Mumbai: Yes Bank Ltd, India’s youngest bank, plans to boost its retail portfolio, buoyed by its success in raising low-cost deposits.
On Wednesday, Yes Bank will announce a tie-up to distribute credit cards from American Express Co. for a fee after having teamed up with Dewan Housing Finance Corp. Ltd (DHFL) to distribute home loans last year.
“This will help us complete our retail product suite. We will be predominantly an originator for these cards with an aim to gain expertise, experience and increase our product depth when retail becomes our number one business in 2015,” Rana Kapoor, managing director and chief executive officer, said in a phone interview on Monday.
Yes Bank, which started operations in 2004, currently gives only secured personal loans, commercial vehicle loans, car loans and small education loans to individuals. Credit extended on the American Express cards will not be carried on the lender’s books.
Loans to individuals, at just 7.5%, make up a small part of the bank’s Rs.42,019 crore loan book. Retail loans, under which Yes Bank also classifies loans to micro, small and medium enterprises (MSMEs), amount to 14.7% of the bank’s loan book.
Kapoor said he wants to build the retail book “steadily”.
“We don’t want to go ballistic. We don’t want to take the open-market risk or take walk-in customers. We want to build it through our corporate clients over the long term,” Kapoor said, adding that selling American Express co-branded cards is a part of that strategy.
Kapoor said his plans for retail are a “multiple” of the bank’s focus on garnering relatively low-cost savings accounts deposits.
Yes Bank’s current and savings account deposits (Casa), at Rs.9,034 crore as of September, rose 87% from a year ago. Such deposits constituted 17.3% of the bank’s total deposits as of September, up from 11% last year.
Kapoor expects Casa to improve to 20% of total deposits by March.
To be sure, Yes Bank’s Casa ratio is still low compared with larger private sector peers such as ICICI Bank Ltd and HDFC Bank Ltd, which have Casa ratios in excess of 40%.
The increase in savings account deposits has been driven by Yes Bank’s 7% interest offering on savings account deposits above Rs.1 lakh and 6% on deposits below Rs.1 lakh since October 2011, after the Reserve Bank of India (RBI) deregulated savings account interest rates. Most public sector banks pay 4%.
Yes Bank’s focus on retail is being driven by its success in getting savings deposits, said Vaibhav Agrawal, vice-president of research at Angel Broking Ltd.
“Before the savings account deregulation, Yes Bank had only 0.1% of the banking deposits. That has now increased to 0.5%. This may not be big in the context of the industry but for a bank like Yes it is a big move,” Agrawal said.
Offerings such as credit cards will allow Yes Bank to start “new relationships, retain customers and cross-sell products”, Kapoor said.
Yes Bank plans to start giving its own unsecured retail loans in 2015 when, according to Kapoor, the bank will have at least 1.5 million customers.
“We are expecting to reap the benefits of retail banking by 2020 when 30% of our fees will come from this business, up from 10% now,” Kapoor said.
Yes Bank has 410 branches, which it plans to increase to 500 by March 2013.
Sanjay Rishi, president of American Express India, said Yes Bank’s base of high-value, affluent customers had been the main reason the card company chose it as a partner.
“Initially we will sell these cards in 165 branches of Yes Bank across seven cities. We are bullish on this market and are among the top three in India in terms of credit card spending,” Rishi said.
The rapid expansion of Yes Bank branches had allowed it to focus on selling retail products, said Kajal Gandhi, assistant vice-president at ICICIdirect.com, the retail broking arm of ICICI Securities Ltd.
“Retail margins are good and it also allows the bank to cross-sell. Going forward, as the bank adds more customers and gains more deposits, it is likely that they will look at high-yielding but riskier retail loans,” Gandhi said, adding that her brokerage continues to be positive on the bank.
Yes Bank’s strategy of approaching the retail lending business was a prudent one, said Angel’s Agrawal.
“They have been smart in a way not to take on risky lending and it continues on the credit cards as well,” he said.
Yes Bank stock has gained 91.3% so far in 2012, making it the best performing stock in the 14-share BSE Bankex, which has, in comparison, risen 54.87% during the same period and the benchmark Sensex, which has gained 25.44%. On Tuesday, the shares lost 0.29% to Rs.456.45 at the close of trading on BSE Ltd while the Bankex declined 0.36% to 14,176.21 points and the Sensex fell 0.12% to 19,387.14 points.