Rana Kapoor, the CEO of Yes Bank, talks 'India Investment Journal' through his company's recent tie-up with Santander UK, the impact of demonetisation and the gains in store for the banking sector with GST.
What is the thinking behind the tie-up with Santander UK
The UK-India corridor is a high priority corridor for us. The fact is that India is the fastest growing economy in the world today and quite naturally the opportunities between India and the UK are getting catalysed. Especially, SMEs [small and medium enterprises] need cross-border partners and banks are the channel that can help open new markets for them. Santander and Yes Bank are looking at providing a collaborative platform to help SMEs penetrate new geographies.
What has been the impact of demonetisation on the Indian economy
Demonetisation has become a strong case for remonetisation. What we have seen is a re-conditioning and a re-platforming of the economy and this is becoming very measurable because it has been only six months and financialisation of the economy has really stepped up. This is reflected in the overall increase in public deposits - savings accounts and current accounts - number of digital transactions which are growing exponentially, inflows in retail mutual funds, as well as overall in the uptick in the insurance market.
The overall savings propensity in the economy due to demonetisation has really stepped up. The benefits of demonetisation are now multiplying. The last six months has shown enough proof that it is also helping reduce investments in speculative areas. There is a stratospheric shift happening in the overall economy as a result of this tectonic reform. If the Monsoon continues to be as good as the Met Office has predicted, the second half of this year, with GST now slowly coming together, should be a very important catalyst for economic turnaround. I see the economy getting to at least 8.5 per cent growth by 2019 and possibly by 2020 onwards, even close to 10 per cent.
What kind of impact do you forsee of the Goods and Services Tax (GST) from a banking sector perspective
GST in itself has come together, so let's see the good news first. Anything that is as complex and dense, will have some short-term pains but nobody can take away the fact that there are significant measurable gains which are likely to emerge from GST's implementation.
Naturally, it will need a very good information technology architecture. Fortunately, some of that exists on the back of the Aadhar stack. If there is good cooperative federalism between the Centre and the states and issues are sorted out, the gains will be exponential. It can improve India's GDP by anywhere between 2-2.5 per cent over the next two-three years. So that is not even long-term, that is a medium-term impact.
Some pain, for a lot of gain.
How has the Green Bonds market developed
The first local currency Green Bond, in Indian Rupees, for Rs 10 billion was done in India in February 2015. In August 2015, Yes Bank listed the first rupee Green Masala Bond on the London Stock Exchange with a tranche of $50 million equivalent, enabled by IFC Washington. So, we have contributed to the development of local currency Green Bonds as a young bank, not only in India but in emerging markets across the world.
The next step, expected in this calendar year, is to target a US Dollar Green Bond from India and list it on the London Stock Exchange - that deal size could be anywhere between $300 and $500 million. We already have one international rating, which is Moody's, and are in the process of getting a second rating.
These bonds are a very big new development because Green Bonds qualify for infrastructure bonds and help reduce cost of funds quite drastically because these are exempt from India's statutory reserve requirements and priority sector lending requirements. It is a very good instrument for India's renewable energy growth and meeting the sustainable development goals as per the Paris 2015 accord.
At the time, Yes Bank also made a commitment to finance $5-billion worth of climate finance and we have already completed $2 billion of that target for 2020.
How do you see the bonds market developing
In future, we could have Blue Bonds and smart city bonds. There is also a very attractive proposition under the banner of Housing for All by 2022. That is creating tremendous opportunities for low-cost, affordable housing bonds, which will also qualify for infrastructure bonds and also have the same advantages as Green Bonds.
There is a lot of product development opportunity in India, synchronising with the sunrise developments taking place. This is where Yes Bank is trying to bring the future into the present, with our very entrepreneurial, knowledge driven and pioneering approach to address the Indian economy's growing needs.
How have India's efforts to attract foreign direct investment (FDI) fared
India's brand equity is at an all-time high, thanks to the unequivocal front-ended leadership of Prime Minister Modi. That builds the confidence and conviction in creating a very enabling FDI environment in India.
As an example, Amazon has invested $7-8 billion only in India's e-commerce. The main beneficiaries of e-commerce are really the micro and small and medium suppliers entering the marketplace without intermediaries and finding their goods and products reaching urban homes. This creates more jobs and more opportunities.
Some of the early stage investments coming into airports, logistics and transportations, railway system, agri infrastructure and defence indicates that directionally India is moving along. Dovetailed with design and innovation, these developments will build the frugality in the economy.
The digital economy in India is in itself the single biggest opportunity, including for banking. Yes Bank is already handling around 40 per cent of UPI [Unified Payments Interface] payments in India despite being the country's youngest bank.