anything that can be done for the customers and fair treatment should be taken up. The difficulty is in execution and costs, but there is no choice as bringing the confidence of the customer into the sector is needed.

A viral video has put the spotlight on how banks are chasing growth. Even the Reserve Bank was asked for its view on the same. What is your view?

Our core philosophy is to put the customer at the centre of all we do. The differentiation we would like to make between us and other banks is how responsive we are to customers. If you want to be a customer-centric bank, you have to be employee-centric. Ultimately, we are dealing with human beings. If I expect my employees to be respectful or considerate towards customers, it is a change in the thought process. The person cannot be any different from a colleague. You cannot have a split personality. We are among the top 50 Best Places to Work.

What changes? We are trying to bring in this bank based on beliefs and not on what has happened. I believe that if you cannot treat your colleagues with dignity, you cannot treat your customers with dignity either.

You have more retail investors than retail savings accounts. It seems retail investors have placed more faith in Yes Bank than depositors?

Today, we have the distinction of having more than 5 million retail investors. We have 6.5 million customers. When you say debit cards, you mean savings accounts only. Our customers are more than investors. We definitely enjoy the distinction of having the largest number of retail shareholders in the country. A large number of retail investors have confidence in the bank’s turnaround.

You undertook this rebranding exercise a few weeks ago. What was the reason behind doing it?

The brand suffered after what happened to the bank. Ultimately, this was a large event, and in the case of banks, the trust and confidence of the customers matter the most. First, we did the clean-up and resolved all the legacy issues. We should not talk of large corporate issues when we speak of legacy issues. There was an issue around corporate governance and how it was run as a bank. Once you do such a clean-up and change a lot around governance, it becomes important to convey it to stakeholders. Today, the entire class of customers has changed thanks to digital adoption.

When we undertook the brand refresh, we thought, design-friendly let’s make it design-friendly for our digital customers. If you see our current logo, it is more in terms of reflecting the value of the bank, which is about growth now that the turnaround is over. So you see a soaring bird in the logo. This bank has changed in terms of governance and responsiveness to its customers. The current design is not a closed box; it has opened up, which shows our transparency and responsiveness.

The new logo is similar to the older design. Why was the new brand identity not totally different?

There were a lot of inputs when we undertook this exercise two years ago. There were inputs that suggested we change the name of the bank, but we did not want to go by those inputs alone. We engaged professional agencies to do research with all the stakeholders, and they gave us feedback based on the inputs. The input we got was that people liked the brand.

Everyone knows Yes Bank, and that is the strength of the bank. There were no negatives in the mind of the customers. The feedback about the tick was also positive. If we had changed the name of the bank, then it would have taken a lot of money and time to establish it in the minds of customers. So we decided to do a brand refresh.

Yes Bank’s turnaround is unprecedented but your true test is to regain trust of consumers. The ratio of low cost deposits (CASA) is at 30% which is lower than other private banks. What are the results of your turnaround strategy in terms of customer acquisition?

This kind of turnaround attempt has never been made, and today we can say that such an attempt has been successful. On the CASA ratio, we are lower than the market average. But if you look at this journey from where we started, our deposits have more than doubled in less than three years. We started the journey in March 2020 with deposits of Rs 1,00,000 crore, now we are at Rs 2,17,000 crore. The industry’s growth rate for deposits is not more than 10%, and in three years we have doubled. Yes Bank used to add 30,000 new customers each month, now we add 130,000 new customers a month on the CASA side for the last four months. That shows that trust and confidence have come back.

Over the last year, CASA ratios at most banks have come down as customers have moved money from CASA to fixed deposits. Today, the question is whether we can grow profitably. We started out with a 16% NPA ratio. So we had to either recover (outstanding loans) or make provisions. Our operating profit has continued to grow, but there were times when there was a mismatch between recovery and provisions.

You have given a target of increasing the net interest margin by 100 basis points over three years. How do you plan to achieve that?

This will depend on three large factors. As a bank, we were unable to meet priority sector lending targets due to previous problems. Every bank is expected to meet priority sector targets, and if you do not meet these targets, a lot of money has to be kept in Rural Infrastructure Development Fund (RIDF) deposits, where returns are very low. Today, almost Rs 30,000 crore is kept in RIDF deposits, which is 10% of our balance sheet, and it earns 2-3% returns.

Today, we are meeting the priority sector lending norms but there are subcategories. One such subcategory is the small and marginal farmer. Since the bank cannot meet this, we had to put money in RIDF deposits, and it is a drag of 35 basis points in margins.

Second, if we improve CASA, our margins will also move upward. In three years, we have doubled deposits without increasing interest rates. The next phase will see an uptick in the CASA ratio. An improvement of CASA from 30% to 35% will see an increase of approx. 20 basis points in NIMs.

Third, currently, in our portfolio, we do not have a single high-yielding asset class. We don’t have a presence in microfinance and we do not have a large credit card base. We do not have a large base of unsecured borrowers. Now that we have resolved past issues, we can look at slightly higher-yielding assets. That gives an increase of 50 basis points on NIMs. This is a clear roadmap for us. We would be very cautious and not do anything risky.

The digital customer is the key base for all banks. Has the Yes Bank app changed?

The mobile banking app is being changed. Now that the new app is being offered to some customers, we will launch it in the next few months.

Your stock has been volatile for a while now and trades in a wide range. What is your message for investors who have bet on the bank’s turnaround?

If there is a consistent performance from the bank, it will be rewarded by the market. Our effort has been to continuously deliver on that effort.

You started with a very large bad loan book of nearly Rs 50,0000 crore. And you are expecting to recover Rs 5000 crore this year. Do you think that this would be the trend going forward too?

If you look at the last three years, we have recovered or upgraded to the tune of Rs 20,000 crore from that book. We are expecting another Rs 5000 crore, and going forward, this will come down.

What about loans that were converted to equity?

We have transferred all assets and securities to JC Flowers. We want to focus on growth. Our net NPA is less than 1%.

Are you looking to raise more capital?

More capital at this point is not required, as currently our core capital is 13.3%, and with the warrant conversion, our core equity will move to 14.8%. The current capital is good enough for the next three years.

What kind of a lending mix do you see for Yes Bank as you grow?

Our strategy is more in terms of the opportunities available. In our country, the opportunity is more on the retail side. We would like to continue with the current mix. Currently, the large corporate loan book is 28% of the total book and it would remain in that region. The rest is retail, which will include the MSME book too.

Are you likely to become an acquisition target yourself? Or would you consider a merger to attain scale?

If you see the strength of this bank, it is its strong franchise. Otherwise, coming back to normalcy cannot be done in three years. Unless the franchise is strong, it cannot be done. It then does not make sense to become a target for acquisition.

If you have a strong franchise, then you have strong capabilities on the management side or on the digital side. If you are lacking in some of these areas, then you can look at a merger to build strength in these areas. The franchise has been strong, which is why a comeback was possible.

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