C5 Yes Bank

9-311-063
REV: NOVEMBER 8, 2010
MICHAEL CHU
NAMRATA ARORA
YES BANNK: Maiinstreaming Develop

D pment into
Ind
dian Ba
anking
Raana Kapoor, Founder/Maanaging Direector and Ch hief Executivve Officer off YES BANK K (the
“Bank k”), had just finished
f a meeeting on a waarm summer dayd in April 2010
2 with Sommak Ghosh, Group
G
Presiddent of Corpo orate Financee and Develop pment Bankin ng. During thhe meeting, Ghosh
G had deetailed
two new
n initiativess for the Deveelopment Ban nking divisionn and soughtt Kapoor’s appproval prior to the
upcom ming Board meeting:
m the deployment
d o the Financiaal Inclusion Program
of P and formation
f of Tatva
Capital. Since incep ption, the ban
nk had adopted as one of itsi differentiators Responsiible Banking,, what
it deffined as “dev veloping syneergies and bu usiness solutions for sustaainable growtth.” The inittiative
was important to Kapoor as an n integral parrt of its organ
nizational culture and ethhos. Howeveer, the
Finanncial Inclusion n Program would
w requiree an incremeental commitm ment of $8.6 million in capital
(thoug gh the busineess would be larger based on allowed level l of leverage) over a period
p of five years
whilee Tatva Capittal required a pledge of $11 $ million over
o three yeaars. These were
w sizable capital
comm mitments towa ards Develop pment Bankin ng and went above
a and beyyond what was
w needed to o meet
regulaatory requireements Accordingly, Kapo oor believed that
t this wouuld prompt a re-examinatiion of
the peerformance to o date of the entire
e Develop pment Bankin ng division.
While Kapoor was w proud off what Develo opment Bank king had accom mplished, he was keenly aware
a
of thee trajectory off YES BANK. Founded by him in 2003 the t bank wass a notable success story. With
W a
modeest initial capiital of $45 million, the Bannk grew at a dramatic
d pacee, and in 20100 it became In
ndia’s
sixth--largest privatte sector bankk with a natioonal network of 153 branches, 3,024 em mployees, a baalance
sheet of $ 8.1 billio
on, a net income of $303.7 million and a Return on Equity
E of 23.77%.1 Backed by
b the
Bank’’s outstanding g fiscal year results
r in 20100, Kapoor hadd recently an
nnounced his ambitious plaans to
grow YES BANK’ss balance sheeet to $30 billio on by 2015. Relatively
R insuulated from the
t global finaancial
crisis,, the Indian market
m was fu
ull of businesss opportunitiees, competitio
on was intenssifying and market
m
expecctations for th he bank could not be higher. In these circumstances, profitablee capital alloccation
was a paramount priority. Kap poor wanted to ensure th hat Developm ment Banking g would be ab ble to
achiev ve its overall business and d financial peerformance gooing forward against the backdrop
b of mixed
m
outcoomes of several initiatives since inception and since the division’s Return on Equity (ROE E) had
witneessed a fall fro
om 13.7% in 2009
2 to 8.7% inn 2010.
Ass Ghosh, a lon

ng time colleaague of Kapooor’s and one of the earliesst top manageement memb bers of
the YEES BANK exeecutive team,, left the confference room, Kapoor con ntemplated if he should co onsent
to prresenting th hese initiativ
ves to the Board.
B Volunntarily comm mitting signiificant amou unt of
increm
mental capita
al to developmment meant sh hifting this arrea of activitiies from a reg
gulatory oblig
gation
______________________
__________________________________________________________________________________________________
Senior Lecturer
L Michael Chhu and Researcherr Namrata Arora prrepared this case. HBSH cases are deveeloped solely as thee basis for class disscussion.
Cases arre not intended to serve
s as endorsemeents, sources of prim
mary data, or illusttrations of effectivee or ineffective man
nagement.
Copyrigght © 2010 Presiden nt and Fellows of Harvard

H College. To
T order copies or request permissionn to reproduce matterials, call 1-800-545-7685,
write Haarvard Business Scchool Publishing, Bo
oston, MA 02163, or
o go to www.hbsp p.harvard.edu/educators. This publicaation may not be digitized,
photocoopied, or otherwise reproduced, posteed, or transmitted, without
w the permisssion of Harvard Bu
usiness School.
This document is authorized for use only in Prof. Pankaj Kumar Baag's Commercial Bank Management/ at Indian Institute of Management - Kozhikode from May 2020 to Nov 2020.
311-063 YES BANK: Mainstreaming Development into Indian Banking
to forming part of the mainstream of the Bank. With all the other opportunities open to the Bank, was
this the right moment? Could this be a strategic mistake?
India—from the License Raj to “India Shining”

The British gained a foothold in India since the 1600s through the British East India Company, a
royally chartered trading company. Its monopoly over trading in India, with the country’s wealth of
natural resources and lucrative commodities such as spices, silk, and tea, backed by the Company’s
own military force, made it one of the most profitable companies of its time. When the British crown
took direct control over India in 1857, it inherited a working colonial government and an effective
military presence in the Subcontinent. The British Raj, as it became known, controlled Indian politics,
governance, military operations and trading activities until India gained its independence in 1947.
Post independence, the Indian economy became the “License Raj,” a system of complex licenses,
regulations and government red tape that became all-pervasive, covering virtually all significant
business decisions, from establishing a new plant to the importation of specific goods and equipment.
When four decades of this often corrupt and highly bureaucratic system was unable to show
significant economic growth and prosperity, the seeds were sown for major long-lasting reforms.
The situation came to a head in 1991, with the country in a crisis precipitated by a poor balance of
payments, large government budget deficits, and high inflation.2 The economic liberalization that
followed was gradual but eventually led to a privatization of industries that had been nationalized
following independence, the elimination of industrial and import licensing, the lowering of import
duties and the relaxation of the tight restrictions on foreign direct investment (FDI). As a result, India
saw FDI inflows grow from $252 million in 1992 to $34.6 billion in 2009 (see Exhibit 1 for India’s Key
Macroeconomic Indicators). Among the industries that attracted the highest FDI equity inflows were
the Services (financial and non financial), Information Technology and Telecommunication sectors.
Economic reforms gave place to “the Indian miracle,” based on a new prosperity for upwardly
mobile middle-class Indian households. Primarily concentrated in urban areas, these households had
increased career and job opportunities, were offered competitive salaries, and had unprecedented
access to consumer goods. The credit card and mobile industry boomed, and in 2009, credit card and
wireless subscription respectively reached 25 million and 543 million.3 Some analysts estimated that
over the next 20 years, India would surpass Germany as the world’s fifth-largest consumer market.4
However, despite a Gross Domestic Product (GDP) growth rate in 2009 of 7.09%, India faced great
challenges. With over a billion inhabitants, India was the second most populous nation in the world.
Critics often remarked that the Indian government focused too much on trade and industrial reform
and neglected the agricultural sector, which employed about 70% of the nation’s workforce but only
contributed 17.5% of the nation’s GDP. Since economic reforms had been instituted differently across
states, there were wide regional disparities in terms of socio-economic development. Fully one-third
of the adult population was illiterate. Socio-economically, a burgeoning middle class and a wealthy
upper class stood in stark contrast to 28.6% of the population that lived below the poverty line
(Exhibit 1). India also continued to be plagued with a variety of infrastructural issues such as
congested roads and ports, unreliable power supply and illegal housing, with urban areas under
constant pressure by the influx of rural migration. Though the government declared “highest priority
to the development and expansion of physical infrastructure,” it would be many years before a
significant change could be felt in the key metropolises.5
YES BANK: Mainstreaming Development into Indian Banking 311-063
Indian Banking Sector

Under Jawaharlal Nehru, India’s first Prime Minister, the nation pursued a mixed economy that
sought both industrialization and rural development. India’s largely socialist approach towards the
economy meant a series of fundamental reforms for the banking sector. The first was the Banking
Regulation Act of 1949 that placed all banking activity under the comprehensive regulation and
supervision of the Reserve Bank of India (RBI), a preeminent role it continues to play to this day. The
second landmark reform came with the Nationalization of Banks in 1969. Previously, Indian banks
had concentrated their credit with high net worth borrowers and large industrial houses. Reflecting
the prevailing political ideology, the 14 largest commercial banks were nationalized. By the 1970s, the
government controlled two-thirds of all banking activity in the subcontinent. Driven by social
objectives, it viewed the banking sector not just as a tool for commercial services but as a platform to
serve the public, with a particular interest in the poor. With the aim of expanding outreach to the
people, the RBI introduced a third major reform, a branch licensing policy in 1977 that specified that
for every new branch in an already banked location, a bank had to open a branch in four unbanked
locations. As a result, between 1997 and 1985, the number of rural branches in India grew by sixteen
percent.6 The fourth major reform came in the wake of the 1991 balance of payment crisis, when the
financial sector was deregulated and private domestic and foreign banks were allowed once again.
Public sector banks could access equity markets but had to restrict private ownership to a maximum
of 49% of paid-in capital. Interest rates were also deregulated but, in line with the overall
macroeconomic reforms, this was phased in gradually. The RBI further ensured that most of its
norms would be applied uniformly across foreign, domestic and public banks.
Given this history, the Indian banking sector was characterized by a combination of socialist and
capitalist features, with a strong policy emphasis at the RBI towards equitable distribution of wealth,
balanced regional economic growth and the removal of private sector monopolies in trade and
industry.7 With international assets at only 6% of total assets and a minimal involvement in the U.S.
sub-prime mortgage lending, the Indian banking sector was able to remain fairly shielded from the
financial meltdown experienced in other major capital markets in 2008.8
According to the 2009–2010 economic survey, India had 76 commercial banks, of which 27 were
public sector banks, 22 were private banks, and 27 were foreign banks.9 Public sector banks held over
75% of financial sector’s total assets, while private and foreign banks held 18.2% and 6.5%,
respectively.10 India’s largest bank, the state-controlled State Bank of India (SBI), had a network of
9,034 branches and accounted for almost one-fifth of the nation’s loans in 2010.11 ICICI Bank, the
nation’s largest private sector bank, held total assets worth $76 billion and had the largest
international balance sheet amongst Indian banks.12 YES BANK was the sixth-largest private sector
bank in India, with total banking assets worth $7.21 billion in 2010. Foreign banks that held
significant presence were Citibank, Standard Chartered, and HSBC Bank. (See Exhibit 2 for the
Indian banking landscape.)
Banking the Unbanked: Priority Sector Lending and Financial Inclusion

