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Kapoors plan is to grow YES BANKs balance sheet from current $8.1 billion to $30billion by 2015. The Indian market is full of business opportunities, however, competition is intensifying. Somak Ghosh, Group President of Corporate Finance and Development Banking has proposed two new initiatives for the Development Banking division-the deployment of the Financial Inclusion Program and formation of Tatva Capital- which requires significant capital over a period of 3 to 5 years. Kapoor is in dilemma whether to commit the huge amount required on his own or to refer the initiatives to the Board.

1. Economic environment State of the Economy Indian economy has registered a growth of around 8 per cent for last three year and is expected to maintain robust growth rate as compared to other developed and developing countries. Banking Industry is directly related to the growth of the economy as it leads to an increase in funds available for the industry. The contributions of various sectors in the Indian GDP for 2007-2008 are as follows: Agriculture Industry Service Sector 17% 29% 54%

It is great news that today the service sector is contributing to more than half of the Indian GDP as it provides more opportunities for the growth of the banking sector.

Rates set by RBI-Various rates set by RBI such as repo rate, reverse repo rate, bank rate, SLR, CRR determine the availability of funds in the economy and the credit generating

capacity of banks. Currently, the RBI is following a policy of injecting liquidity into the economy and these rates are set accordingly. Unemployment Rate- It directly affects the GDP of the country and in turn affects the savings of the people which forms the basis for the supply of funds to the banking sector. The rising unemployment rate, as seen in the figure below, has adversely affected the banking sector business environment.

2. Technological Environment: Over the years, the banking sector in India has seen a no. of changes. Most of the banks have begun to take an innovative approach towards banking with the objective of creating more value for customers and consequently, the banks. Some of the significant changes in the banking sector are discussed below: Plastic Money: Plastic money is a delicious gift to Indian market, giving respite from carrying too much cash. It works on the formula of purchase now repay later. The most popular form of plastic money is credit cards. Mobile Banking: Taking advantages of the booming market for mobile phones and cellular services, several banks have introduced mobile banking which allows customers to perform banking transactions using their mobile phones. For instances HDFC has introduced SMS services. Mobile banking has been especially targeted at people who travel frequently and to keep track of their banking transaction. Rural Banking: One of the innovative schemes to be launched in rural banking was the KISAN CREDIT CARD (KCC) SCHMME started in fiscal 1998-1999 by NABARD. KCC made it easier for framers to purchase important agricultural inputs. In addition to regular agricultural loans, banks to

offer several other products geared to the needs of the rural people. Private sector Banks have also realized the potential in the rural market. NRI Services: With a substantial number of Indians having relatives abroad, banks have begun to offer services that allow expatriate Indians to send money more conveniently to relatives India which is one of the major improvements in money transfer. E-Banking: E-Banking is becoming increasingly popular among retail banking customers. It helps in cutting costs by providing cheaper and faster ways of delivering products to customers. It also helps the customers to choose the time, place and method by which they want to use the services and gives effect to multichannel delivery of service by the bank. E-Banking is driven by twin engines of "customer-pull and Bank-push".

3. Political Environment: In the early 1990s, the government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank, Axis Bank, ICICI Bank and HDFC Bank. This move along with the rapid growth in the economy of India revolutionized the banking sector in India which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the relaxation in the norms for Foreign Direct Investment. A banker works within the financial system to provide loans, accept deposits, and provide other services to their customers. They must do so within a climate of extensive regulation, designed primarily to protect the public interests. Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank license to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's orderalthough money lending, by itself, is generally not included in the definition. The requirements for the issue of a bank license vary between jurisdictions but typically include: Minimum capital ratio 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers Approval of the bank's business plan as being sufficiently prudent and plausible.

4. Legal Environment: RBI plays an important role in the banking sector and performs various functions such as formulation and implementation of monetary policy, regulation of financial system, manager of exchange control and controller of credit. The detailed analysis of rules and regulations is given later.

