Banking on The Make in India campaign

25-Feb-2016 #MakeInIndia Source: India Inc

Yes Bank has tied it’s mast to India’s economic transformation. In an exclusive interview with India Inc., Yes Bank President Arun Agarwal lays out his views on financing India’s economic growth. 

Arun Agrawal is the Group President & Global Head – International Banking, MNC Relationship & Transaction Trade Banking, at Yes Bank.

On behalf of India’s fifth largest private sector bank, he recently collected the Bank of the Year award for India at an awards ceremony in London. The ‘Banker’ magazine’s annual “Banker Bank of the Year Awards” are widely regarded as the Oscars for the banking Indus-try and India’s Yes Bank made the cut among 120 countries evaluated on a host of parame-ters.

Here he takes time out to speak to ‘India Investment Journal’ on what the award means to the relatively young banking group, how the Make in India campaign ties in with the Indian financial sector and the importance of sustainable banking in a country like India.

How important are awards like these?

‘Banker’ magazine does Banker of the Year for every country. In the past it has gone to large banks like HDFC and ICICI. For somebody like Yes Bank, which is a fairly young bank only 11 odd years old, to win this recognition is very prestigious.

Such awards do matter a lot. The magazine also does the top 1,000 banks of the year and we also figure in that. A recognition from ‘Banker’ as the Banker of the Year for India is a very proud moment for young bank like us.

What do you think won Yes Bank this recognition?

I would presume it is a combination of the fact that we have among the best financial parameters in the country, especially on asset quality. It could be various other innovative things that we have done around sustainable and responsible banking.

I would presume they would have looked at financial and non-financial parameters in totality. In the past we have won the ‘Transaction Bank of the Year’ award from ‘Banker’. Winning the ‘Banker of the Year’ now I think they feel in totality we are the best bank in the country for the year.

What are some of these innovations?

We launched a Green Bond which was fully subscribed by IFC, which was unique as the first emerging market Green Bond. We pioneered the concept in India.

When the Indian PM was in the UK, we announced an MoU with London Stock Exchange (LSE) for a potential foreign currency green bond issuance, listed on the London Stock Exchange. We have committed around $500 million to this. Also, we announced a GDR listing of an equivalent amount.

Just recently in Washington, we signed a loan agreement with OPIC, which is the development bank of the US government. The agreement is for a $265 million loan, where OPIC will take a $245 million position and Wells Fargo $20 million stake. This is a long-term loan with a 12-year maturity. In fact the MoU for this loan was announced during President Obama’s visit to India in January, the only private sector transaction announcement. He had announced $1 billion investment by OPIC for SME financing in India and this is part of that.

We work very actively with all development financing institutions as part of our aim of being a responsible bank committed to sustainable banking.

How do you see the Green Bond developing?

Green Bonds will lead to funds raised for investment in renewable energy, essentially wind and solar. We have the ability to raise foreign currency bonds and we could potentially do a green bond instead of a general purpose bond.

We have been one of the leading financial sector players in the renewable energy space since our inception. It has been a key thrust area and over the last 18 months or so, solar in particular has picked up really actively in India as a result of the government’s push.

We want to be ideally placed to coincide with the economic pick-up in the country.

As a young bank we are in any case adding more business verticles so we would expect to grow faster than the banking sector growth. As soon as the economy picks up further, we would have enough capital to enable us to grow faster than the banking sector.

Unlike state-owned banks, we are not constrained for capital.

Is the policy scenario in India conducive to this growth?

The key worry is the asset quality, especially for the state-owned banks, because it really impacts the ability of these banks to grow. And they being 70 per cent of the market, the economy would eventually suffer.

The Reserve Bank of India (RBI) and the government have both taken several steps addressing the major problem areas. The central government is doing a closer day-to-day monitoring of the state-owned banks to ensure that they are on top of asset recovery. The new bankruptcy code is a game-changer for the sector.

Ultimately growth will ensure that you are able to overcome the problems of the past. India still needs a lot of investment, especially in infrastructure, and bulk of that has to come from the banking sector. Things are overall moving in the right direction.

The Make in India campaign has resulted in a lot of foreign investor interest in India, especially in defence, railways, renewable energy etc.

Green shoots are definitely visible and consumer demand has picked up. The most recent growth data is positive and sentiment certainly has improved. The international investor community has significant hopes from India, especially since the other emerging economies are not doing as well. We are clearly the fastest growing economy in the world now.

The central bank has issued 22 new banking licences over the last year, which is unparalleled. These are all bold measures.

Where does global expansion fit into your plans?

We have identified London as one of three locations we would ideally want to open an off shore branch.We have already applied to RBI for a licence.

London would allow us to cover the UK and Europe market. This is part of three locations we have narrowed down for our overseas expansion, including Singapore and the Gulf.

Primarily these will be aimed at supporting our Indian clients for their businesses in India and off-shore. Our intent initially is to support these clients in their cross-border needs. We feel London as a key financial centre would certainly help us in that.

Once we have the regulatory approvals we will look at either a branch or a subsidiary, we will evaluate at that point of time.

A two-three year time-frame will be realistic, based on the approvals.

We are one of the most active banks in the infrastructure space, we have not shied away from doing 15-year kind of long-term funding in this sector. We feel we have the knowledge and expertise for such projects.

We will also continue to expand our retail franchise, whether in terms of our physical network by more than tripling our branch network by 2020 from 700 to about 2,500.

Above Article was first published in India Inc.’s India Investment Journal

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