YES BANK MAINSTREAMING DEVELOPMENT INTO INDIAN BANKING
Submitted By Padmesh Godwani 1321429 Sourav Kumar Jain 1321437
CASE PROBLEM Kapoor s plan is to grow YES BANK s balance sheet from current $8.1 billion to $30billion by 2015. The Indian
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market is full of business opportunities, however, competition is intensifying. Somak Ghosh, Group President of Corporate Finance and Development Banking has proposed two new initiatives for the Development Banking division-the deployment of the Financial Inclusion Program and formation of Tatva Capital- which requires significant capital over a period of 3 to 5 years. Kapoor is in dilemma whether to commit the huge amount required on his own or to refer the initiatives to the Board. ”
YES Bank has differentiated itself from its competitors through three strategies: Knowledge Banking approach Emphasis on technology Human resources “
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Company
YES Bank has succeeded in gaining a competitive advantage in the Indian Banking Industry by leveraging its capabilities. Knowledge banking has been YES Bank s main pillar of differentiation, using which it has provided specialized services to various sunrise industries through domain expertise. As a new generation bank, YES BANK has the advantage of accessing the latest available technology. The Bank took a calibrated decision to invest in the best IT systems and practices in order to make its technology platform a strategic business tool to build competitive advantage. The Bank has outsourced a significant part of its technology, infrastructure and hardware requirements. The technology platform enabled the Bank to achieve high standards of customer service at comparatively lower cost structures. One of the key features of the Bank's technology strategy was to establish long-term partnerships with best-in-class technology service providers that enables co-creation of value and offers differentiated solutions to its customers. YES Bank has also believed in the use of Human Resources as a strategic asset. Human Resources have played a key role in enabling the Bank to achieve long term competitive advantage in the industry. The bank has recruited and nurtured talent for the long term success of the organization. ’
INTERNAL ANALYSIS OF YES BANK Resources
Finance, Technology, Employees In terms of finances YES BANK started with a modest initial capital of $45 million and currently it is the sixth largest private sector bank in INDIA with a net income of $303.7 million and a balance sheet of $8.1 billion. Also financially YES BANK has committed to an incremental expenditure of $8.6 million for financial inclusion program and an expenditure of $11 million for Tatva capital investment.
In terms of technology YES bank took a unique step of signing a seven year deal with the IT giant Wipro InfoTech. As a result of this Wipro now manages the entire non-core technological infrastructure requirements of the bank including the IT infrastructure and hardware, networking and managing a data canter on a build, own and operate basis. This move actually prompted many competing banks to make such deals.
In terms of human resources YES BANK currently have 3024 employees across INDIA. The bank lays emphasis on adapting differentiated human resource practices, to attract top notch talent YES Bank introduced the YES BANK Professional Entrepreneurship program (YPEP), a lateral talent acquisition program aimed at hiring people who had started their jobs six months earlier but were receptive to alternatives to their current jobs. These recruits are given absolute freedom to create their own job
description and take on greater job responsibilities. From this program YES Bank has already recruited around 250 young and talented individuals. YES Bank s employees working in the wholesale banking sector comprises of a lot of people from non- banking backgrounds and have deep domain expertise in their respective sectors. ’
Core Competencies
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YES Bank has various core competencies by which it differentiates itself from various other banks in the industry. This include its unique knowledge banking approach where it focuses specifically on high growth sectors such as food and agriculture, infrastructure development, telecommunications, IT and urban real estate. 2. Similarly another major differentiator for YES bank was its objective to champion the concept of responsible banking . Under the aegis of this positioning, the bank committed itself to innovative banking practices that best served INDIA s development and provided solutions to nations entire economic “
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PORTER’S FIVE FORCE ANALYSIS I. Rivalry amongst competitors: Low In the development banking sector, the threat of rival firms is low as there are very few players. Most of the banks look to just achieve the minimum necessary target of priority sector lending. However YES bank has made PSL as its mainstream process and hence does not face a lot of competition here. The sustainable sector in India was still small and YES Bank`s sustainable Investment Banking group had the first mover advantage. It was believed that it would take at least more than two years for any competitor to replicate the bank`s model.