Priority sector lending Though overall the banking sector was fairly sophisticated in terms of
competitive landscape, product range, and supply, this was concentrated in the urban areas and
successful banking in rural India remained a serious challenge for public, private, and foreign banks
alike. Despite India’s socialist leanings in the 1970s, only 2% of total banking credit went to the
agricultural sector, the sustenance of the majority of the population. Recognizing this and other social
priorities, the RBI introduced Priority Sector Lending (PSL) requirements. Under PSL, 40% of a
commercial bank’s Adjusted Net Banking Credit1 (ANBC) had to be deployed in established “priority
sectors,” which included agriculture, small enterprises, retail trade, housing and education for low-
income groups in both rural and urban areas.13 Within this overall mandate, sub-targets were set for
specific areas, with the agricultural sector set at 18% and ‘weaker sector lending’ at 10% of the overall
PSL ANBC. Post-liberalization, foreign banks that entered were required to contribute 32% of their
NBC to PSL, with sub-targets of 12% towards export credit and 10% towards small enterprise
advances. Periodically, the RBI would revise the targets.
From the start, meeting the PSL requirements was a challenge. A senior public bank official
remarked, “The time and energy required to make small loans in the priority sector was huge.”14 In
addition to the small size of transactions and the lack of infrastructure, the RBI stipulated that lower
interest and less strict loan default penalties were to be applied in rural areas. Another problem was
the Loan Melas, or loan carnivals. Especially preceding key elections, local politicians “persuaded”
their constituency’s bank branches to dole out loans to thousands of farmers over the course of a two-
to three-day period, without much diligence, at discounted rates, and with the expected massive
write-offs. Whether engaging with politically sensitive rural businesses, purchasing long-term
NABARD bonds, or acquiring another bank’s surplus PSL portfolio, for virtually all Indian banks
PSL compliance was a loss proposition, to be treated as the cost of doing business. In 2009, public,
private sector, and foreign banks were able to meet their priority-sector lending targets by
respectively achieving 42.5%, 46.8%, and 34.3% of their ANBC. There were, however, shortfalls in
many of the categories within PSL. Public sector banks barely met their agricultural sector target,
while private banks fell short. Public sector as well as private sector domestic banks both failed to
meet their target of lending to weaker sections of society. Public banks got to 9.8% of the required
10%, but private sector bank’s deployment was as low as 3.9%.15 As a group, private sector domestic
banks performed especially disappointingly. Out of the 22 private sector banks, though 17 were able
to achieve their overall PSL target, only 8 were able to meet both their direct as well as total
agricultural targets (see Exhibit 3a).
Failure to meet the PSL targets required the bank to place the amount of the shortfall in long-term
bonds at below market rates issued by NABARD (National Bank for Agricultural and Rural
Development), a public sector development bank dedicated to investing and lending in rural India
(see Exhibit 3b). In 2007, the RBI introduced an additional policy permitting a bank to make up its
PSL shortfall by buying qualifying PSL portfolio from another financial institution and holding it a
minimum of 180 days. Priority Sector Lending was important to the RBI and was one of the factors it
considered in reviewing new branch applications. But the repercussions went beyond what was
strictly mandated. Ajay Desai, chief financial inclusion officer as YES BANK, put it this way: “The
RBI does not explicitly say this but failure to achieve targets influenced how you were generally
viewed by the RBI and how they dealt with you.”
Financial inclusion Despite aggressive PSL requirements, in 2006 only 16% of the adult
population had credit accounts and just 63% had savings accounts.16 Only a quarter of the 89 million
farmer households had access to formal credit sources and there existed significant regional
disparities where poorer northern and eastern states had lower financial coverage compared to the
more developed western and southern Indian states. The scarcity of institutional lending options
often drove farmers to seek funding from local money lenders. Referred to locally as sahukars, they
played a significant role in the credit markets with an aggregate loan portfolio of nearly $35 billion
between 2004 and 2006.17 Sahukars were deeply entrenched in their local communities and gave out
small loans without conducting any formal screening process. By not requiring collateral or any
1 Adjusted Net Bank Credit is the net loan portfolio and other tradeable investments not included in the calculation of the
Statutory Liquidity Ratio.
paperwork, the poor often felt more comfortable with them than they did with a local bank. Sahukars,
however, charged very high interest rates, usually around 36% per year and, according to observers,
often resorted to intimidation for loan recovery.18
Recognizing this, the RBI introduced a series of policies in 2006, known as “Financial Inclusion,”
requesting banks to offer financial products to low income groups at affordable rates, such as ‘no-
frills accounts’ that allowed customers to maintain very low balances not exceeding Rs.100,000 in a
year with annual transactions of up to Rs. 50,0002 at a minimal cost. All banks were also urged to
widely publicize “no frills accounts” within their rural network. In addition, to facilitate low-income
people in both urban and rural areas to open bank accounts, the RBI relaxed the “Know Your
Customer” (KYC) norms, allowing customers to be enrolled so long as they were being referred by
somebody whose full KYC requirements had been satisfied.
Microfinance, financial products, and services for low-income populations, was an important part
of financial inclusion. In India, for many years this had been the exclusive preserve of NGOs3 but
since financial deregulation, commercial organizations had emerged. In the banking system, there
were two main ways in which microfinance connected with regulated financial institutions: the Self
Help Group (SHG) and the Microfinance Institutions (MFIs). SHGs were a group of villagers, usually
15 to 20 women, that pooled their savings and cross-guaranteed their loans and accessed banks via a
NABARD program designed for that purpose. In 2009, the program accounted for 4.14 million SHGs
accounts with an estimated membership of 54 million and outstanding bank loans of $ 5.2 billion.19
MFIs were specialized organizations that borrowed from banks and then on-lent to low-income
clients. This allowed the banks to increase their limited rural presence, strengthening their PSL
portfolio. The size of the Indian microfinance market was aggressively estimated at around $30
billion, with the bulk deployed in rural areas.20 Without experience in the cities, MFIs were hesitant
to lend to the urban poor given their migratory nature and the belief that urban loans often went
towards consumption rather than being invested in a business.21
In January 2010, with an increasing focus on bank-led financial inclusion models, the RBI asked all
commercial banks to submit a plan to provide banking services through a “banking outlet” in every
village with a population of over 2,000 people. These banking outlets did not necessarily have to be
traditional bank branches but could be new models employing various forms of information
technologies.
YES BANK
History of YES BANK
YES BANK was founded in November 2003 by Rana Kapoor and Ashok Kapur, two professional
entrepreneurs who had earlier partnered to develop Rabo India Finance, a majority owned subsidiary
of Dutch Rabobank that focused on corporate, structured finance and investment banking. Ashok
Kapur served as the new Bank’s non executive chairman until his untimely demise in 2008 while
Kapoor became the CEO and Managing Director. Kapoor’s experience in Indian banking began in
1980 as a management trainee with Bank of America; 16 years later, he was the head of the bank’s
Wholesale Banking business in India. Kapoor then served as the head of ANZ Grindlays’ Investment
Bank and later as the CEO and Managing Director of Rabo India Finance where, he was responsible
2 For FY2010, the Average Exchange Rate was US$1= Rs. 47.89 [Reserve Bank of India www.rbi.org.in]
3 Non-Governmental Organizations, a term used in emerging markets and development circles to denote nonprofit
organizations that are part of civil society.
for development of a successful start up joint venture and among other notable transactions, he
helped sponsor the landmark acquisition of Tetley Tea by the Tata Group.
Commenting on the underlying reasons for creating the bank, Kapoor said, “The Indian banking
sector was always ‘over branched,’ but the Indian consumer was mostly ‘under served.’ What this
meant was that though banks had an expansive network of physical branches, the consumers’ needs
were largely neglected. With creating a bank like YES BANK, we hoped to service those needs.” The
challenge for a new entrant was therefore to create a strategic differentiator that would make for a
compelling proposition for depositors and borrowers alike.
Kapoor, however, was conscious of the challenges he faced. His initial capital base was $45
million, a modest amount for such a large country and paltry compared to the other Indian banks.
While most other banks in India were either state-run or part of a well-established financial
institution, YES BANK was the creation of a first-generation entrepreneur. YES Bank is the only
greenfield banking license to be approved by the RBI in the last 15 years. YES BANK opened its first
branch in 2004.
One of the key challenges for YES BANK was raising liabilities initially. Furthermore, liability
instruments for banks in India do not allow any form of convertible instruments or short-term
redeemable instruments to be classified as ‘capital.’22 Therefore, various capital structures including
promoter equity, private equity with a lock-in option, secondary sales, Qualified Institutional
Placements (QIP), Initial Public Offering (IPO), and several debt qualifying instruments23 were
utilized by YES Bank in order to attract long-term institutional investors. A detailed timeline of YES
BANK’s liability raising landmarks can be seen in Exhibit 4.
Despite the obstacles, YES BANK grew at a blistering pace due to its strategic and management
team focus on the four pillars of Product Capital- Financial Markets, Investment Banking, Transaction
Banking, and Corporate Finance. This focus was supplemented by building relationships in
Commercial Banking, Retail Banking, and Institutional Banking segments. (Exhibit 5 for YES BANK’s
Organizational Structure). By the summer of 2005, the Bank had grown its assets to $273.74 million,
while generating early stage profitability. Based on the overall professional entrepreneurial pedigree,
management team, strong financial structure and high potential, YES BANK issued an initial public
offering in the Bombay Stock Exchange which was oversubscribed 30 times. Singled out in the
industry and the business media for its achievements, it was ranked third in the 2006 Businessworld
survey of India’s best listed public and private banks. By 2010, it had 153 branches, employed 3,024
people, and had a balance sheet size of $8.1 billion. (See Exhibit 6a and 6b for YES BANK’s balance
sheet and income statement.)
Looking back at the reasons behind the bank’s success, Kapoor said, “YES BANK was an outlier in
the banking space. We therefore had to differentiate ourselves . . . it was the only way we could have
succeeded.” He credited a series of innovative and differentiated business strategies for the bank’s
growth and added, “Since we were a young bank, there were no legacy issues and we could carve
out our own growth path.” This started with the choice of its original name. “We wanted to choose a
‘trust mark’ that would establish a character difference in our bank,” Kapoor said, “so we conducted
a qualitative survey across income brackets showing that ‘YES’ was the right name for our bank—it
was positive, affirmative, and was a word that was understood across geographical regions and
socio-economic strata.”
YES BANK also broke new ground in how it approached its operations. As capital and
operational expenditures in technology account for a significant portion of the typical Indian bank’s
cost structure, YES Bank in 2004 signed a seven-year agreement with Wipro Infotech. As a result
Wipro would manage the entire non core technological infrastructure requirements of the bank,
including the IT infrastructure and hardware, networking and managing a data centre on a build,
own and operate basis. It was the first such contract in Indian banking and a move that prompted
many competing banks to follow suit.
Apart from using these innovative technology outsourcing deals to optimize capital efficiency,
Kapoor also laid emphasis on adapting differentiated human resource practices. As a young bank,
YES BANK was growing fast but was finding it difficult to attract top-notch talent from the best
business schools both in India and abroad. The bank then 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. At
YES BANK, these recruits were offered the freedom to create their own job description and take on
greater job responsibilities. By September 2009, 250 of the Bank’s 3,024 employees came from the
YPEP.
Most banks in India invested significant capital in retail banking products such as credit cards and
personal loans as well expanding their retail branches. Considering the high rental and
infrastructural costs associated with retail branches, YES BANK chose another path. Consequently, in
2010, while its rivals HDFC and ICICI Bank had 1,725 and 2,035 retail branches, respectively, YES
BANK had only 153. Kapoor remarked, “We knew that it was unrealistic for us to compete directly
against big banks like ICICI Bank and State Bank of India. The segments that I believed would be
attractive were complete banking for emerging Indian companies, as well as small enterprise owners.
That’s where we wanted to add value.”24
In its banking, YES Bank further differentiated itself from other players in the industry through
its unique 'Knowledge Banking’ approach. YES BANK focused specifically on high growth sectors
such as Food and Agriculture, Infrastructure Development, Life Sciences & Biotechnology,
Telecommunications, Information Technology, Education, Hospitality Media & Entertainment, and
Urban Real Estate. . A large number of the bank’s wholesale banking team was from non-banking
backgrounds and had deep domain expertise in their respective sectors. Within each vertical,
bankers offered solutions based on specific industry expertise. Kapoor remarked, “Knowledge
banking was always the heart of all our core businesses. At Yes Bank, we looked to provide
knowledge driven banking solutions to our commercial and corporate banking clients.” Together,
these sectors accounted for 74 percent of the Bank’s loans and according to an industry report,
“helped the Bank institutionalize strong customer relationships and allowed the cross-selling of
products more effectively, thereby generating fee-based revenues with lower capital requirements.”25
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 to innovative
banking practices that best served India’s development and provided solutions to the nation’s entire
socioeconomic pyramid. Kapoor added, “The idea behind responsible banking was not only to
promote financially inclusive growth, but to do so by being selective and investing in only those
businesses that are socially and environmentally responsible.” The result of this vision and strategy
was the evolution of YES BANK’s Development Banking practice.
Development Banking at YES BANK

