YES BANK (Case) It was the high noon of liberalisation.

The dismantling of the Licence Raj had unleashed a new wave of energy. Mumbai banker Rana Raj Kapoor was restless. Having worked with Bank of America for 15 years, the last two spent overseeing its lucrative wholesale banking business, Kapoor wanted to break out of the executive mould and turn entrepreneur. In mid-1995, Kapoor, a Delhi University graduate with an MBA from Rutgers University, flew to the United States to make a presentation to the top brass of an American insurance giant. "My plan was to set up an NBFC, or a non-banking financial company, in India," he says. The insurer hinted it would be willing to take a majority stake in the proposed NBFC with a $5 million (Rs 22.5 crore) capital. On his return to India, an excited Kapoor shared his plan with his brother-in-law Ashok Kapur, then Country Head of ABN AMRO Bank. Though Kapur liked the plan, he felt the proposed NBFC would be too small. He convinced Kapoor to angle for a bigger NBFC, and introduced him to friends at the Dutch financial services player Rabobank NV. Soon Kapoor quit Bank of America and joined ANZ Grindlays Investment Bank as Country Head in India. During his two years at Grindlays, Kapoor held hush-hush meetings with Rabobank representatives. "Finally, we locked ourselves in a hotel room and hammered out an agreement," says Kapoor, recalling how he, Kapur and Harkirat Singh, former Country Head of Deutsche Bank, sealed the deal for a 25 per cent stake in an NBFC, Rabo India Finance, to be set up in partnership with Rabobank. Even though the talks had coincided with the South-East Asian currency crisis of 1997, an undeterred Kapoor went ahead and set up the NBFC in early 1998. "I believe it is always a good idea to start in times of adversity," says Rana, adding: "It makes the entrepreneurial journey much more challenging." The challenges did not end with the setting up of the NBFC. "I consumed whatever I had saved in my 17 years of service," he says. Initially, no money was coming in, and he had three young daughters to raise. By 2000, Kapoor had begun eyeing a banking licence. But he had trouble raising the seed capital for the bank. "We made the rounds of private equity funds to invest in our venture," he says. Then, barely a year after the Reserve Bank of India gave an "in principle" nod to their greenfield banking venture, YES Bank, one partner, Singh walked out, citing differences, in April 2003. After the RBI granted a formal approval to YES Bank in 2004, the next big challenge was doing a successful initial public offering, or IPO, to raise funds from the market. Here, Kapoor succeeded beyond market expectations, with his bank netting Rs 315 crore with the issue oversubscribed 30 times. "The YES Bank brand was actually born with the IPO," says Kapoor, "We initially decided to do only corporate banking where we didn't need a branch network, as against retail banking," he says.

Today, YES Bank has revenues of Rs 2,369 crore and a market capitalisation of Rs 9,500 crore as of March 31 this year. But now Kapoor is working hard to build the bank's retail side as well. YES Bank currently has 185 retail branches across the country and is in the process of opening many more. "We are entering a new stratosphere," he says of the bank's transformation plan for the next five years after which he would like his bank's portfolio to consist of 40 per cent wholesale banking, 30 per cent mid-corporate commercial banking with small and medium enterprises, and retail banking accounting for the rest. Meanwhile, the daughters had grown up. Raakhe, the second among them, joined YES Bank just before the IPO, and found it a great learning experience. An Economics graduate and MBA from Wharton Business School, Raakhe is currently Business Manager of Strategic Initiatives in the CEO's office. "I want to evolve as a financial entrepreneur," she says. Eldest daughter Radha is an entrepreneur already, but has nothing to do with YES Bank. Her holding company, DoIt Creations, owns two operating companies, one for dry cleaning premium clothes and the other for creating interior and exterior arts in the commercial spaces. The youngest daughter, Roshini, is still studying. Kapoor, however, has lost brother-in-law Kapur, who played a key role in building YES Bank and was formerly its Chairman. Kapur, who was dining in one of the restaurants at the Oberoi-Trident in Mumbai on November 26, 2008, was a victim of the terror attack that night. Kapoor and his bank have won several awards over the past five years. The latest was from the Bombay Management Association in March which felicitated Kapoor as the entrepreneurial banker of the decade. He is perhaps the first Indian professional to have successfully set up a greenfield banking venture, which is now the fourth-largest private sector bank in India in terms of total assets. What's next? "I want to give an institutional character to YES Bank," says Rana. That should not be difficult. Rana and his family are spreading their wings to emerge bigger and bigger in the decades to come. Findings Yes Bank Ltd is engaged in providing a range of banking and financial services. The Bank operates in four segments: Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations. The Treasury segment includes investments, all financial markets activities undertaken on behalf of the Bank's customers, trading, maintenance of reserve requirements and resource mobilization from other Banks and financial institutions. The Corporate / Wholesale Banking segment includes lending, deposit taking and other services offered to corporate customers. The Retail Banking segment includes lending, deposit taking and other services offered to retail customers. The Other Banking Operations segment includes para banking activities, such as third-party product distribution and merchant