II. Bargaining power of Suppliers: Low 1.
Nature of suppliers-The primary suppliers of funds for the banks are the depositors. Depositors are mainly people who prefer low risk and those who need regular income and safety as well. Banks are the best place for them to deposit theirs surplus money. Apart from this, suppliers also supply stationeries, computers and peripherals to the bank. The switching cost of one supplier to another is time consuming and costly process. The bank has to get support from cash filling agencies to fill its ATMs throughout the country. Since these things are very important to the bank, suppliers are gaining bargaining power .
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Suppliers not concentrated-Suppliers of funds i.e. depositors are numerous, not concentrated and with low portion to offer leading to low bargaining power.
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Backward Integration- The banks also engage in the backward integration with the suppliers through
microfinance, thus increasing the capital available.
III. Bargaining power of customers: High 1.
Large number of alternatives:Customers have large no of alternatives to choose from: Private Banks, government banks, co-operative banks, foreign banks, NBFCs, other financial institutions. All of these banks have similar financial products and services leading to a greater number of choices available for consumers. The main similar products offered by the banks are savings and current accounts, internet banking, debit card services, mobile banking, different kinds of loans and deposits, insurance services (life and general), and investment & trading services. Whenever customers feel that the service offered by a bank is unsatisfactory, they can easily go for substitute with a low switching cost.
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Low switching cost:Cost of switching from one bank to another is low. Switching costs have become lower with facilities like internet banking .
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High price sensitivity:Customers are highly price sensitive, ready to switch from one bank to another on account of interest rate differentials.
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High information about the market:Customers have high information about the market due to globalization and digitalization. Consumers have become advance and sophisticated and can judge the creditworthiness of banks better.
IV. Threat of New Competitors: Low 1.
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Rules and regulations: Stringent rules laid down by RBI for entry of new banks which restrict easy entry into the sector. Regulatory barriers include minimum capital requirements, restraints on lines of business, licensing of branches or subsidiaries, restrictions on full-fledged entry of foreign banks. High investment: Huge investment is required for manpower, technology, trained professionals, assets etc. As per RBI guidelines, minimum capital requirement for entering the industry is ` 500 crore. Subject to this, actual capital to be brought in will depend on the business plan of the promoters.
V.Potential Development of Substitute Products: High In rural areas, people are more comfortable going to the local money lenders or Sahukars . Many of the village folk have not been exposed much to banks, and are not comfortable with it. They are more at ease going to their local money lenders who are influential persons who lend money without too many formalities. “
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CONCLUSION The strategy of the YES Bank was to make itself a compelling proposition for both depositors and borrowers. But its initial capital base was very less compared to other Indian banks and thus, it faced challenges in raising liabilities initially. However, despite these challenges, YES BANK grew at a rapid pace due to its strategic and management team focus on the Financial Markets, Investment Banking, Transactional Banking and Corporate Finance. Its success was due to a series of innovative and differentiated business strategies which includes outsourcing Wipro for its entire non-core technological infrastructure requirements, adapting differentiated human resource practices, not investing huge capital in retail branches, focusing specifically on high growth sectors etc. It was the first such contract in Indian banking which significantly improved capital efficiency. YES BANK s wholesale banking team has deep domain expertise in their respective sectors. Thus, knowledge banking ’
is the heart of their core businesses. They provide knowledge driven banking solutions to all their commercial and corporate banking clients. Its objective to champion the concept of Responsible Banking to promote “
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financially inclusive growth is another major differentiator. Under this, the bank is committed to innovative banking practices that best served India s development and provided solutions to the nation s entire socioeconomic pyramid. The result of this vision and strategy was the evolution of YES BANK s Development Banking practice which ’
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is divided into four distinct practices: Agribusiness, Rural and Social banking; Microfinance; Sustainable Investment Banking; and Responsible Banking.