The Birth of Development Banking
Rana Kapoor first met Somak Ghosh, in a chance encounter at a business event in 2001. Kapoor
persuaded Ghosh, who was then Ispat Group’s financial controller in Europe, to return to India and
head financial restructuring at Rabo India. When Kapoor left Rabo in order to pursue his vision of a
new age private bank in India, he made a mental note to consider Ghosh as a key leader for his new
venture. Kapoor was impressed with Ghosh’s abilities as a banker and his interest in the area of
development. Ghosh reciprocated this interest. “Kapoor’s vision of creating a new age bank that was
innovative as well as socially and economically responsible resonated with my professional and
personal beliefs,” Ghosh (age 42) recalled.
Ghosh’s personal background was atypical of a banker. His parents, who were initially involved
in the leftist movement in the state of West Bengal, had subsequently moved to Mumbai to get away
from the turbulent social unrest. Armed with an MBA degree in finance and a bachelor’s degree in
chemical engineering, Ghosh admitted to having pursued banking as an “act of rebellion.” Over the
next 16 years, he worked in various financial capacities with organizations like ICICI Limited,
Reliance Industries, and Ispat Europe, but found that something was missing in his career. “Though I
am a fierce capitalist, I did retain certain social sensibilities,” Ghosh said. “The opportunity that
Kapoor presented brought a confluence of these interests.”
In 2004, Ghosh accepted Kapoor’s invitation and joined YES BANK as the national head of
Corporate Finance and Development Banking (CF&DB). Kapoor also included him in the Bank’s
Executive Management Team With a mandate to grow the Infrastructure, Structured & Project
Finance, Financial Restructuring, Syndication, and Urban Realty Banking groups within the Bank.
Additionally, Ghosh also led the Development Banking Group which comprised the Agriculture,
Rural & Social Banking, Microfinance, Sustainable Investment Banking, Socially Responsible
Investing, and Responsible Banking groups.
Kapoor’s decision to place YES BANK’s Corporate Finance and Development Banking (DB)
divisions under one person was unusual, and made as an outcome of Kapoor and Ghosh’s creative
discussion. “If you look closely, corporate finance and development are quite synergistic,” Ghosh
explained. “A twinned practice made it easier to identify customers and structure deals.” While
engaged in these activities, Ghosh had no doubt as to the Bank’s objective. “Our position was clear
from the start,” he said. “We wanted to make an impact at the base of the pyramid and yet be
commercially viable.” To carry this out, YES BANK’s Development Banking division was divided
into four distinct practices: Agribusiness, Rural and Social Banking; Microfinance; Sustainable
Investment Banking; and Responsible Banking. (See Exhibit 7 for the structure of development
banking at YES BANK.)
Agribusiness, Rural and Social Banking