5. Social and Cultural Environment: Shift Towards Nuclear Family The attitude of people in India is changing. Now, younger generation wants to remain separate from their parents after they get married. Joint families are breaking up. There are many reasons behind that. But banking sector is positively affected by this trend. A family needs home consumer durables like fridge, washing machine, television, bike, car, etc. so they demand these products and borrow from banks. Recently there has been a boost in housing finance and vehicle loans. Also, often, due to lack of funds, they opt for installments. Hence, banks satisfy nuclear families wants. Change In Life Style Life style of Indian people is changing rapidly. The demand for high end products like cars, mobiles, gadgets is increasing rapidly. This is true even for the middle class. This has opened opportunities for banking sector to tap this change. Borrowing funds through loans makes it possible to purchase these products even when there is a paucity of funds. Population Increase in population is one of the most important factors which affect the private sector banks. Banks open their branches after looking into the population demographics of an area. Percentage of deposit in any branch of a bank depends upon the population demographic of that area. The population of India is about 121 crores and about70% of this population is below 35years of age. They are in the prime earning stage and this increases the earning of the banks. Total Deposits mobilized by the Private sector banks showed a subdued growth during 201112.Income distribution also affects the operations and overall business of private sector banks.

Literacy Rate Literacy rate in India is very low compared to developed countries. Illiterate people hesitate to transact with banks due to lack of information, collateral etc. So, this impacts negatively on banks. But there is positive side to this as well i.e. illiterate people trust more on banks to deposit their money; they do not have market information and opportunities in stocks or mutual

funds. So, they look at banks as their sole and safe alternative for depositing funds. Currently, the literacy rate in India is around 74.04%.


1. Industry Perspective The banking industry consists of players from 3 sectors: Public, Private and Foreign. The number of banks in each sector is as illustrated below.

2. Marketing Perspective A variety of financial intermediaries in the public and private sectors participate in Indias financial sector, including the following: Commercial banks Long-term lending institutions Non-bank finance companies, including housing finance companies Other specialized financial institutions Insurance companies Mutual funds

a.Commercial Banks Commercial banks in India have traditionally focused primarily on meeting the short-term financial needs of industry, trade and agriculture. As of June 30, 2004, there were 290 scheduled commercial banks in India, with a network of over 67,118 branches serving approximately Rs. 13.86 trillion in deposit accounts.

Public Sector Banks Public sector banks make up the largest category in the Indian banking system. They include the State Bank of India and its seven associate banks, 19 nationalized banks and 196 regional rural banks. As of June 30, 2004, excluding the regional rural banks, the remaining public sector banks had over 46,500 branches accounting for approximately 73.2% of the outstanding gross bank credit and 77.9% of the aggregate deposits of the scheduled commercial banks. The public sector banks large network of branches enables them to fund themselves out of low cost deposits.

Private Sector Banks After the first phase of bank nationalization was completed in 1969, public sector banks made up the largest portion of Indian banking. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, RBI permitted entry by the private sector into the banking system. This resulted in the introduction of nine private sector banks. These banks are collectively known as the new private sector banks. There are ten new private sector banks at present, including Yes Bank. In addition, 20 private sector banks existing prior to July 1993 are currently operating as of June 30, 2004. As of March 31, 2004, private sector banks accounted for approximately 17.0% of aggregate deposits and 19.8% of gross bank credit outstanding of the scheduled commercial banks. Their network of approximately 5,737 branches, as of June 30, 2004, accounted for approximately 8.55% of the total branch network of scheduled commercial banks in India.