banking. Yes Bank Ltd was incorporated on November 21, 2003. The company was founded by Rana Kapoor. The Bank obtained their certificate of commencement of business on January 21, 2004. In the year 2005, they forayed into retail banking with launch of International Gold and Silver debit card in partnership with MasterCard International. In June 2005, they came out with the public issue and their shares were listed on the stock exchanges. In December 2005, the Bank bagged Corporate Dossier award from Economic Times. In the year 2006, the Bank received Financial Express Awards for India's Best Banks. In April 2007, they made a tie-up with the Agriculture Insurance Company of India (AIC). The Bank was ranked as the No 1 Emerging Markets Sustainable Bank of the Year-Asia at the FT/IFC Washington Sustainable Banking Awards, 2008 in London. The Bank was ranked as the No 1 Bank in the Business Today-KPMG Best Banks Annual Survey, 2008. During the year 200809, the Bank opened 50 new branches and 18 new off-site ATMs. During the year 2009-10, the Bank opened 33 new branches. They opened 64 Branches during the year 2010-11. As of March 31, 2011, they operated 214 branches across 164 cities in India, and approximately 250 automated teller machines (ATMs). At the beginning of Financial Year 2010-11, the Bank embarked on an ambitious journey into the next phase of growth and launched YES BANK - VERSION 2.0, Building the Best Quality Bank of the World in India. Version 2.0 is clearly the most stimulating phase in the life cycle of YES BANK with a vision of establishing 750 branches, 3000 ATMs, 12,000 employees, Rs 125,000 Cr. Deposit base, Rs 100,000 Cr. Loan book and a Rs 150,000 Cr. Balance Sheet size by 2015. Dos and donts for Yes bank Full Interview with Rana Kapoor CIO: Tell us a little about the growth of YES Bank and its evolution. Rana Kapoor: We like to call ourselves a new-generation, private, Indian Bank, which I am sure, will evolve to the professionals bank of the country. We have had a sequential growth over the past six years as a wholesale bank (wholesale banks work primarily with institutions and organizations). These accounts constitute 64 percent of our business volumes. We have also established a full-service commercial bank, and this comprises 28 percent of our business. We are now leaning towards building an integrated SME and MSME (Micro, Small and Medium Enterprise) proposition. Through our enterprising branches across the country, we want to provide a superior service proposition and comprehensive banking services. In the next five years, we want to build an enduring financial institution through a culture that stimulates and fosters innovation in new products, services and processesand new business and financial models. YES Banks vision is to build the worlds best quality bank within India by 2015. And, I am sure, IT will help us manifest our vision. CIO: Lets talk about your career and what your banking experience has taught you. Rana Kapoor:

My career has fluctuated between commercial and investment banking and now to a more comprehensive banking platform. Prior to founding YES Bank, I was the CEO, MD, and main managing partner of Rabo India Finance, a corporate finance and investment banking organization. Before that, I was the general manager and country head for ANZ Grindlays Investment Bank. Three decades in banking has made me believe that to be a professional entrepreneur you need to nurture a powerful vision. I believe in the mantra of visualize to actualize. Once you develop a vision, you must charter out a differentiated strategic roadmap to translate that vision into reality. The success of an entrepreneur lies in his ability to differentiate his line of thinking and put together a team of execution-oriented leaders who share his passion to achieve and execute the vision. CIO: How have you brought these lessons to bear at the bank? Rana Kapoor: Piggybacking on my experience, YES Bank has been built on the pillars of knowledge banking, responsible banking, IT, human capital, and superior, high-quality customer service. I have also learnt that a banker needs to align his vision and strategy with precision deliverables. There have to be short-term, medium-term and long-term objectives and a clear and measurable blueprint. A professional entrepreneur should cultivate skills like problem solving and strategic decision-making. At YES Bank, we have instilled a culture of entrepreneurship. All YES Bank leaders are empowered to make decisions that are best for the organization and are in line with over-all business objectives. CIO: YES Bank cultivates an image of being a technology bank. What is ITs role? Rana Kapoor: Since our inception in 2004, we have known that if we were going to take on other established and well-entrenched players, we had to offer a different and compelling value proposition to our customers. In order to thrive in this highly-competitive and cluttered sector we would have to develop a strong innovation quotient in our business model and strategy, riding on IT. The first five years were about innovating to survive and keeping our cost-base low. Hence, we outsourced our IT to Wipro as part of a seven-year partnership deal in December 2004. Wipro set up and managed all of YES Banks core infrastructure and hardware, branch rollouts, networking, datacenters and back-up support on a build-own-operate basis. We were the first bank in India to adopt a total IT outsourcing model. Others soon followed suit. The next five years will be about innovating to thrive. In a bid to do this, we have tied up with US-based First Data Corporation (FDC), for example, for an innovative ATM deployment program. FDC will ensure that the ATMs are installed in high footfall locations. This move will help YES Bank reduce its capital expenditure as the cost of setting up and servicing ATMs will be borne by FDC. IT has always helped us negate the disadvantage of our smaller branch network and promoted us as key innovators in the sector. CIO: Can you give us some examples?