The Agribusiness, Rural and Social Banking (ARSB) practice was initially born out of the Bank’s
need to fulfill the RBI’s PSL requirements, an objective even more important to Kapoor, due to its
bank-wide implications: “For a young bank like ours, non achievement of PSL targets had particular
regulatory implications,” he said. “It could have translated into restrictions on branch expansion and
mandatory low-yield NABARD deposits, not to mention informal sanctions from the RBI. But while
we had to meet PSL targets, we simply could not afford to run any non profitable business—and in
banking non profitable means erosion of shareholder values.” At the same time, Kapoor also realized
that there was an advantage to being a new bank. Doing some back-of-the-envelope calculations,
Kapoor explained, “The RBI required that forty percent of a bank’s previous year’s credit go towards
priority sector lending. For an established bank, forty percent of the previous year’s credit translated
into roughly thirty percent of the current year’s balance sheet. For YES BANK, which was starting
from a very low base and growing by leaps and bounds, it meant that only twenty percent of our
current year’s balance sheet needed to be earmarked to PSL.”
The Bank clearly needed someone who could think about these targets in an innovative manner.
Accordingly, Ghosh hired Ajay Desai (age 40) as the head of the ARSB’s western and southern
regional division in 2006. Desai was shortly promoted to country head of the ARSB practice in 2007.
With a Masters degree in Rural Management, he called rural India his “first love” and had worked as
the head of ICICI Bank’s Rural Micro-Banking and Agribusiness Group. He knew the high capital
costs of setting up far-flung branches, higher operating and infrastructure costs, and the difficulty of
finding and retaining the right talent in rural settings presented a formidable hurdle.“Commercial
banks only had a presence in rural areas because of the RBI’s rules,” Desai said.
However, given his deep knowledge of and commitment to rural markets, Ghosh and Desai and
the Bank’s ARSB team believed that the PSL requirements could actually translate into an
opportunity. The team first identified companies that had a solid history of outreach and expertise in
agricultural value chains and viewed them as potential partners. Then, as Ghosh added, “We did a
thorough risk and capability assessment of the partner that also served as a proxy credit check for the
farmers supplying to them, as it provided us assurances as to their cash flow.” Finally, the ARSB
team approached the company to use their outreach capability to offer customized structured
financial solutions to their large base of farmers.
A deal involving Kashmir Apiaries Exports (KAE), one of India’s largest honey exporters, was an
example of this partnership model. “Since most honey bee farmers were nomadic and poor, they had
no associations with banks and relied on informal sources of credit,” Ghosh said. In 2007, the bank
worked to link a nomadic community of 2,000 honey bee farmers in Jammu and Kashmir to KAE. It
started by securing a purchase commitment from KAE to pay a predetermined price for honey, given
certain quality and quantity specifications. The ARSB team then offered the nomadic bee farmers
credit against honey delivered to selected warehouses, which now represented collateral with a firm
value. The loans would then be repaid with the proceeds of the sale to KAE. In this way, YES BANK
extended financing of $3.5 million for six months to the bee farmers, disbursing loans with an average
balance of $100 and an interest rate of 11%, a major savings relative to the informal sources of credit.
At the same time, this contributed to increase KAE’s annual sales turnover from $9.7 million to $22.3
million. The impact of such a deal went much beyond the size of the transaction. It generated
significant media coverage and was awarded the prestigious “Deal of the Year” award by Euromoney
magazine. As Ghosh stated, “The KAE deal proved that structured solutions were not only about
esoteric structuring for high investment banking fees, but something that could be used as a creative
tool for achieving financial inclusion.”
Another example involved Jain Irrigation Systems Limited, the world’s third-largest irrigation
company. The company was well known to the YES BANK Corporate Finance team, as it advised
Jain on its acquisitions and financings. This, in turn, helped to establish a connection with ARSB
through which the development banking team reached out to Jain’s irrigation clients, leading to $40
million in direct PSL farmer financing. Through similarly structured deals as well as the development
and distribution of agri-specific insurance products, YES BANK was able to reach out to over 1.3
million farmers with an overall portfolio size of $547 million in 2009. In this way, despite having only
21 rural and 27 semi-urban branches in 2009, YES BANK became the only private sector bank in India
to have exceeded the RBI’s PSL requirements, both in terms of overall targets as well as agricultural
targets, a feat it has been consistently repeating since 2007. Its performance has been such that the
bank has been able to market its excess PSL portfolio to non achieving banks. “Selling part of our
portfolio to competing banks was a real feather in our cap,” Ghosh said, “because the money we
earned was enough to cover the cost of operating the ARSB portfolio.”
Microfinance
Microfinance was another vertical the Bank tackled under Development Banking. In India,
commercial banks such as ICICI and YES BANK follow the conventional routes of lending through
NABARD’s SHG-Bank linkage model or MFIs that then on-lend to low-income clients. However, in
2007, YES BANK decided to reach microfinance clients directly through its own branches and
distribution networks. The initiative, called YES SAMPANN, was a joint venture with ACCION
International, a U.S. nonprofit global pioneer of microfinance, which provided a complete package of
technical assistance and support. In addition, advisors from ACCION supported the development of
an initial business plan, the implementation of best in class technical systems, the launch of
operations and financial products, and the training of relationship managers. Rana Kapoor recalled,
“Convincing our Board for YES SAMPANN was not easy. First, we were offering direct lending
combined with urban inclusive lending, neither of which most lending institutions were willing to
do. Second, microfinance had a longer gestation period than other banking divisions. And last, many
members were simply unfamiliar with the microfinance risk/return practice.” However, he added,
“the winning arguments that we put forward were that serving low income sectors had tremendous
growth opportunity and microfinance was exactly what we needed to build a socially responsible, yet
gradually profitable, business.” YES SAMPANN commenced operations in July 2007. By the end of
2009, it operated four branches, had 4,495 active borrowers and an active portfolio of INR 45 million.
Its plans called for 25 branches dedicated to microfinance services in the key urban centers by 2012.
But YES SAMPANN soon ran into a string of challenges. Every time YES SAMPANN wanted to
open a new branch, YES Bank was required to seek approval from the RBI and if it wanted to launch
a new product or introduce a product variation, the Bank was required to get approval from its own
Board. There were also issues about attracting the right people to YES SAMPANN. Desai explained,
“The minute we went out there and recruited as ‘YES BANK,’ we attracted people who wanted a
career in commercial banking.” By 2008, the Development Banking Group began considering taking
YES SAMPANN off the Bank’s balance sheet and spinning it off as a separate banking subsidiary,
with ACCION holding a majority stake. Kapoor, however, was unsure if this would get the RBI’s
blessings. He said, “Approval looked tough because the RBI normally does not allow commercial
banks to promote such subsidiaries. Also, since we had been so visibly involved in microfinance, the
RBI might want us to keep continuing to make a direct impact.” Kapoor had read the RBI correctly. In
December 2009, the RBI formally denied the request.
In parallel, the Development Group also created a Microfinance Institutions Group (MIG) that
would focus on providing terms loans and working capital directly to MFIs. In 2009, the Group
announced a series of deals. One of them a first-ever securitization deal in the Indian microfinance
space, with the Bank acting as sole underwriter for a $2.5 million offering by Equitas Microfinance
Private Limited. In another, for industry leader SKS Microfinance Limited, the Bank arranged the first
rated issuance of an MFI in India of Commercial Paper and Non-Convertible Debentures,
cumulatively worth $40 million. Ghosh recalled, “As an experiment, we also brought in talent from
our mainstream corporate finance side and attached them to the MIG team. Though the corporate
finance banker now also looked at microfinance deals, he continued to manage his traditional books.
We ended up creating a unique team that was able to introduce some unprecedented products in the
microfinance space.” By the end of 2009, MIG had worked with 15 MFIs and held a total microfinance
portfolio of $100 million, involving close to 600,000 borrowers. MIG contribution of around 11%
towards the YES BANK’s rural banking portfolio was also one of the highest amongst Indian
commercial banks. How this market would develop, however, was not clear. Hariharan
Krishnamoothy, assistant vice president of the MIG, said, “Microfinance organizations were driven
by a ‘key man’—iconic promoters who carry with them certain credibility. As a result, all the
companies that we have worked with have a strong reputation and low loan default rates. However,
as we see the microfinance space aggressively expanding, there are bound to be serious dilutions in
the appraisal process which will make the sector much more risky.”
10
Sustainable Investment Banking

The Sustainable Investment Banking (SIB) group was a dedicated business vertical providing
specialized investment advisory service to sustainability focused ventures. Ghosh appointed Vivek
Mehra, 41, as the managing director of the group. On his choice, Ghosh said, “Mehra’s career was
firmly in conventional banking before YES BANK, but we recognized that he was the kind of
entrepreneurial talent that would be open to doing something different.” Mehra acknowledged that
his passion towards sustainability developed gradually. He recalled, “Unlike others, I didn’t have a
defining moment when I realized that sustainability was something I loved. The portfolio came to me
and I accepted it because it gave me a lot of freedom and a lot of responsibility.”
Internally, the SIB group was called “S3IB” because it offered services to businesses that were
either “small, social, or sustainable.” It targeted socially driven companies in the fields of education,
healthcare, microfinance, and livelihood creation. With regards to sustainability, SIB not only served
companies in renewable energy but also covered the entire energy, environment, and engineering
value chain. “A large part of what the SIB Group did was to gear ourselves to serve our clients,”
Mehra said. “That meant getting into the picture right from the time the clients started thinking about
greener solutions.”
In 2009, the Bank approached Greenko Group, an independent power producer that focused on
developing small hydro, solar, and wind power assets in India. Though Greenko was looking for $8
million dollars in debt, Mehra offered to raise $90 million through a mix of equity and debt to finance
400 megawatts of fresh capacity, four times the company’s original goal. By June, YES BANK had
raised $45 million for the company through a private equity placement, and became the sole
underwriter for Greenko’s $45 million term loan. By 2014, Greenko expected to generate 1,000
megawatts of renewable energy, making it one of the country’s largest green energy companies.
Other deals followed, and are summarized in Exhibit 8.
In 2008, the SIB Group announced the creation of the South Asia Clean Energy Fund (SACEF), a
$200 million private equity fund co-sponsored with the Washington-based Global Environment Fund
(GEF). As co-sponsors, both YES BANK and GEF acted as the general partners (GP) of SACEF and
collectively committed $5 million to the fund. SACEF planned to invest around $3 to $15 million each
in a total of 10–12 unlisted companies across South Asia involved in renewable energy, energy
efficiency, and sanitation solutions. By March 2009, despite the global financial crisis, the Fund had
managed to raise $125 million in commitments from limited partners, and projected to have its first
close in September 2010, with investing commencing soon thereafter.
By the end of FY2010, the SIB Group had an advisory income to direct staffing cost ratio of 6
times, up from 2.5 times in 2009. Since inception, it always had a positive cash flow. For Mehra, the
largest asset of the SIB Group was its first mover advantage. In his view, it would take a competitor
“a good two and a half years to replicate our model.” But the sustainable sector in India was still
small and new, and within the bank the SIB group was much smaller than other functional areas.
Responsible Banking in Thought

With Development Banking involved in implementing so many initiatives, Ghosh felt he needed
to ensure that the group would continue to think broadly and innovatively. This was the genesis of
‘Responsible Banking in Thought’- a think tank to develop and incubate products and services that
could be business solutions to social problems. Its role would be to engage in “the original thinking
about understanding a sector, its potentials, its key players, and its challenges,” Ghosh explained.
“Once they identify a particular area, then we set up a specialized business unit to create a viable
business for the Bank.” Ghosh recently appointed Viraal Balsari as the country head for Responsible
11
Banking. Balsari, with 15 years of experience in both the private and nonprofit sectors, strongly
believed that banks could act as a catalyst for social change and address poverty-related issues in
India.
The Responsible Banking group under Balsari worked in the three strategic areas—Client
Engagement, Thought Leadership, and Internal Engagement. Often in conjunction with the Bank’s
corporate and retail units, this team advised other firms on their own corporate social responsibility
practices, partnered to support and disseminate key knowledge on social issues, and optimized the
internal efforts of YES BANK’s personnel. (See Exhibit 9 for key achievements of the Responsible
Banking in Thought Group).
The financial performance of the Corporate Finance and Development Banking divisions for fiscal
years 2009 and 2010 are shown in Exhibits 10a and 10b.
Up for Approval—the Financial Inclusion Program and Tatva Capital

The Development Banking division had launched a number of initiatives in a short period of time.
Nevertheless, even though a strong argument could be made to concentrate on solidifying the
operations in course, Ghosh and his team felt they needed to approach Kapoor and the Board once
again. In the first place, the RBI had issued a new directive that requested banks to create their own
financial inclusion model. With nearly a third of its 153 retail branches in rural and semi-urban areas,
YES BANK was well within the RBI’s required rural to urban retail branch ratio of 1:4, however in
absolute terms this paled in comparison to the other leading banks. Secondly, YES BANK’s own
growth plans aimed to almost quintuple its network by 2015 to 750 branches across the country.
Ghosh was confident that the Development Banking team had developed an innovative and unique
financial inclusion program that would stand YES BANK’s ROE requirements. At the same time, he
also felt the time was ripe for YES BANK to move into impact investing and deploy commercial
equity capital in order to address key social issues.
The Financial Inclusion Program