Foreign banks As of June 30, 2004, there were 32 foreign banks with approximately 215 branches operating in India, accounting for approximately 5.1% of aggregate deposits and 7.0% of outstanding gross bank credit of scheduled commercial banks. As part of the liberalization process, RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. Foreign banks operate in India through branches of their parent banks. While presenting its budget for fiscal 2003, the Government announced that foreign banks would be permitted to incorporate subsidiaries in India. Subsidiaries of foreign banks will have to adhere to all banking regulations, including priority sector lending norms, applicable to domestic banks. The primary activity of most foreign banks in India has been in the corporate segment. However, in recent years, some of the larger foreign banks have started to make consumer financing a larger part of their portfolios based on the growth opportunities in this area in India. These banks offer products such as automobile, finance, home loans, credit cards and household consumer finance.

b. Cooperative Banks Cooperative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban and semi-urban areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. In the light of liquidity and insolvency problems experienced by some cooperative banks in fiscal 2001, RBI undertook several interim measures, pending formal legislative changes, related to lending against shares, borrowings in the call market and term deposits placed with other urban cooperative banks. Presently, RBI is responsible for supervision and regulation of urban co-operative societies, and the National Bank for Agriculture and Rural Development (NABARD) for State Co-operative Banks and District Central Co-operative Banks. c. Long-Term Lending Institutions The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernization of existing facilities. These institutions provide fund based and non-fund based assistance to industry in the form of loans underwriting, direct subscription to shares, debentures and guarantees. The primary long-term lending institutions include Industrial Development Bank of India (converted into a banking company from October 2004), Industrial Finance Corporation of India Limited and Industrial Investment Bank of India. The long-term lending institutions were expected to play a critical role in Indian industrial growth and accordingly, had access to concessional Government funding. However, in recent years, the operating environment of the long-term lending institutions has changed substantially. Although the initial role of these institutions was largely limited to providing a channel for Government funding to industry, the reform process required them to expand the scope of their business activities. Their new activities included: Fee-based activities like investment banking and advisory services; and Short-term lending activity, including issuing corporate finance and working capital loans. d. Non-Bank Finance Companies

There are over 13,617 non-bank finance companies in India as of June 30, 2004, mostly in the private sector. All non-bank finance companies are required to register with RBI. The non-bank finance companies may be categorized into entities, which take public deposits and those, which do not. The companies, which accept public deposits, are subject to strict supervision and capital adequacy requirements of RBI. The scope and activities of non-bank finance companies have grown significantly over the years. The primary activities of the non-bank finance companies are consumer credit including automobile finance, home finance and consumer durable products finance, wholesale finance products such as bill discounting for small andmedium sized companies, and fee-based services such as investment banking and underwriting. In 2003, Kotak Mahindra Finance Limited, a large non-bank finance company, was granted a banking license by RBI and converted itself into Kotak Mahindra Bank. Over the past few years, certain non-bank finance companies have defaulted to investors and depositors and consequently actions (including bankruptcy proceedings) have been initiated against them, many of which are currently pending. e. Other Financial Institutions

Specialized Financial Institutions In addition to the long-term lending institutions, there are various specialized financial institutions that cater to the specific needs of different sectors. They include the National Bank for Agricultural and Rural Development, Export Import Bank of India, Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited and the Infrastructure Development Finance Corporation Limited. State Level Financial Institutions State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. The state financial institutions are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium-sized and large-sized enterprises. Insurance Companies Currently, there are 27 insurance companies in India, of which 13 are life insurance companies, 13 are general insurance companies and one is a reinsurance company. Of the 13 life insurance companies, 12 are in the private sector and one is in the public sector. Among the general insurance companies, eight are in the private sector and five are in the public sector. The reinsurance company, General Insurance Corporation of India, is in the public sector. Life Insurance Corporation of India, General Insurance Corporation of India and public sector general insurance companies also provide longterm financial assistance to the industrial sector.


Mutual Funds As of October 31, 2004, there were 38 mutual funds in India with total assets of Rs. 14.80 billion. From 1963 to 1987, Unit Trust of India was the only mutual fund operating in India. It was set up in 1963 at the initiative of the Government and RBI. From 1987

onwards, several other public sector mutual funds entered this sector. These mutual funds were established by public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the SEBI (Mutual Fund) Regulation 1996.


