‘We’ve stability on liquidity and a steady inflow of new deposits’

With the Reserve Bank of India (RBI) taking a second look at enhancing corporate governance in banks, it is time to revisit the proposal to form a holding company for government stakes in public-sector banks. On the sidelines of a digital conference in India, co-hosted by the Confederation of Indian Industry (CII) and international think tank Horasis, YES Bank Chairman SUNIL MEHTA speaks to Abhijit Lele and Pavan Lall about resetting the bank’s strategy and corporate governance in banking, and what they are to do to recover money. Edited excerpts:

Given that the pandemic has upended the business ecosystem, what’s your strategy to recast YES Bank and its model?

There is no question that we faced economic headwinds starting last year and a look at GDP and the quarter-by- quarter trend-line across all banks would show that the provision coverage ratio (PCR) was increasing, which meant that reevaluating risk portfolios was already the order of the day. After the lockdown and the early unlocking, month by month we are getting a better sense of what to do and it is de-bottling liquidity that is now the most important thing. There is no question there will be de-growth. When the new board was appointed on March 13, the focus was on what priority would be. It was immediate liquidity, capital adequacy, and the re-organisation of the ranks. Now, there is stability on liquidity and a steady inflow of new deposits from retail and institutional customers. The board and shareholders have in principle also cleared a fund of up to ~15,000 crore and we are working on our stressed-asset portfolios.

Are there plans to sell the stressed assets to third parties?

We leave it to the immediate management to suggest alternative solutions but as long as ever ything is in compliance with regulations, as a board we are open to out- of-the -box solutions.

There was a lot of optimism around retail banking. How does that look now and for the future?

As far as YES Bank goes, the bank had a very strong retail and digital strategy and in recent years even entered the credit card business, which is a good portfolio. The retail side of the business is still growing and our earlier problems were related to the corporate side. How do we grow from here? While the market is competitive and challenging, there are new areas for differentiation. Contactless banking, account opening, how you process KYC norms digitally, and more can be differentiators for the future. YES Bank’s service standards have always been competitive.

The RBI recently floated a discussion paper on corporate governance in banks. The government has talked about that for a while.

The fundamental part of good governance has to come from both lender and borrower, especially with large business accounts. In principle we have to change laws and regulations to keep up with the times. The other is that publicsector and private -sector banks need equal attention as do all financial entities that are dealing with public money. Most corporate -governance panels have focused more on private -sector banks and not public-sector ones, which, in my view, are India’s prime economic assets. State Bank of India has some 500 million account-holders, and PNB 170 million and 11,000 branches. That needs to be valued and embellished. Also, old banking laws need to be amended and upgraded to ensure they don’t override or conflict with regulations of t he Securities and Exchange Board of India on listed entities. Hence the draft guidelines issued by the RBI are a welcome first step to enhancing bank governance.

The Bank Boards Bureau (BBB) was to be a transient arrangement till the government formed a holding company to manage shareholding in publicsector banks. Has the time for it arrived, and how would it help the sector?

There is no question that publicsector banks need to be revamped. The government has to keep 51 per cent ownership but we do need to make them far more competitive and progressive in technology, customer service, risk management, employee performance, and more. They have huge advantages, thanks to their balance sheet strength and its reach. While they have strong competencies, they need to be up -skilled and need more management talent. I think it is time for the BBB to introspect that. The P J Nayak committee recommendations, including the holding- company concept, may be reevaluated.

How will the declining value of corporate assets be maintained for banks to recover money?

Banks will have to take a close look at large accounts and see where there was pre- Covid-19 exposure and what has followed later. There will be players with new growth prospects and some will have to take the hit. Take the auto sector, for example. Those with low productivity and inefficient use of capital will face challenges. Equally, there has been a $6-trillion infusion into the global economy, along with our domestic infusion, so some of that will make its way into businesses. I expect mergers and acquisitions to follow.

“PSBS HAVE HUGE ADVANTAGES, THANKS TO THEIR BALANCE SHEET STRENGTH AND ITS REACH. THEY NEED TO BE UP-SKILLED AND NEED MORE MANAGEMENT TALENT. I THINK IT IS TIME FOR THE BBB TO INTROSPECT THAT. THE P J NAYAK COMMITTEE RECOMMENDATIONS, INCLUDING THE HOLDING-COMPANY CONCEPT, MAY BE REEVALUATED”