The Development Banking team’s Financial Inclusion Program which was built on two initiatives:
Money Mobile Services, and Rural Banking through the Business Correspondent (BC) Model.
Money Mobile Services (YES –MMS) in partnership with Nokia and Obopay- Suresh Sethi,
Group President of Transaction Banking, the division responsible for developing and implementing
the business strategy for Cash Management Services within the Bank, first made the case for mobile
banking in 2009. “There are 200 million bank accounts in India but around 500 million mobile
connections,” he explained. “Mobile banking would allow us to reach the unbanked consumer
segment that does not have a bank account but has a strong access to mobile services. By making
financial services convenient and easy to use, we could further build our brand network and
significantly increase our customer base.”
That same year, the Development Banking team set out to create a pilot for the mobile banking
platform. Though the market for mobile banking in India was in its infancy, the Bank decided to
spend significant capital on building the technology around the service. Explaining this approach,
Suresh Sethi said, “Aligned to the Bank’s focus on technological innovations, if we first become the
money mobility services leaders in the space, we can then also become the pioneers of the entire
market.”
The program was designed as a partnership between three entities: YES BANK; Nokia, a leading
cell phone supplier to the global and Indian market; and Obopay, a California-based company
12
specializing in mobile payment systems. Called YES-MMS, the program consisted of a Nokia cell
phone with a pre-embedded application that allowed the user to open an account with YES BANK
and use this banking platform for financial transactions via Obopay application technology, such as
recharging the phone’s prepaid card, paying utility bills and transferring funds. Nokia provided the
front-end platform (hardware/software/distribution), with the process starting when a customer at
the Nokia distributor acquired a phone and a prepaid card (or a postpaid service) and the distributor
opened a YES BANK account. For Nokia, the attraction was both customer generation and retention
and dealer loyalty. Obopay received a fee ranging from 2% to 5% of the payment, except for utility
bills where the fee was fixed between $0.10 and $0.20 per transaction. As a direct sales model,
Obopay was willing to bear all development costs related to their service. Sethi summarized, “The
benefits for YES BANK are holding the float balance of all pre-paid accounts, getting access to Nokia
distributor accounts including the potential to cross-sell other products through this channel, and,
finally, to access the prepaid customer data for further direct cross-selling opportunities.” Exhibit 11
summarizes the projected results for YES-MMS.
Even though mobile banking was new in India, it was regulated by the RBI. The transaction limit
per customers was restricted to $1,000 per year. Only licensed banks were allowed to offer services
and all conventional banking rules, including KYC (“Know Your Customer”) norms, were applicable
to the mobile space. Again, YES BANK’s strong credibility with the RBI was instrumental in getting
the required approvals to launch a YES-MMS pilot project in Pune, a city known for its tech-savvy
population. Ajay Desai explained, “The RBI would have not entertained such an innovative project
had we not achieved our priority sector targets.”
Though the YES_MMS pilot had been deemed a success, several questions still remained as senior
management considered a national launch. Would a rural population embrace what had worked so
well in tech-savvy Pune? Although the money transfer industry for unbanked migrant workers was
huge, was Nokia One’s service charge of up to 5% too high? And lastly, even though the RBI had
approved YES-MMS in Pune, the mobile banking industry in India was very young and the
regulatory framework was still evolving. But if successful, the payback was huge. As Sethi put it,
“YES_MMS was the kind of service that would eliminate the dependence on the physical presence of
a branch. It could be a critical piece in building our rural branch network and in achieving financial
inclusion.”
Rural banking through the Business Correspondent (BC) Model For its semi-urban and
rural branches, YES BANK proposed a rural banking program based on a Business Correspondent
(BC) model. Describing it as a hub-and-spoke model, the Bank first identified target villages which
were within a 30-kilometer radius of an existing rural/semi-urban branch. In those villages, the
program then called for the recruiting of potential parties that could serve as BCs for the Bank, paid
on a commission basis. Possible BCs included SHGs, nonprofit organizations, registered companies,
ex-military service personnel, and individual shop owners. Between 2010 and 2015, the Bank planned
to invest a total of $8.66 million with an estimated ROE of 14.46% on this program (see Exhibit 12 for
the projected results).
In addition to a range of basic bank credit procedures including identification of borrowers,

processing and verification of loan applications, and loan recovery, the BC would also offer credit
and noncredit products, such as remittances, savings accounts, and micro-insurance. The bank was in
preliminary discussions with some major insurance companies to create new micro-insurance
products like low-cost medical insurance. Ghosh, however, added, “This was going to be a fairly long
development cycle because we needed to figure out underwriting standards, product design, price,
and, finally, get insurance regulatory approval.”
13
The BCs were critical in reducing the headcount necessary to penetrate the rural markets. Out of a
total target of 750 retail branches by 2015, it was estimated that while the 500 metro/urban branches
would employee 7,500 people, the remaining 250 semi urban/rural branches would employ only
1,250 personnel. “The rest of the people working for us in the rural areas would be through our BC
model,” Ghosh explained. “This makes it a highly efficient model in terms of manpower costs.” By
2015, the Bank planned to hire 382 BC’s who would in turn provide banking services across 3,056
villages (Exhibit 10). However, recruiting talented manpower for rural branches would continue to
be a challenge for the Bank and Ghosh said, “The success of our model will depend on the
capabilities of our team. Without the right talent, the whole program would be a non-starter.”
Ghosh name Ajay Desai, the man who loved rural India, to head the BC initiative. He was aware
of the many open questions of a totally new model. One of them was the issue of float. “Ideally, we
would like each BC’s inflows to equal outflows,” said Desai. “But the reality is that some days a BC
could be net positive and some days the BC could need more money from us.” Desai estimated that
the range could oscillate between a positive float earning income for the Bank to a “loss of up to three
days of float.” To be able to test the model was one of the advantages of being part of YES BANK.
“YES BANK’s experience with providing complete banking services to emerging Indian companies
coupled with Kapoor’s experience with entrepreneurial ventures means that we could focus initially
on systems and process,” Ghosh remarked. “However, once we reached the desired volumes,
profitability would become a major objective.”
The BC model was not unique to YES BANK but the experience of other banks so far had been
mixed. Ghosh, however, remained optimistic. He said, “There is nothing that we are doing here
which is unique. But really the unique thing about us is that since we are young and innovative, we
can do things better and with greater agility than anyone else.”
Tatva Capital
An early believer in the potential of deploying private equity (PE) in the pursuit of social
objectives, and encouraged by the positive experience of SIB’s work in raising PE for social ventures,
Ghosh and his Development Banking team in 2010 proposed the formation of a new initiative—
Tatva.4 Capital. Tatva would be structured as a pledged syndicate composed of YES BANK and up to
three financial institutions where each member, including YES BANK, would allocate $10 million to
it. Depending on the final number of institutions in the syndicate, the team expected to have a pool of
around $50 million. Tatva’s purpose was to make equity investments in early-stage commercial
enterprises dedicated to the healthcare, education, food and agriculture, housing and employment
creation at the base of the socio-economic pyramid (BoP). Tatva, much like commercial mainstream
PE funds, would target investment returns per transaction between 25 to 30 percent.
The Tatva team believed it would source deals in two ways. One was to tap into companies that
were already serving the BoP market. However, since the investable BoP market was in a nascent
stage, most of the target companies were unlikely to have proven business models or operating
systems that had the ability to scale. For such companies, Tatva would play an active hybrid role
where it would offer a combination of financing and enterprise development support. However,
Ghosh said, “The full benefit of these investments would accrue only after successful proof of
concept, capacity building, and scaling up of operations, making the gestation period of the
investment relatively longer.” Another source of deals was companies that did not currently serve the
BoP market but had the potential to do so. For example, Tatva was considering investing in a
company that designed lanterns, mobile chargers, and medical devices that could be recharged using
4 Tatva, in ancient Hindu philosophy, refers to the five elements (earth, wind, fire, water, and space) found in nature.
14
a “cranking” mechanism. The products were targeted at multiple segments in both rural and urban
markets. “Given the Bank’s deep expertise in the area of development banking,” Ghosh said, “we
believe advising businesses on how to successfully enter the BOP market could be one of our greatest
impacts.”
In a post-financial crisis environment, where institutional investors were more cautious and
regulators the world over were wary of banks managing pools of investment capital, the
Development Banking team chose a syndication vehicle rather than opting for a conventional private
equity fund. Accordingly, instead of an annual management fee based on amounts committed, as the
syndicate lead, the Bank would charge an arranger fee of 2% of the gross transaction value at the time
of each investment, followed by an ongoing management fee on invested capital In contrast,
conventional PE funds would typically charge investors an annual management fee of between 2%
and 2.5% of the committed amount during the life of the fund, irrespective of the actual timing of the
deployment. In addition, all syndicate members would retain their investment discretion through
representation on the Tatva’s investment committee (see Exhibit 13 for Tatva Capital’s summary
term sheet).
Future of Development Banking at YES BANK

As he pondered about the upcoming April 27 Board meeting, Kapoor thought of his five-year
growth plan While one of the objectives was to take the existing network of 153 branches to 750 in
2015, it was by no means the most important or the most dramatic goal. The Bank was also slated to
greatly expand both its corporate, retail finance and commercial banking practices by increasing the
number of relationships it had with large and mid-sized companies. Even though current and saving
account deposits accounted for only 9% of total deposits in 2010, the Bank planned to grow this
number to 30% by 2015. Kapoor had set his sights on increasing the Bank’s balance sheet from $8.1
billion in 2010 to $30 billion by 2015. In this context, Kapoor was acutely aware that capital allocation
was a key strategic consideration, uppermost in the minds of both senior management and the Board.
Was this the right moment for Development Banking to ask for what was today probably the scarcest
resource of all?
For starters, there was the issue of profitability. While Kapoor endorsed Ghosh’s conviction that
the benefits of Development Banking went “way beyond the balance sheet,” at their meeting Ghosh
himself had acknowledged that “Even if we scaled up our operations, it is unlikely we will be able to
deliver returns to be found in other commercial practices.”
Kapoor knew that his senior management and Board were more used to seeing big deals with big
ticket sizes and medium/large relationships. He also was aware that to implement successfully the
two radically new Development Banking initiatives would not be a simple task. In fact, he knew one
of Ghosh’s challenges was the staffing of his Development Banking team. Finding people with the
right mix of experience and passion was never easy but he would have to find even more of them
under the proposed plans. And certainly there was no lack of other attractive opportunities to pursue
as part of his ambitious growth plan for the next five years.
But Ghosh had made an eloquent case for the two new programs. “In totality, I do not think
anyone can say that the market opportunity for development banking did not exist in India. However
the biggest question is how can we capture the opportunity in a consistent and profitable manner,”
Ghosh had said at the conclusion of their meeting. “So far, you have always prioritized finding an
answer. Do you think the Board will continue to have the patience to see this movement through?”
Kapoor considered the question again as he walked to his car, and thought he would think about
it overnight and communicate his decision to Ghosh in the morning.
15
Exhibit 1 India Macro Economic Indicators
Population
Population 2009 (millions) 1166.08
Annual population growth rate (2009–2015) 1.48
% Urban 2009 29.8
% Urban 2014 31.3
% Population under age 15 (2008) 31.72
% Population under age 15 (2014) 29.1
GDP
GDP 2008 (current US$) trillions 1.16
GDP per capita 2008 (current US$) 1,017.0
Target Growth Rate of GDP (2007–2012) 8.1
Employment by Economic Activity