1. Technology In Indian banking, technology has become an enablerand is moving on to become a driver of business. Large scale computerization of branches and operations has enabled the banks to capture more of their business on computers resulting in operational efficiencies including better customer service. If this can be called the first phase of technology adoption, it has been quite successful insofar as banks have been able to adopt IT effectively to carry out front-office operations. This phase has also seen a reorientation of the staff in terms of newer skills albeit at a lower level. With customers demanding speed, efficiency, and lower costs, use of technology has proliferated. Banks have now taken up the second phase where they are aiming at achieving connectivity between branches, setting up of Central Data Repository, generation of MIS, prevention of frauds, evolving value-added products, reducing transaction costs, and new initiatives like cross selling, CRM, etc. The current emphasis is on providing alternative channels of delivery like ATMs, telebanking, internet banking, etc. The provision of a host of financial services through a versatile technology platform will enable banks to acquire more customers, cut costs, and improve service delivery. There is no doubt that technology is a key driver of financial business. 2. Domestic Consumption Demand Demographic shifts inincome levels and cultural shifts in terms of lifestyleaspirations are changing the profile of the Indianconsumer. This is and will be a key driver of economicgrowth going forward. The Indian consumer now seeksto fulfill his lifestyle aspirations at a younger age with anoptimal combination of equity and debt to finance consumptionand asset creation. This is leading to a growingdemand for competitive, sophisticated retail bankingservices. The consumer represents a market for a widerange of products and services he needs a mortgage tofinance his house; an auto loan for his car; a credit cardfor ongoing purchases; a bank account; a long-term investmentplan to finance his childs higher education; apension plan for his retirement; a life insurance policy the possibilities are endless. And, this consumer does notlive just in Indias top ten cities. He is present across cities, towns, and villages as improvingcommunications increases awarenesseven in small towns and rural areas. Consumer goods companies are alreadytapping this potential it is forthe banks to make the most of theopportunity to deliver solutions tothis market.

As domestic consumption demand has become the main driver for economic growth, retail financial services have started playing an important role in India According to the latest DSP Merrill Lynch report on the Indian economy, the changing demographic profile of India is poised to push household consumption spending to $510 billion over the next five years from the current level of $250 billion. This spurt in spending would certainly enhance the banks business for retail banking products such as credit cards, personal loans, and hire-purchase lending in the years to come. Banks in India will now have to work towards a vision to have an enhanced retail delivery system. Such a system would include transformed branches, enhanced telephone services and leading-edge internet banking functions that provide a consistently positive multi-channel experience for the customer. 3. Globalization With the growing integration of economies and the markets around the world, global banking has arrived and is here to stay. India, being one of the signatories of financial services agreement of 1997, is poised to expand the reach of its financial services, including banking, on a reciprocal basis to many countries. The process of globalization will increase the presence of international players in the banking arena in India.Similarly, some of the Indian banks will become global players. So, the banks will perforce spread their net beyond borders in their quest for new markets, customers and profit. Against this backdrop, banks in India must not only prepare themselves to retain business back home but also to capture business in hithertounexplored markets by competing with their global counterparts. Size is not the only problem. As the Indian economy gets increasingly integrated with the rest of the world, the demands of the corporate sector for banking services will change not only in size but also in composition and quality. The growing foreign trade in goods and services will have to be financed. Apart from production credit, financing capital requirements from the cheapest sources will become necessary. Provision of credit in foreign currency will require in turn a management of foreign exchange risk. Thus, the provision of a whole gamut of services related to integration with the

rest of the world will be a challenge. Foreign banks operating in India will be the competitors to Indian banks in this regard. Financial risk stemming from Globalization, the system has also progressed with the transparency and disclosure standards as prescribed under international best practices in a phased manner. Disclosure requirements on capital adequacy, NPLs, profitability ratios and details of provisions and contingencies have been expanded to include several areas such as foreign currency assets and liabilities, movements in NPLs and lending to sensitive sectors. The range of disclosures has gradually been increased. In the future, with further globalization, the pressures on performance will be visible.Banks would be adopting international accounting standardsand their balance sheets would be more transparent.Instead of maximizing shareholder value, they could beusing the triple-bottomline approach to quantify financial,environment, and social performance.


