YES BANK - THE PROFESSIONALS’ BANK OF INDIA Management Discussion & Analysis MACROECONOMIC AND INDUSTRY the Reserve Bank of India (RBI) had cut key short-term rates OVERVIEW – the Repo and the Reverse Repo by 25 bps each, to 4.75% and 3.25% respectively in the annual monetary policy review in The Indian economy is back on course to its pre-crisis April 2009. While the fi rst quarter monetary policy statement growth trajectory, with the momentum in recovery led in July 2009 was seen adopting a mildly hawkish tone, the by a stronger and faster than earlier anticipated rebound key challenge for the monetary policy remained that of in industrial activity. Overall, real GDP growth has been accommodating the government’s huge borrowing programme estimated at 7.2% for the Financial Year 2010 as compared whilst ensuring adequate credit fl ow to productive sectors. to 6.7% for the Financial Year 2009 despite the impact of a Infl ation remained fairly muted on a high statistical base and WPI delayed and defi cient monsoon. infl ation entered negative territory during June–August 2009. In terms of sectoral trends, growth has been broad-based. In the second half of the year 2009, with growth on a fairly stable While industrial production continued to witness incremental footing domestically as well as globally, the RBI in tandem with gains, averaging 13.2% in Q3, as compared to 9.0% in Q2 and central banks in other emerging markets adopted a calibrated 3.8% in Q1, the recovery momentum was also supported by approach to exiting the crisis-induced monetary measures. As continued resilience in Services, despite a phased withdrawal a fi rst step, the central bank restored the Statutory Liquidity of extraordinary and crisis-driven fi scal measures. Excluding Ratio (SLR) for Scheduled Commercial Banks to its pre-crisis the government sector, services grew impressively by 9.1% level of 25% from 24% of their Net Demand and Time Liabilities in Q3 versus 7.9% in Q2. A delayed and defi cient monsoon, (NDTL), effective November 2009. The RBI also announced however, severely impacted the Kharif crop which constitutes the withdrawal of some unconventional measures like refi nance nearly 52% of the total agricultural output. With a shortfall of facilities and forex swap facility, and tightened the norms on 23% in precipitation, the weak south-west monsoon led to a commercial real estate exposure and loan loss provisions for drought in several states in 2009. However, higher outlook for banks. In terms of specifi cs the RBI restored the Export Credit the Rabi crop has buoyed overall prospects for agriculture and Refi nance Facility limit to its pre-crisis level of 15% from 50% the sector is estimated to have contracted only by 0.2% in the of eligible outstanding export credit that was announced in Financial Year 2010. November 2008. Further, the central bank also announced the withdrawal of the following refi nance facilities: (1) Special The fi rst half of the year 2010 saw the economy taking calibrated refi nance facility for scheduled commercial banks (2) Special steps towards consolidation in the recovery process. While the term Repo facility for scheduled commercial banks for funding overall sentiment was buoyed by the thumping success of the pro- to MFs, NBFCs, and HFCs and increased the provisioning reform Congress-led UPA coalition in the parliamentary elections requirement for advances to the commercial real estate sector in May 2009, in the real economy, fi scal as well as monetary policy classifi ed as ‘standard assets’ from 0.40% to 1%. In addition, continued to maintain a pro-growth expansionary stance with a the RBI directed banks to augment their provisioning cushions view to stabilise the economy. As a result, the July 2009 budget consisting of specifi c provisions against NPAs as well as fl oating projected the fi scal defi cit at 6.8% of GDP for the Financial provisions, and to ensure that the total provisioning coverage Year 2010, signifi cantly above 5.5% seen in the interim budget ratio, including fl oating provisions, be not less than 70%, by the announced in February 2009. On the monetary policy front, end of September 2010. 31 With infl ation on a rapidly escalating trajectory due to supply- board, the play out between growth and infl ation will now be side weaknesses, the monetary policy focus shifted to liquidity infl uenced by the monsoon outlook. management to anchor infl ation expectations. As a result, the Third Quarter monetary policy saw the central bank hiking Business Overview the Cash Reserve Ratio by 75 bps to 5.75% and limit the Your Bank believes in delivering superior stakeholder value risk of potential asset price bubbles. The move, implemented through a professionally-driven work environment. By embracing in two phases - 50 bps effective from the fortnight beginning Professional Entrepreneurship, your Bank propels its progress February 13, 2010 and 25 bps hike effective from the fortnight and differentiates