Agriculture % (2006) 67.0%
Industry % (2006) 13.0%
Services % (2006) 20.0%
Employment in the informal sector as a % of nonagricultural
employment (2000) 56.0%
Economic & Social Indicators

Population below poverty line % (2000–2006) 28.6
Share of income or expenditure that the poorest 10% have
access to (2005) 3.6%
Share of income or expenditure that the richest 10% have
access to (2005) 31.1%
Literacy 2006 (%) 62.8
FDI
FDI Inflows (1992), million US$ 252.0
FDI Inflows (2009), million US$ 34,577.0
Sectors attracting highest FDI Equity Inflows—2009
Services—Financial and Nonfinancial (%) 21.0
Computer Software and Hardware (%) 9.0
Telecommunications (%) 9.0
Source: World Bank, World Development Indicators; EIU, Market Data and Forecasts.
16
311-063 -17-
Exhibit 2 Indian Banking Sector—Indicative Statistics (2009–2010)
State Bank of India (SBI) HSBC Bank (India) ICICI Bank YES Bank
Ownership Public Sector, Indian Government Owned Private Sector, Foreign owned Private Sector, Indian Owned Private Sector, Indian Owned
Total Assets $235 billion $21.1 billion $81.0 billion $8.1 billion
Net Profit $2.03 billion $287.6 million $896.5 million $106 million
Number of Branches 9,034 50 2,035 153
Number of Employees 300,000 7,000 43,000 3,024
Source: World Bank, World Development Indicators; EIU, Market Data and Forecasts.
Note: For FY2010, the exchange rate used was $1=Rs. 44.9, as of March 31, 2010 (Reserve Bank of India, http://www.rbi.org.in, accessed August 25, 2010).
SBI 2009–2010 Annual Report (http://www.statebankofindia.com/webfiles/uploads/files/1275994607852_7_PERFORMANCEHIGHLIGHTS.pdf, accessed August 2010.

HSBC Annual Report and Accounts India 2009–2010 (http://www.hsbc.co.in/1/PA_1_083Q9FFKG80E20RA9Q00000000/content/website/pdf/about/inresults.pdf, accessed August 2010).
ICICI Bank Annual Report 2009–2010 (http://www.icicibank.com/aboutus/annual.html, accessed August 2010).
Yes Bank Annual Report 2009–2010.
Exhibit 3a Priority Sector Advances: Norms and Achievement (2009–2010) Bank Annual Report 2009–
2010
RBI Norms for Priority Sector Number of Banks

Priority Sector Lending Advances (2009) that Achieved Target
Public Sector Banks (27 Total)

Total Priority Sector Advances 40% of ANBC 42.5% 24
Total Advances to Agriculture 18% of ANBC 17.2% 14
Advances to Weaker Sections 10% of ANBC 9.8% 15
Private Sector Banks (22 Total)

Total Advances to Agriculture 18% of ANBC 15.9% 8
Advances to Weaker Sections 10% of ANBC 3.9% 4
Foreign Banks (27 total)

Total Advances to Small Enterprises 10% of ANBC 11.2% 21
Total Export Credit 12% of ANBC 19.4% 21
Source: Economic Survey of India 2009-10, Government of India, (http://indiabudget.nic.in/es2009-10/chapt2010/

chapter05.pdf, accessed August 2010).
Note: Adjusted Net Banking Credit (ANBC) is the net banking credit plus investment made by banks in non-SLR (Statutory
Liquidity Ratio) bonds held in the HTM (Held to Maturity) Category.
Exhibit 3b Repayment & Interest Rate Schedule for Banks Failing to Achieve Priority Sector Lending
Norms (2009–2010)
RBI Requirement Failing bank to place shortfall in long term bond issued by NABARD
Tenor of NABARD bond 7 years
Repayment Schedule Progressive repayment starting from the 4th year in a ballooning
repayment schedule, with more than 50% of the repayment being at
the end of the 6th and 7th year
Shortfall of PSL Achievement Interest Rate for the Shortfall

Less than 2% Bank rate (6%)
2 to less than 5% Bank Rate—1%
5 to less than 9% Bank Rate—2%
9% and more Bank Rate—3%
Source: YES BANK company documents.
Note: Bank Rate is the rate at which the RBI lends money to commercial banks for their on-lending operations. In 2010, the Bank
Rate was 6%.
18
Exhibit 4 YES BANK- Timeline of Liability Raising Instruments Used (2003-2010)
Maiden
Incorporation of International
A1+ Rating by Private Placement Senior Debt
the Bank Rating from
ICRA (Moody’s with Orient Global issued to DEG
(company limited First Issuance Moody’s Baa3
affiliate) for the of USD 84mn USD 25 mn
by shares) of Lower Tier II (Equal to India
Bank’s CD Sovereign Rating)
AA+ rated of
program (current
USD 22.57 mn
size INR 12 bn)
RBI grants license to Upper Tier II ICRA Rating
Raised first time
commence banking; Debt USD 20 Upgrade from
Upper Tier II USD
Board of pedigree mn issued to LAA for LTII
18.56 mn
Directors Proparco and LAA- UTI
established &HTI
July 12, 2005 Jan 2007 Dec 2007 Sep 2009 Jun 2010 Nov 2010
Mar 10, 2004 Aug 23- Oct Nov 2009
Nov 21, 2003 May 24, 2004 14, 2004 Oct 2004 Mar 2006 Dec2006 Jan 2007 Jun 2008 Feb 2009 Jul 2010
Jan 2010
July 12, 2005
Successful listing of
the Yes Bank stock CARE Rating
through an IPO of First Issuance of upgrade for LYI
Upper Tier II to Issuance of and CARE AA-
USD 72 mn (issue
LIC of USD 18.56 Hybrid Tier I UTI & HTI
subscribed 30 times
Infusion of capital by mn USD 30.5 mn
promoters, Rabobank over)
and private equity High quality mgmt team Qualified
investors (CVC, in place; Institutional
Private placement
ChrysCapital & AIF) Launch of C&IB, Placement of
with Swiss Re
business banking, amounting to USD USD 225 mn
First Issuance of
financial markets &
26mn Hybrid TierI USD
transaction banking 5 mn
Exhibit 5 YES BANK Organizational Structure
19
Exhibit 6a YES BANK Limited—Pro Forma Balance Sheet (FY2009 and FY 2010), at March
31 Exchange Rates
($ thousands)
Particulars FY 2010 FY 2009
Capital and Liabilities

Capital 75,650 58,726
Reserves and surplus 612,446 262,455
Deposits 5,968,500 3,197,434
Borrowings 1,057,701 731,991
Other liabilities and provisions 388,712 277,927
TOTAL 8,103,009 4,528,533
Assets
Cash and balances with Reserve Bank of India 444,390 252,663
Balances with banks and money at call and short notice 150,989 127,543
Investments 2,273,929 1,407,360
Advances 4,942,789 2,452,658
Fixed assets 25,716 25,927
Other assets 265,196 262,381
TOTAL 8,103,009 4,528,533
Exhibit 6b YES BANK Limited—Pro Forma Income Statement (FY2009 and FY 2010), at
March 31 Exchange Rates
($ thousands)
Particulars FY 2010 FY 2009
Income
Interest earned 527,775 395,775
Other income 128,181 86,395
TOTAL 655,956 482,170
Expenditure
Interest expended 352,284 295,063
Operating expenses 111,393 82,766
Provisions and contingencies 85,878 44,258
TOTAL 549,555 422,087
Profit
Net profit/(loss) 106,401 60,083
Notes: For 2010, the exchange rate used was $1=Rs. 44.9, as of March 31, 2010. For 2009, the exchange rate used was
$1= Rs. 50.57, as of March 31, 2009. (Reserve Bank of India, http://www.rbi.org.in, accessed August 25,
2010).
The use of March 31 exchange rates will underestimate Income Statement line items, which reflect activities
undertaken throughout the fiscal year.
20
Exhibit 7 Framework of the Development Banking Group
Responsible Banking in Thought Responsible Banking in Action
RESPONSIBLE BANKING INCLUSION SUSTAINABLE INVESTMENT BANK

ARSB & PRIVATE
(CSR & Sustainability) BANKING (SIB)
MICROFINANCE EQUITY
Thought Leadership, Advisory, Branch led model Business Planning/Structuring, M&A
Credit + Services Growth Capital
Institutionalization (Latest initiative) Advisory, Private Placement
Responsible YES Use of Business South Asia

Internal YES Tatva
Corporate SAMPANN Correspondent E3 Social Small Clean Energy
Engagement COMMUNITY Capital
Citizenship (RCC) Direct Lending Fund (SACEF)
Deal Generation Deal Generation
Other Bank Divisions:

– Corporate Finance
– Corp. & Inst. Banking
– Emerging Corporates
– Business Banking
– Retail Branches
Credit (SHG model)