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Technology Best Rates Product Innovation Customer Service Location and Convenience Strategic focus Adaptability Cost efficiency Productivity Human Resources Risk Management


Customer Economic expansion in India is creating an increasingly large and aspirant consumer class. Indias economic transformation is fuelling the expansion of a middle class that already numbers more than 500 million people. The relative youth of Indias consumers (69% of the population is under 35) means that they are often keener to spend than to save. For example, car sales rose by 23% in 2006 to exceed one million (80% sold through finance packages) and mobile phone connections doubled to reach 140 million. Thus, there has been a corresponding surge in demand for consumer credit which is growing by more than 40% per annum. However, since India is an emerging economy, 21st-century corporations and aspirational urban consumers co-exist with an older, under-developed India that cannot be transformed overnight. The challenge faced by Indian banks today is to cater to the demands of the growing middle class and youth segment by adopting better technology and enhancing customer service while taking care of financial inclusion in an emerging economy.

Technology Technology is emerging as a key driver of business in the financial services industry. The advancements in computing and telecom have revolutionized the financial industry and banking on the net is fast catching on. Banks are developing alternative channels of delivery like ATMs, telebanking, remote access, internet banking, etc. The payment and settlement system is also being modernized. RBI is actively pursuing the objective of establishing a Real Time Gross Settlement (RTGS) system on par with other developed economies. This, in turn,would result in a leaner branch network and better skilledworkforce. Technology, therefore, will impact on the businessmodel strongly by cutting down costs of deliveryand transaction. The emphasis will be on acquiring newcustomers and maximizing opportunities for cross-selling. Customers realizing the benefits of technology are demanding more for less.

Competition The previous sections highlight the intensity of competition in the Indian financial and banking sector. YES Bank entered the Indian market in 2004, when the Indian financial sector was already believed to be overcrowded. In spite of this, the bank has grown at a very fast pace and is one of the leading banks of India today. YES Bank has differentiated itself from its competitors through three strategies: Knowledge Banking approach Emphasis on technology Human resources Company YES Bank has succeeded in gaining a competitive advantage in the Indian Banking Industry by leveraging its capabilities. Knowledge banking has been YES Banks main pillar of differentiation, using which it has provided specialized services to various sunrise industries through domain expertise. As a new generation bank, YES BANK has the advantage of accessing the latest available technology. The Bank took a calibrated decision to invest in the best IT systems and practices in order to make its technology platform a strategic business tool to build competitive advantage. The Bank has outsourced a significant part of its technology, infrastructure and hardware requirements. The technology platform enabled the Bank to achieve high standards of customer service at comparatively lower cost structures. One of the key features of the Bank's technology strategy was to establish long-term partnerships with best-in-class technology service providers that enables co-creation of value and offers differentiated solutions to its customers. YES Bank has also believed in the use of Human Resources as a strategic asset. Human Resources have played a key role in enabling the Bank to achieve long term competitive advantage in the industry. The bank has recruited and nurtured talent for the long term success of the organization.


Resources Finance, Technology, Employees In terms of finances YES BANK started with a modest initial capital of $45 million and currently it is the sixth largest private sector bank in INDIA with a net income of $303.7 million and a balance sheet of $8.1 billion. Also financially YES BANK has committed to an incremental expenditure of $8.6 million for financial inclusion program and an expenditure of $11 million for Tatva capital investment. In terms of technology YES bank took a unique step of signing a seven year deal with the IT giant Wipro InfoTech. As a result of this Wipro now manages the entire non-core technological infrastructure requirements of the bank including the IT infrastructure and hardware, networking and managing a data canter on a build, own and operate basis. This move actually prompted many competing banks to make such deals.

