Pralay Mondal’s office on the 22nd floor has a magnificent view of the Bandra Sea Link bridge in Mumbai. ‘That view is for visitors,’ he laughs. ‘My back is facing it, probably because my organisation wants me to focus and keep away from distractions,’ he adds modestly. As Senior Group President, Retail and Business Banking, at YES Bank, Pralay has a challenging task ahead. He has to build the retail arm of the bank that entails a three-fold growth in distribution network, doubling manpowe, and executing the vision laid out for the next four years. Given his experience with FMCG companies as well as HDFC Bank in his earlier assignments, Pralay knows the lay of the land, especially the interior parts. He talks about how YES Bank has coped with some of the challenges and what lies ahead. Excerpts:

How has YES Bank managed to avoid the NPA (non-performing asset) problems associated with the rest of the banking sector?

It would be naive to say that we are NPA-free. We are probably a little better off than others. The biggest problems — the overleveraging and high corporate debt — didn’t happen now or recently, but between 2009 and 2012. We were small then. As a bank, even if we wanted to, our prudence didn’t allow us to participate. In some of the big deals that look bad today, we couldn’t participate because our balance sheet size was small. To that extent, by design we avoided it.

Secondly, we preferred bilateral deals, where we could enforce our collateral rather than be in a consortium where the bigger banks call the shots. We generally moved out of consortiums in most places. We believe we are more efficient on the structuring, so we decided to do more bilateral deals.

Third, we never postponed tackling any problem. Whenever we saw a problem coming, we recognised it, and took the hit on P&L. I am not saying restructuring always means postponing the problem, but the structure tends to allow you to do it. We did not use those tools as a part of managing NPAs.

The fourth thing we did well was to do takeouts in a few cases where we had good collaterals and we could sell them to other lenders and get out. It is basically prudent risk management and quick decisions.

Having said all that, is it easy? No. It is never easy. We slowed down when we had to and now when everything looks bad on the surface, there is an opportunity to grow.

How has your retail portfolio functioned?

There is always a cycle. There was a significant problem in retail between 2008 and 2010.

Many banks took hits. Memory is short. They have forgotten what happened to unsecured loans, credit cards, two-wheelers, and SMEs (small and medium enterprises) — just like what we see in the corporate sector today.

But in retail there is no restructuring. So it flows into the P&L and at best it will take two years to get sorted out. So, by 2013, everything got cleaned up and we started on a clean slate. Secondly, with multiple credit bureaus coming up, banks could become more cautious.

Thirdly, there were not many job losses across industries. The average salary inflation was 8-10 per cent. And, housing prices were also moving within a range.

From that perspective, the ability to take a loan and service it still remains. So, when you look at all this, retail has been a reasonably steady portfolio.

We are in a sweet spot in retail right now. But I am sounding a caution, that mistakes are made in good times and good decisions are made in bad times. The most important thing in retail is to create good infrastructure, processes, leadership, and technology.

Will the emphasis on retail change your bank’s focus from being a wholesale bank?

No. We will still be mainly a corporate bank. Now about 65 per cent of our advances are to that sector. As our retail portfolio grows that proportion may come down. But remember, we are only 11 years old as a bank and only five years old as a retail bank.

We have seen three difficult economic cycles in this period — 2008, 2011 and 2013. We have still kept growing.

We will continue to be strong on the corporate side. As for the other parts — business banking, SMEs, etc., — the opportunity is absolutely huge.

Public sector banks are not as aggressive as they were in 2008 on the retail side.

With your branch expansion plans laid out, you are going to deeper geographies. So will that mean more rural focus?

Yes. What we have done is we have created a third vertical which will only do rural business.

Forty per cent of the branches will be handled by them. In addition, we have created a separate vertical for rural assets. They will do products like kisan credit cards, (KCCs), crop loans, two-wheeler finance, supplier finance, tractor loans, following the money, and catching the cycle.

In rural markets, if you go with a wealth and liability focus you will not get any business. Hence, it has to be an asset-led model not liability-led model. That is why we are creating that franchise.

That is our three-year vision. The real multiplier will come when we do business banking in rural areas.

Please elaborate on that…

Sure. What happens in this market is different from metros. The ticket size is smaller. The customer could be a laundry shop, a grocer or a tailor for the entire village. He will need working capital.

He would be running a small trade. You have to catch the cash flow. They are not going to run away from there.

Understanding the eco system, the cash flow, is very important. For that you have to be present there. There is no credit bureau score to go by.

The bank’s branch head sitting there is the most important person. To an extent, this follows the public sector bank (PSB) model to a certain extent, where the branch manager is the representative of the bank and he is the front-end of every transaction, including collections.

The only difference between a PSB and us is that the credit decision will not be done by the manager. He can give inputs — so there is the maker and checker model there.

All our products will go and support him. He can do the first level work and someone from the feeder markets will do the loan melas and support.

We have hired people who understand this.

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