Rana Kapoor | Talks for housing finance tie-ups at advanced stage

Rana Kapoor | Talks for housing finance tie-ups at advanced stage

Mumbai: Private sector lender Yes Bank Ltd has sought Reserve Bank of India (RBI) approval to start overseas operations with a branch in Bahrain in an expansion phase that includes a $500 million (Rs 2,255 crore) overseas bond issue early next fiscal and a listing of shares on American bourses in two years, Rana Kapoor, managing director and chief executive officer of the bank, said in an interview on Friday.

The Bahrain branch will be complemented by a representative office in the United Arab Emirates (UAE), focusing on trade finance and funding Indian firms’ overseas expansion.

Yes Bank also plans to raise $400-500 million through medium-term notes (MTNs), Kapoor said. “Our predominant consideration today is to do our maiden bond issue through the overseas branch."

In the first week of November, Moody’s Investor Services assigned a Baa3 investment grade rating to Yes Bank, making it eligible to mobilize money from international investors. The bank has started the groundwork for an American depositary receipts issue, Kapoor said. “We want to be the third Indian listed bank in that market (after ICICI Bank Ltd and HDFC Bank Ltd), because it will put us into a global orbit. In the next one to two years, it will be our endeavour to look at the possibility," Kapoor said. The bank has appointed global consultancy firm KPMG to advise it on the Bahrain plans. Edited excerpts from the interview:

Soon we will see a new set of banks. How has your experience in the past six years been?

We are in 26 out of 28 states with 170 branches and 3,500 people. The first years took care of the foundation. The second phase of expansion till 2015 is about building scale. We are changing gear to become a good early-stage large bank. We visualize a total asset base of 1.5 trillion, with 12,000 people, 750 branches and 2,500-3,000 ATMs.

What are the challenges?

We have chosen to be a good pan-Indian bank. But, at the same time, we also want to be a good host-country bank to international banks who have a presence or who want to have trade and payment relations with India. We also want to be present in some key locations during this phase. We want to have one key wholesale branch in the Middle East, preferably in Bahrain. It’s a door opener for the Middle East. It will also help us tap NRI (non-resident Indian) funds and allow us to raise international funding.

Are there any plans for the home turf?

In the first five-and-a-half years, we were able to grow at 74% CAGR (compound annual growth rate) with only 150 branches. Now we are talking about a CAGR of 35%, double the banking credit growth, in the backdrop of 8-9% growth in the economy.

HDFC Bank has stayed above 30% (CAGR) for 16 years, and Axis Bank, 40-45% CAGR in the last decade in a relatively softer economic scenario. We can safely do it in the current scenario.

From where will the growth come?

We have tapped just 8-10% of the corporate business and only 4-5% of emerging companies with a turnover between 200 crore and 2,000 crore. This business can grow 15-20 times. In the SME (small and medium enterprise) segment, our target is one lakh companies from 1,000 now.

We see the corporate segment contributing 40% of our business, and SME and retail as well as emerging companies, 30% each. Currently, 73% of business comes from large companies and 21% from SMEs.

You will need capital...

Since inception, we have been raising money every year. If we crystal ball this into the future, we will need doses of capital every 18-21 months, and it’s very important that we maintain our RoE (return on equity) at 20% and RoA (return on assets) at 1.5%. The objective is keep the net interest margin (NIM) at a minimum 3%, cost to income ratio below 40% and improve our Casa (current and savings accounts). So when we improve our Casa from 10% to 30%, we are looking at 4% NIM. A significant part of our earnings will be retained in the bank.

Is there no plan to become a one-stop shop with a non-banking firm and a brokerage?

There are distinct advantages in having these vehicles. We are waiting for RBI guidelines on holding companies. When that happens, we will definitely have an NBFC (non-banking financial company), complementary brokerage, and also consider the mutual fund business.

What about home loans?

We are in advanced stages in teaming with two leading housing finance companies for a distribution tie-up. We can get origination fees and share the risk while processing, and booking will be done by the partner.

And credit cards?

One new idea is commercial credit cards with large corporates. We will go for the partnership model. We are talking to Bajaj Allianz, where they will cater to the insurance requirements and we cater to banking requirements. A pilot project is on in Pune.

What’s the role of Rabobank now?

Rabo exited with mutual consent in June, selling 1% of its 15.9% stake, making $200 million in the process. Now it has 4.9% and has conveyed an intent to maintain it, given the returns in the first phase, as a pure financial investor.