In terms of human resources YES BANK currently have 3024 employees across INDIA. The bank lays emphasis on adapting differentiated human resource practices, to attract top notch talent YES Bank introduced the YES BANK Professional Entrepreneurship program (YPEP), a lateral talent acquisition program aimed at hiring people who had started their jobs six months earlier but were receptive to alternatives to their current jobs. These recruits are given absolute freedom to create their own job description and take on greater job responsibilities. From this program YES Bank has already recruited around 250 young and talented individuals. YES Banks employees working in the wholesale banking sector comprises of a lot of people from nonbanking backgrounds and have deep domain expertise in their respective sectors.

Core Competencies 1. YES Bank has various core competencies by which it differentiates itself from various other banks in the industry. This include its unique knowledge banking approach where it focuses specifically on high growth sectors such as food and agriculture, infrastructure development, telecommunications, IT and urban real estate. 2. Similarly another major differentiator for YES bank was its objective to champion the concept of responsible banking. Under the aegis of this positioning, the bank committed itself to innovative banking practices that best served INDIAs development and provided solutions to nations entire economic


Bargaining Power of Suppliers: Low Nature of suppliers- Need regular income, risk averse, need to deposit money regularly Suppliers not concentrated Backward integration

Threat of new Entrants: Low Strict regulations by RBI High capital investment required

Rivalry amongst Competitors: LOw PSL not a mainstream for other banks Knowledge banking Responsible and sustainable banking Threat of Substitutes: High Readily available money lenders

Bargaining Power of Customers: High

Large number of alternatives

Low switching cost High price sensitivity High availability of information

Mutual Funds Stocks and debentures Other investment alternatives

I. Rivalry amongst competitors: Low

In the development banking sector, the threat of rival firms is low as there are very few players. Most of the banks look to just achieve the minimum necessary target of priority sector lending. However YES bank has made PSL as its mainstream process and hence does not face a lot of competition here. The sustainable sector in India was still small and YES Bank`s sustainable Investment Banking group had the first mover advantage. It was believed that it would take at least more than two years for any competitor to replicate the bank`s model.

II. Bargaining power of Suppliers: Low

1. Nature of suppliers-The primary suppliers of funds for the banks are the depositors. Depositors are mainly people who prefer low risk and those who need regular income and safety as well. Banks are the best place for them to deposit theirs surplus money. Apart from this, suppliers also supply stationeries, computers and peripherals to the bank. The switching cost of one supplier to another is time consuming and costly process. The bank has to get support from cash filling agencies to fill its ATMs throughout the country. Since these things are very important to the bank, suppliers are gaining bargaining power. Suppliers not concentrated-Suppliers of funds i.e. depositors are numerous, not concentrated and with low portion to offer leading to low bargaining power.



Backward Integration- The banks also engage in the backward integration with the suppliers through microfinance, thus increasing the capital available.

III. Bargaining power of customers: High

1. Large number of alternatives:Customers have large no of alternatives to choose from: Private Banks, government banks, co-operative banks, foreign banks, NBFCs, other financial institutions. All of these banks have similar financial products and services leading to a greater number of choices available for consumers. The main similar products offered by the banks are savings and current accounts, internet banking, debit card services, mobile banking, different kinds of loans and deposits, insurance services (life and general), and investment & trading services. Whenever customers feel that the service offered by a bank is unsatisfactory, they can easily go for substitute with a low switching cost. Low switching cost:Cost of switching from one bank to another is low. Switching costs have become lower with facilities like internet banking.



High price sensitivity:Customers are highly price sensitive, ready to switch from one bank to another on account of interest rate differentials. High information about the market:Customers have high information about the market due to globalization and digitalization. Consumers have become advance and sophisticated and can judge the creditworthiness of banks better.


IV. Threat of New Competitors: Low

1. Rules and regulations: Stringent rules laid down by RBI for entry of new banks which restrict easy entry into the sector. Regulatory barriers include minimum capital requirements, restraints on lines of business, licensing of branches or subsidiaries, restrictions on full-fledged entry of foreign banks.