Savings
Remittances & Transfers
3rd Party Investment Products (Ins/MF)
Credit (Govt linked Programme)
21
311-063 -22-
Exhibit 8 Sustainable Investment Banking (SIB)—Key Achievements
Year Company/Fund Information Transaction Details
Deals Completed:
March 2009 South Asia Clean Energy $200 million private equity fund co-sponsored by YES By March 2009, the SACEF had raised $125
Fund (SACEF) BANK and Washington based Global Environment Fund million in commitments from Limited Partners
(GEF), estimated first closing in Sep.2010. Planned to
invest $3million–$5 million each in 10–12 unlisted
companies across South Asia involved in renewable
energy, energy efficiency, and sanitation solutions
August 2009 Asmitha Microfinance A large Microfinance Institution (MFI) in India that uses the Exclusive transaction adviser for the private equity
Limited Grameen model of joint liability, serves over 1.16 million placement of $10 million to Blue Orchard Private
clients with a loan portfolio of $149 million Equity Fund
November 2009 Greenko Group Renewable energy producer focused on developing hydro, Raised $90 million through a mix of equity and debt
solar and wind power assets in India to finance 400 megawatts of renewable energy
December 2009 Graditim IT Ventures Technology company focused on providing IT solutions to $3 million private equity placement in Series A
India's microfinance sector enabling MFI's to access to financing from NEA–IndoUS Ventures
technological interventions that increase operational
efficiencies and reduce costs
Deals in Progress:
Indian School Finance Funded by Gray Ghost Ventures, a leading social enter- Assisting ISFC to raise $3 million to strengthen
Company (ISFC) prise investment company, ISFC's vision is to enhance the its balance sheet for scaling up operations and
availability of quality and affordable education to more than maximizing impact
5 million children by 2014 by establishing affordable private
school finances as a scalable asset class
Maya Organic The Company is a socially responsible enterprise Assisting company to raise $2 million to increase
providing fair trade front end brand, market access, livelihood opportunities to rural artisans
training and development to rural artisans involved in
manufacturing of furniture, toys and crafts
Source: Company documents.
311-063 -23-
Exhibit 9 Responsible Banking in Thought—Key Achievements
Year Company/Program Information Transaction Details
Client Engagement: Shriram Transport India's largest commercial vehicle financer, key banking YES BANK facilitated an HIV/AIDS awareness
Finance Company Ltd. client of YES BANK program by forming knowledge partnerships with
the Clinton HIV/AIDS initiative and the Red Cross.
Program was able to reach out to over 10,000
truckers across 10 states
Jain Irrigation Systems World's largest water irrigation company, key banking YES BANK evaluated and recommended
Ltd. client of YES BANK enhancements to social and environmental aspects
of the company's sustainability approach, as part of
the public Annual Report
Thought Leadership: Report by YES BANK Report titled, “Managing the Exodus: Grounding Migration Published in January 2009
and American India (AIF) in India”
Foundation
Maya Organic The Company is a socially responsible enterprise Assisting company to raise $2 million to increase
providing fair trade front end brand, market access, livelihood opportunities to rural artisans
training and development to rural artisans involved in
manufacturing of furniture, toys and crafts
Community/Internal YES COMMUNITY Community engagement platform for residents around Interactive micro-events focused on social and
Engagement: YES BANK’s retail branches; technical tie-up with Centre environmental issues; adopted Planet Earth as the
for Environment Education for 2010–11 current year's theme with events focused on waste
management, preserving biodiversity, water
conservation, energy conservation and pollution
prevention among others
Internal Engagement Akanksha student mentorship program In 2008–2009, 12–18 YES BANK employees
Programs participated in mentorship programs
GiveIndia payroll deduction program Contributed $22,000 through employee donors as

of March 2010
Planet Earth internet portal Publicize realities of corporate/social/environmental

impact of irresponsible consumption and
institutionalize resource conservation through
employee engagement
311-063 -24-
Exhibit 10a Corporate Bank & Development Banking—Profit and Loss Accounts (FY 2010)
Corporate Bank & Development Banking (CB & DB)

FY 2010 ($ million)
Corporate Bank Development Banking Total
Wholesale Corporate SME Corp Bank Development Corp. Fin. Standalone

Particulars IB Treasury Head Office FASAR/SIAG* ARSB MFI SIB Other PSL CB & DB
Bank (including Corp Fin) & Retail Banking (unaudited MIS data)
Interest income 221.43 117.71 - 132.88 - - 26.87 8.40 - 16.25 523.55 51.52 132.96
Cost of Funds (128.89) (59.21) - (122.07) - - (24.77) (6.94) - (10.42) (352.28) (42.13) (64.37)
Net Interest Income 92.55 58.51 - 10.81 - - 2.10 1.46 - 5.83 171.26 9.40 68.60
Treasury income - - - 55.87 - - - - - - 55.87 -
Non Interest income 0.47 6.25 7.37 - - - 0.74 0.10 - 0.91 15.83 1.75 0.47
Corporate Finance Advisory Income 7.99 10.50 - - - - - 0.89 - - 19.38 0.89 7.99
Trade income 19.87 12.72 - - - - - - - - 32.59 - 14.86
Development Knowledge Banking Advisory Fees - - - - - 0.84 0.59 0.26 2.82 0.85 5.36 4.52
Total Income 120.88 87.97 7.37 66.69 - 0.84 3.43 2.71 2.82 7.60 300.30 16.56 91.92
Operating Expenses (including allocated Head Office costs) 37.66 86.95 4.27 6.29 - 1.37 0.39 0.34 1.09 0.06 138.43 1.88 5.12
Profit Before Taxes 83.22 1.02 3.10 60.39 - (0.54) 3.04 2.36 1.73 7.54 161.86 14.67 86.79
Taxes 28.47 0.35 1.06 20.68 - (0.18) 1.04 0.81 0.59 2.58 55.40 5.02 29.74
Profit After Tax 54.74 0.67 2.04 39.71 - (0.35) 2.00 1.56 1.14 4.96 106.46 9.65 57.05
Asset Balances 4,355.39 1,868.42 - - - - 615.78 256.12 - 187.94 7,283.65 1,059.84

Fund 2,697.89 1,208.00 - - - - 592.85 256.12 - 187.94 4,942.79 1,036.90
Non Fund base 1,657.51 660.41 - - - - 22.94 - - - 2,340.86 22.94
Capital Requirement (total risk capital Tier 1 plus Tier 2) 610.81 274.01 - 116.63 - - 103.45 38.14 - 27.80 1,170.83 169.38 366.57
RoTotal Capital (Pre tax) 13.62% 0.37% - 51.78% - - 2.94% 6.20% - 27.12% 13.82% 8.66% 23.68%
RoTotal Capital (Post Tax) 8.96% 0.24% - 34.05% - - 1.93% 4.08% - 17.84% 9.09% 5.70% 15.56%
Average Shareholders Capital (Average Tier 1 Capital) 234.52 105.20 44.78 39.72 14.64 - 10.67 449.53 65.03 140.74
RoE Pre tax 35.5% 1.0% - 134.9% - - 7.7% 16.1% - 70.6% 36.0% 22.6% 61.7%
RoE Post Tax 23.3% 0.6% - 88.7% - - 5.0% 10.6% - 46.5% 23.7% 14.8% 40.5%
Note: For 2010, the exchange rate used was $1=Rs. 44.9, as of March 31, 2010. For 2009, the exchange rate used was $1= Rs. 50.57, as of March 31, 2009. (Reserve Bank of India, http://www.rbi.org.in,
accessed August 25, 2010).
*FASAR is the Food and Agribusiness Strategic Advisory and Research division and SIGA is the Strategic Initiatives and Government Advisory division.
311-063 -25-
Exhibit 10b Corporate Bank & Development Banking—Profit and Loss Accounts (FY 2009)
Corporate Bank & Development Banking (CB & DB)

FY 2009 ($ million)
Corporate Bank Development Banking Total
Wholesale Corporate SME Corp Bank Development Corp. Fin. Standalone

Particulars IB Treasury Head Office FASAR/SIAG ARSB MFI SIB Other PSL CB & DB
Bank (including Corp Fin) & Retail Banking (unaudited MIS data)
Interest income 140.24 111.31 - 101.51 - - 19.64 8.54 - 14.00 395.24 42.18 84.24
Cost of Funds (101.95) (59.79) - (100.53) - - (16.62) (4.74) - (11.38) (295.00) (32.74) (51.02)
Net Interest Income 38.29 51.51 - 0.98 - - 3.02 3.81 - 2.62 100.23 9.44 33.22
Treasury income 0.00 - - 43.49 - - - - - - 43.49 -
Non Interest income 1.01 6.42 9.88 - - - 0.61 0.53 - 0.48 18.92 1.61 1.01
Corporate Finance Advisory Income 4.11 0.57 - - - - - - - - 4.68 - 4.11
Trade income 12.77 7.26 - - - - - - - - 20.03 - 9.58
Development Knowledge Banking Advisory Fees 0.00 - - - - 0.78 1.14 0.50 0.40 0.44 3.27 2.49
Total Income 56.19 65.77 9.88 44.48 - 0.78 4.76 4.83 0.40 3.54 190.63 13.54 47.93
Operating Expenses (including allocated Head Office costs) 21.08 66.78 2.58 5.20 - 1.33 0.34 0.58 0.54 0.06 98.50 1.52 3.16
Profit Before Taxes 35.11 (1.01) 7.29 39.27 - (0.55) 4.42 4.25 (0.14) 3.48 92.14 12.02 44.76
Tax 12.21 (0.35) 2.54 13.66 - (0.19) 1.54 1.48 (0.05) 1.21 32.05 4.18 15.57
Profit After Tax 22.90 (0.66) 4.76 25.61 - (0.36) 2.88 2.77 (0.09) 2.27 60.09 7.84 29.19
Asset Balances (Capital Required by Business) 2,186.84 1,114.31 - - - - 410.79 120.20 - 118.56 3,950.71 649.56
Fund 1,147.03 679.26 - - - - 387.60 120.20 - 118.56 2,452.66 626.36
Non Fund base 1,039.81 435.05 - - - - 23.20 - - 1,498.05 23.20
-
Capital requirement (total risk capital Tier 1 plus Tier 2) 287.29 138.57 - 92.76 - - 57.80 16.91 - 13.22 606.55 87.93 172.41
RoTotal Capital (Pre tax) 12.22% -0.73% - 42.34% - - 7.64% 25.15% - 26.35% 15.19% 13.67% 25.96%
RoTotal Capital (Post Tax) 7.97% -0.48% - 27.61% - - 4.99% 16.41% - 17.18% 9.91% 8.91% 16.93%
Average Shareholders Capital (average Tier 1 Capital) 137.83 66.48 - 44.50 - - 27.73 8.11 - 6.34 291.00 42.19 82.72
RoE pre tax 25.5% -1.5% - 88.2% - - 15.9% 52.4% - 54.9% 31.7% 28.5% 54.1%
RoE post Tax 16.6% -1.0% - 57.5% - - 10.4% 34.2% - 35.8% 20.6% 18.6% 35.3%
Note: For 2010, the exchange rate used was $1=Rs. 44.9, as of March 31, 2010. For 2009, the exchange rate used was $1= Rs. 50.57, as of March 31, 2009. (Reserve Bank of India, http://www.rbi.org.in,
accessed August 25, 2010).
*FASAR is the Food and Agribusiness Strategic Advisory and Research division and SIGA is the Strategic Initiatives and Government Advisory division.
Exhibit 11 Projected Results for the Nokia One Program
Nokia One—Customer Base (active users) Year 1 Year 2 Year 3
Total MBILL (easy-Pay) 200,000 300,000 500,000

