exchange4media in association with BBC World News held the second edition of the ‘One on One series’ in Mumbai recently and the theme for this year was—Global challenges in the wake of global market risks and India’s response. The guest of honour on the occasion was Rana Kapoor, MD & CEO, YES Bank, who spoke to BBC’s Ros Atkins and shared his insights on the subject.
Here are some excerpts from this exclusive interaction:
Is there any standard practice of handling the unexpected events as far as the banking and finance sector is concerned?
There is actually no standard practice, the fact is that every situation requires grasping ability, so it is very important to grasp a situation, secondly, make a decision and thirdly, if the decision goes wrong, then solve the problem immediately. To me, these are three main important characteristics which work in every industry. The ability of people to understand that decision making must be compulsive based on certain grasping abilities and then taking instant corrective actions if you go wrong is very crucial.
How would you describe the banking sector in India?
End of the day, banking is a public trust business, one needs to understand that public trust is supreme. My judgement in the context of India is that we had a little bit of regulatory atmospherics which have created naturally a reaction to the banking system. We must clean up the system and deal with people who have taken the liberty of exploiting it and have also taken the advantage of favours. But mostly 90-95% of the problems are genuine in the overall context of the Indian banking system.
Do you think the Indian banking sector can be relied upon to take calculated risks and do we need added regulations to ensure that Indian banks and people are not exposed to situations they faced few years back?
We have to recognise why Indian banking has gone through this turbulence, unlike the rest of the world, where governments gave dispensation through bailout, the banks had a soft landing. In India, the overall dispensation was given through the public sector banks and therefore they are going through some kind of turbulence. In my opinion, 90-95% of the borrowers are good borrowers and 5-10% are going through challenging situations and they are hurting the whole banking system. In order to ensure soft landing, we will have to preserve the economic value and not get driven by aggression.
Some people might say that public sector banks in this country did some restructuring because of the level of debt they had and the prospects of getting that money back. Do you think that having 70% of the industry in the public sector helps?
70% of the public sector banking system is not so bad. End of the day, there is a lot of value in the underlying assets because to build or recreate the assets is not easy. Secondly, there is preservation of economic assets and if we do proper refinancing or restructuring, these assets will become productive and will give good return to the stakeholders in the course of time. At the same time, it is very important to not get carried away by the horror stories everyday in the press about a few people; even those few people also have an intention of paying.
What are your thoughts on the growing trend of mergers and acquisitions?
As a bank, the merger factor is not a very critical factor. We as a bank have a lot of quality filters and we have been able to grow against adversity. So for me, the talent pool of YES Bank is immensely fantastic and the bank today with the demographics of the country. There is a lot of positive energy; no doubt, though we started with a lot of cynics in the market.
In case of merger, there can be a lot of personal as well as HR differences. To me, the quality of the growth is very important. The temptation of acquisition is there, but post acquisition you have to deliver and there are lot of question marks on some of the recent acquisitions.
What are your views about the current state of the Indian economy?
This is one of the most fantastic economies in the world, with political leadership being focused and getting the economic impetus in place through the recent Budget. I believe that this is an economy, which is very secular, linear and you can’t go wrong with it, until 2050. All the data points are fantastically stepped up, in terms of the business opportunities, things look bright. We will correct the turbulence in the economy in a maximum 12 months and currently we are on track.
A lot of people doubted the 7.6% GDP growth estimate number for India. Do you believe in the number game?
The fact is if you have an old system, you need to refresh and rebuild it, quite similar to technology. I believe there is a lot of credibility with the new economic definition of growth and it is a 100% reliable number. I am convinced that this will only improve because the real economy of India is growing. Consumption is among the best in the whole world, inflation is under control, current account deficit has been harnessed. All the elements which pull you down in growth have all been overcome.
What are your thoughts about India as a factory Vs India as a service?
India’s manufacturing pace has to be defined by sectoral segmentation and have strengths in certain industries which may have a lot of blue collar or blue revolution driven employment. But if you look at the GDP basket of the country, we are already 67% services driven. The fact of the matter is our niche and we moved a little bit faster than the world, but India must now not think only of low cost manufacturing but high value manufacturing. So the shift from the original vision to the current vision of doing defence, automobiles or focusing on pharmaceuticals, which are high value, added manufacturing sectors. Second point related to this is the DICE economy which is Design, Innovation, and Creatively driven Entrepreneurship.
I think India is going through a little bit of self confidence and self esteem that we should not only put in the BPO factories in place, but we must create product management. The start-up figures in our country, which currently stands at 9,600 are fantastic, the data points are very encouraging because they show that an entrepreneurship between the middle class and emerging class is now about to take off. What happened 20-25 years ago in Silicon Valley can be done here as well.
Why is it so difficult to get a loan from the bank, do you think it is the responsibility of the private sector to assist these people or the public sector banking comes in?
It is tough, the risk architecture of Indian banks need a lot of improvement. It is about different strokes for different folks. What is changed is segmentation- there is product segmentation, business segmentation and many more. In a heterogeneous country you cannot have a uniform product. You have to develop lending practices, relationship practices to cater to every geography in the country. There is an orbit changing intervention and people who understand that will gain and those who follow the traditional culture will be left behind. The nerve centre of banking is how you build risk architecture and make it proactive.
You had set a goal to build the best quality bank in India by 2020. Are you on track?
Absolutely we are on track. We have got the best human talent and we are deeply convinced that by 2020, we will be the best quality and the largest bank in India and by 2025; we will be the best quality and the largest bank of the world. I have all the raw materials and with digital, we can do it. We can be much better and bigger than Google and Alibaba.
Tell us about the moments of disappointment and doubt in the YES Bank journey and how did you overcome it?
The first 3-4 years of the commercial launch of the bank were fantastic. It was like the golden era of Indian economy in a new century. Then the Lehman crisis happened and we started to feel, why are we getting impacted by external factors? Our stock crashed for no reason, but we built it back. Second time, our stock crashed because of the extended Euro zone crisis and the third time it crashed was because in October 2012, India’s economy dipped below 6% after a fantastic run.
Yes there were doubts, but we realised that we must build more confidence among the teams and especially in adversity, we saw that the best opportunity comes in. So the maximum growth of our bank has happened against all odds.
How do you feel about the prospect of President Trump?
There is a school of thought that believes that America needs an aggressive President because aggression has been their strength and that is where their appeal lies. I don’t know the consequence of his being in the White House, but maybe he will sober down. The overall risk management system in the White House will ensure that the controls are there. I don’t know who is going to be there, but America’s aggression is a very important facet which should exude from the leadership.
What is the state of farming sector and what can your bank do to alleviate the pressure and reform the sector which is the face of the country’s economy?
This sector needs a little change and it needs to become agriculture business. Right now we are at the very basics, only wheat and paddy. But India can be the food factory to the world if navigated through good leadership. The ability of a country like India lies in its three seasons unlike the rest of the world which has only one season. We can crop three times on the same land, but the problem is that politics needs to come out of this sector because there is a very good business underlying it. We as a bank are building linkages and making sure the produce is not wasted.
What is your analysis of FDI- some people are excited that foreign investments can come into business, while some suggest that it could be a threat to smaller and local businesses?
The FDI policy, which our government is reforming, is very encouraging. It is a fantastic development, but it needs to be evangelized. FDI is very important in liberalising the financial services sector. The fact is that India has got opportunities galore but we have speed breakers of capital. So capital flow and capital providers must be given formula one or fast-track services. The private sector has also got a little choked and to grow it we need FDI.