High investment: Huge investment is required for manpower, technology, trained professionals, assets etc. As per RBI guidelines, minimum capital requirement for entering the industry is ` 500 crore. Subject to this, actual capital to be brought in will depend on the business plan of the promoters.

V.Potential Development of Substitute Products: High In rural areas, people are more comfortable going to the local money lenders or Sahukars. Many of the village folk have not been exposed much to banks, and are not comfortable with it. They are more at ease going to their local money lenders who are influential persons who lend money without too many formalities. 1. NBFCs Non-banking financial Institutions play an important role in giving financial assistance. Mobilization of financial resources outside the traditional banking system has witnessed a tremendous growth in recent years in the India. NBFCs are a close substitute of banking in respect of raising funds. 2. Government Bonds Government bonds also attract savings from the general public. They are less risky and more secured as compare to savings in private banks. 3. Mutual Funds Mutual funds are also now proving as good substitutes for banks. They assure higher returns in lesser time as compared to banks. The administrative expenses are also very low as compared to banks. Investment in Mutual funds is more flexible than investment in banks. 4. Stock Market For people who are ready to bear risk and want a high return on their investment, stock market is a good substitute. Investors are moving towards stock market as interest rates in banks are decreasing. 5. Other investment alternatives: Now common peoples attention is shifting from banks to other various alternatives such as gold, precious metals, land, small savings etc. We can see the growing trend in these alternatives as bank interest rates are declining.

Quality of Business Environment: Porters Diamond

India has a huge and untapped potential for banks to explore and provide enhanced geographiccoverage to the unbanked areas. Counted as one of the prime emerging markets,there is a robust demand of banking services in India. The rural population of India remainssignificantly under-penetrated, and it is essential to leverage technology to reach this unbanked population. Indian government focussed too much on trade and industrial reforms and neglected agriculture. Globalisation increased the number of players in Indian financial services industry

Context for Firm strategy and Rivalry

Factor Conditions

Demand Conditions

Great response for YPEP programme which helped to get domain expertise in non financial areas. Core banking has changed the face of banking in India through reduction ofcost at operational level and increase in efficiency.

Related and Supporting Industries

Advent of IT and Internet penetration provides a strong support. WIPRO infotech manage entire Noncore technological Infrastructure NOKIA andOboPay provides the necessary hardware and software platform for YES MMS.

A majority of the rural population in India is still unbanked. In 2006 only 16% of the adult population had credit accounts and only 63% had bank accounts. The economic liberalization brings more money in the hands of the middle class population.


The strategy of the YES Bank was to make itself a compelling proposition for both depositors and borrowers. But its initial capital base was very less compared to other Indian banks and thus, it faced challenges in raising liabilities initially. However, despite these challenges, YES BANK grew at a rapid pace due to its strategic and management team focus on the Financial Markets, Investment Banking, Transactional Banking and Corporate Finance. Its success was due to a series of innovative and differentiated business strategies which includes outsourcing Wipro for its entire non-core technological infrastructure requirements, adapting differentiated human resource practices, not investing huge capital in retail branches, focusing specifically on high growth sectors etc. It was the first such contract in Indian banking which significantly improved capital efficiency.

YES BANKs wholesale banking team has deep domain expertise in their respective sectors. Thus, knowledge banking is the heart of their core businesses. They provide knowledge driven banking solutions to all their commercial and corporate banking clients. Its objective to champion the concept of Responsible Banking to promote financially inclusive growth is another major differentiator. Under this, the bank is committed to innovative banking practices that best served Indias development and provided solutions to the nations entire socioeconomic pyramid. The result of this vision and strategy was the evolution of YES BANKs Development Banking practice which is divided into four distinct practices: Agribusiness, Rural and Social banking; Microfinance; Sustainable Investment Banking; and Responsible Banking. All of this along with financial inclusion program and the Tatva capital investment can help YES BANK achieve its growth plan and capture the market opportunity in a consistent and profitable manner.