Rana Kapoor: YES Bank was among the earliest to get onto the online Real Time Gross Settlement (RTGS) and National Fund Transfer (NEFT) platforms. We were the first to enable speechrecognition in phone banking and, today, are ready to offer video-based phone banking services when 3G becomes widely available in India. We were the first bank in India to offer two-factor authentication for online funds transfers. We also offered Money Monitor, a first-of-its-kind, online financial aggregation tool in India. YES Bank introduced e-checks for the first time in India as well, where customers can make real time payments to any bank account with any other bank in India. As a matter of fact, we also introduced mobile paymentsa first-of-its-kind, secure, person-to-person payment service in association with Nokia and Obopay. YES Bank will act as the issuing bank and the custodian of funds under these services. CIO: Despite these strides, YES Bank still has some way to go. What is your vision? Rana Kapoor: I want YES Bank to be a global bank by 2020. We are aiming to become Indias No. 4 private sector bank by 2015. In order to realize this vision, we have embarked upon YES Banks next phase of growth, what we call Version 2.0. Towards this goal, we will be investing about ` 60-75 crore in expanding our branch network. In order to expand our panIndia footprint we are planning to open 100 new branches in the next year. We have received licenses from RBI to open 91 new branches in June 2010 and plan to scale-up our branch network to 750 branches in five years. YES Bank also plans to set up 500 ATMs by August which will be increased to 3,000 ATMs by 2015. In Version 2.0, I envision YES Bank achieving a balance-sheet of ` 1,50,000 crore, a panIndia branch presence of 750, manned by a staff of 12,000 by 2015. Currently we have an employee base of 3,030 people, which we plan to raise to 4,500 by end of this fiscal. Over the next five years, I am looking at a CAGR of 35 percent. In that five-year period, YES Bank proposes to take its loan book size to ` 1 trillion, from ` 221.93 billion now. We plan to expand our wholesale banking business. We are roughly about 20 percent of our potential. Similarly, in commercial banking we are 8-10 percent of our potential. We have less than 500 relationships in our commercial business and the potential is to expand it to 5,000 relationships. Then, in the SME business, we have a target of anywhere between 2-2.5 lakh relationships. As of now we have 7,500 customers in that business. CIO: You said 64 percent of your business comes from wholesale banking. Do you intend to change the equation? Rana Kapoor: Our focus will primarily be on branch banking with a focus on deposit mobilization. That is one area we need to improve: Our current account and savings account (CASA), and granular fixed deposits. YES Bank is looking to increase its CASA at a percentage of total deposits from around 10 percent to 20 percent by 2012. We have a strong focus on building strong, stable, low-cost CASA and if we do this our net interest margin should go up from 3 percent now to between 3.75 percent and 4 percent. Our long-term goal is to build CASA up to 40 percent by 2015.

CIO: What did the slowdown teach YES Bank? Rana Kapoor: We saw the economic slowdown as an opportunity. We believe in Carpe Diem or seize the opportunity, everyday! While most of our peers took an introspective approach, we decided to seize the moment and persistently pursue our business goals. This approach helped us identify key growth areas. We quickly realized that certain industry verticals showed potential even during recessionary times. Our focus was on harnessing the latent potential of these sectors. Some of these verticals were agribusinesses, the healthcare sectorwhich includes pharmaceuticals and life sciencesand the infrastructure space. These three sectors emerged as our focus areas. The agribusiness showed tremendous potential and proved to be relatively resilient to the economic downturn. And it is still untapped. The other big area that needs to be tapped is the services sector where there is enormous potential. Agriculture, healthcare, hospitality, infrastructure, and education will be the industry verticals that we will focus on to drive our growth. We also strengthened our in-house capabilities, pursued a differentiated business strategy, and kept a single-minded focus of delivering innovative products and services to drive customer satisfaction. We have outgrown the industry so far this fiscal and delivered better than expected returns to all our stakeholders since our inception. Going forward, the single most important focus of our short- and medium-term strategy is to build strong institutional relationships. CIO: What are YES Banks technology plans for the future? Rana Kapoor: To take our service-oriented and customer-friendly banking approach to the next level, we are innovatively leveraging RFID technology to setup branches of the future. One such branch has been established at the South Extension at New Delhi. Here, customers debit cards are embedded with RFID microchips, which transmit identity information to relationship managers as soon as customers walk in. The customers basic details and a photograph pop up on a relationship managers screen, saving time and eliminating introductory verification. Such branches will be launched as a novel concept in partnership with Intel. The South Extension branch has been designated as the YES Bank Intel Global Innovation Center, where such and more innovative technologies will be tested live in a production environment for the first time. This is Intels only Global Innovation Center outside of China. I am quite sure that such initiatives would help us stay lean, dynamic and competitive.