its growth strategies from others. The sustained beginning February 27, 2010 translated into a direct reduction progress of your Bank is based on the key pillars of GROWTH, of Rs. 36,000 crore from systemic liquidity. Recognising the risk TRUST, TECHNOLOGY, KNOWLEDGE-DRIVEN HUMAN of a spillover of high food prices into a generalised price rise, CAPITAL, TRANSPARENCY and RESPONSIBLE BANKING. the RBI announced an intra-policy hike of 25 bps in both the Your Bank is committed to offer innovative and professional Repo and the Reverse Repo in March 2010. With the negative business solutions that are customised to meet the growing and output gap narrowing, demand side pressures, however, dynamic needs of customers across segments. continued to refl ect in core infl ation which was reported at Your Bank also believes in bringing about a professional 4.72% for March 2010 up from 4.22% in February 2010 and transformation in banking by combining traditional and 3.35% (revised) in January 2010. With a view to further anchor modern ways of thinking, to provide maximum benefi t to all infl ation expectations, the RBI followed this with another our stakeholders. By continuously striving to create, innovate 25 bps hike across the board - the Repo, Reverse Repo and the and transform, your Bank goes beyond the traditional realm of Cash Reserve Ratio in the Annual Monetary Policy Statement banking to create long-term value for all stakeholders. on April 20, 2010. Your Bank has an equitable proportion of experts ranging In terms of monetary aggregates, the growth in non-food bank from the fi eld of banking to specifi c industry sectors, each credit of 16.9% at the end of March 2010 was in line with contributing their knowledge and expertise individually and the RBI’s indicative projection at 16%, with the YTD increment through collective thinking, thereby ensuring that every solution, (over March 31, 2009) in non-food credit at Rs. 4,62,571 crore as compared to an increment of Rs. 4,11,824 crore for the product and innovation works in tandem with your Bank's same period last year. customers' needs, at every stage of evolution of their business. From a macroeconomic stability point of view, the Third Quarter This differentiated approach has resulted in your Bank receiving monetary policy had also noted the need for the fi scal policy several recognitions across leading banking league tables from to move in tandem with the monetary exit and address the independent institutions of repute, while winning multiple real supply-side bottlenecks. Subsequently, the Union Budget awards and accolades across product and service categories, for the Financial Year 2011 unveiled in February 2010 was also both nationally and globally. seen adopting a gradualist approach towards withdrawal of Your Bank was ranked as the Fastest Growing Bank (balance the stimulus with the fi scal defi cit realistically projected at 5.5% sheet < Rs. 30,000 cr) at the Businessworld Best Bank of GDP for the Financial Year 2011. The budget also accorded Awards 2009. Your Bank was also ranked as India's No.1 Mid- top priority to fi scal consolidation without compromising on Sized Bank (balance sheet < Rs. 24,000 cr) at the Business allocations to the key drivers of growth viz., Infrastructure Today-KPMG Best Bank Survey & Awards 2009 & 2008. and Agriculture. All these developments have been defi nite Additionally, Mr. Rana Kapoor, Founder/Managing Director & sentiment 'positives'. With positives seen emerging across the CEO, YES BANK was ranked as the 3rd Most Valuable Indian 32 YES BANK - THE PROFESSIONALS’ BANK OF INDIA CEO of the Year by Businessworld in November 2009. Corporate & Institutional Banking These recognitions validate your Bank's innovative business model that is based on the principles of Professional Your Bank's professional contributions within the Corporate Entrepreneurship which are encapsulated within the Business and Institutional Banking segment have ensured that every strategy, while offering a combination of Relationship, Product, partnership delivers profi ts as well as long-term value. Knowledge and Service Capital to all customers through a The Corporate & Institutional Banking (C&IB) division at your unique 'One-Bank Model' approach. Bank provides comprehensive fi nancial and risk management solutions to clients generally with a turnover of over Rs. 1000 crore. Your Bank's professional relationship experts provide fi nancial solutions to the following categories of institutions: Large Indian Corporate Groups Public Sector Enterprises Central and State Governments Government Bodies Multinational Companies Financial Institutions and Banks Relationship Capital Your Bank provides a comprehensive range of client-focused Corporate Banking Services, including Working Capital Finance, To ensure quality growth, your Bank has put special focus Term Loans, specialised Corporate Finance products, Trade, and emphasis on building institutional Relationship Capital.