Total SVA (easy-Send) 20,000 30,000 100,000
TOTAL USERS 220,000 330,000 600,000
Usage Calculations: (Rs. per month)

Total MBILL (easy-Pay) 400 560 784
Total SVA (easy-Send) 1,200 1,500 2,250
(per Annum)
YBL transaction fees 0.02% 0.02% 0.02%
Transaction Volume: (Rs. million per year)

Total MBILL (easy-Pay) 960 2,016 4,704
Total SVA (easy-Send) 288 540 2,700
Total 1,248 2,556 7,404
YBL fees to Obopay (in INR million): (Rs. million)

Total MBILL (easy-Pay) 0.19 0.4 0.94
Total SVA (easy-Send) 0.06 0.11 0.54
Total 0.25 0.51 1.48
Average Balance per user (INR): (Rs.)

Total SVA (easy-Send) 100 150 250
Avgas Funds in Pooled Account—Residual

(in INR million): (Rs. million)
Total SVA (easy-Send) 2 5 25
Total 12 35 100
Total Income from Pooled account balance (@6%) 0.72 2.07 6
% of YBL costs to Float Income 35% 25% 25%
26
311-063 -27-
Exhibit 12a Financial Inclusion Program—Projected Results (2010–2015)
Cumulative
Position as of Plan Projections for the Year Position as on
Contents March 2010 2010–11 2011–12 2012–13 2013–14 2014–15 March 2015
Total no. of branches open/ to be opened 153 105 100 120 130 142 750
No. of Urban branches open/ to be opened 94 83 66 80 85 92 500
No. of Rural branches open/ to be opened 22 3 15 17 20 22 99
No. of Semi-Urban branches open/ to be opened 37 19 19 23 25 28 151
No. of BCs to be appointed 0 44 68 80 90 100 382
No. of villages provided/ to be provided with banking services 59 374 578 680 765 850 3,306
No. of villages provided/to be provided with banking services through Branches 59 22 34 40 45 50 250
No. of villages provided/ to be provided with banking services through BCs 0 352 544 640 720 800 3056
No. of villages with population >2000 covered/ to be covered 60 281 434 510 574 638 2,495
No. of villages with population <2000 covered/ to be covered 19 94 145 170 191 213 831
No. of households covered/ to be covered (in million) 0.055 0.281 0.405 0.442 0.478 0.510 2.170
Cumulative No of SHGs to be provided with entrepreneurial credita -- 14,025 34,255 56,355 80,261 105,761
Cumulative No. of No-Frills Accounts opened/ to be opened (assuming
minimum coverage of 10% and peak of 30%) 98 33,504 90,716 171,898 278,793 412,781
Cumulative No. of accounts against which Overdraftb issued/ to be issued -- 16,752 45,358 85,949 139,396 206,390
Cumulative No. of Urban FI customers 53 16,700 39,000 83,500 150,300 239,400
Business volume from FI (in $ million)

Deposits (aggregate o/s as on March 31,$ million) 2 7 16 32 54
Loans ($ million) 1 10 36 82 158 269
FI Income ($ million) 1 3 6 12 21
FI Costs ($ million) 4 6 8 12 16
Profit before Tax out of FI Profit /Loss (in $ million) (3) (3) (2) 1 5
Capital Employed $ million 0 1 5 12 24 40
RoE (pre-tax) 3.16% 11.85%
Note: The exchange rate used was $1=Rs. 44.9, as of March 31, 2010 (Reserve Bank of India, http://www.rbi.org.in, accessed August 25, 2010).
aEntrepreneurial credit is the credit given for entrepreneurial activities (self-employed businesses).
bOverdraft accounts are those accounts, out of the total No-Frills Accounts, that will have interest earning overdraft facilities.
311-063 -28-
Exhibit 12b Financial Inclusion Program—Key Assumptions
Position as of Plan Projections for the Year

Contents March 2010 2010–11 2011–12 2012–13 2013–14 2014–15
Average no. of households in target village 750 700 650 625 600
Deposit amount/No-Frills Account (Rs.) 500 750 1,000 1,500 2,000
Deposit amount/ SHG Account (Rs.) 5,000 7,500 10,000 12,500 15,000
Average amount of Overdraft Accounts in No-Frills Account 2,500 3,750 5,000 7,500 10,000
Average amount of loan to SHG 25,000 37,500 50,000 62,500 75,000
Income margin on deposits (%) 4% 4% 4% 4% 4%

Income margin on advances (%) 7% 7% 7% 7% 7%
Cumulative number of FI operations branches 59 81 115 155 200 250

FI Setup cost/Branch—one time (Rs. million) 0.3 0.3 0.3 0.3 0.3
Total annual setup cost (Rs. million) 6.60 10.20 12.00 13.50 15.00
Annual FI running cost/Branch (Rs. million) 10% 1.50 1.65 1.82 2.00 2.20
HO Overheads (flat Rs. million) 20% 30.00 36.00 43.20 51.84 62.21
Central Ops cost/account (Rs.) 20% 50.00 60.00 72.00 86.40 103.68
Total FI Costs ($ million) 3.61 5.53 8.13 11.60 16.17
Note: The exchange rate used was $1=Rs. 44.9, as of March 31, 2010 (Reserve Bank of India, http://www.rbi.org.in, accessed August 25, 2010).
Exhibit 13 Tatva Investment Program—Indicative Key Terms
Program Size Targeted at $50 million. Corpus will depend upon the number of
Syndicate members
Yes Bank Commitment Approximately $10 million
Stage of Investment Seed/Early Stage
Sector Focus Renewable Energy, Clean Technology, Waste Management, Water &
Sanitation, Food & Agribusiness, Affordable Housing, Healthcare,
Education & Livelihood Creation
Geographical Focus India
Deal Size $0.5 million–$3 million
Target Return 25%–30% Internal Rate of Return (IRR)
Portfolio Size YES BANK anticipates making approximately 10 to 12 investments
Investment Period 3-year Investment Period; 10-year Holding Period
Arranger Fees 2% of the gross transaction value at the time of each investment to be
paid to YES BANK
Post-Investment Fees 2% of invested capital until divestiture
Carried Interest To be structured in consultation with Syndicate Partners
29
Endnotes
1 YES BANK, 2009–2010, Annual Report. India: Yes Bank, 2010.

2 Johri, Devika & Miller, Mark, “Devaluation of the Rupee: Tale of Two Years, 1966 and 1991.” Center for Civil
Society. http://www.ccsindia.org/ccsindia/policy/money/studies/wp0028.pdf, accessed September 2010.
3
Telecom Regulatory Authority of India, “Telecom Subscription Data as on 30th November 2009,” press release,
December 23, 2009. http://www.trai.gov.in/WriteReadData/trai/upload/PressReleases/712/pr23dec09no79.pdf,
accessed September 2010.
4 Diana Farell and Eric Beinhocker, “Next Big Spenders: India's Middle Class,” Business Week, May 19, 2007,
http://www.mckinsey.com/mgi/mginews/bigspenders.asp, accessed September 2010
5 National Common Minimum Program of the Government of India, May 2004. Prime Minister’s Office.
http://pmindia.nic.in/cmp.pdf, accessed on September 2010.
6
Panagariya, Arvind, “Bank Branch Expansion and Poverty Reduction: A Comment,” Columbia University,
August 2006. http://www.columbia.edu/~ap2231/technical%20papers/Bank%20Branch%20Expansion%20and
%20Poverty.pdf, accessed on September 2010.
7Rising to the Challenge in Asia: A Study of Financial Markets, Volume 5, India. Asian Development Bank(Manila,
Philippines: Asian Development Bank, 1999) http://www.adb.org/Documents/Books/Rising_to_the_Challenge/
India/india_bnk.pdf, accessed September 2010.
8
Banknet India, “Indian Banking Sector Challenged by Domestic, not Global, Factors,” Banknet India website.
http://www.banknetindia.com/banking/81022.htm, accessed September 2010.
9 Economic Survey 2009-2010, Chapter 5, pp. 95–97. http://indiabudget.nic.in/es2009-10/chapt2010/
chapter05.pdf, accessed September 2010.
10 “Licenses for New Banks under RBI Guidelines: FM,” Times of India online edition, March 6, 2010.
http://timesofindia.indiatimes.com/biz/india-business/Licenses-for-new-banks-under-RBI-guidelines-FM/
articleshow/5652059.cms, accessed September 2010.
11
Sumit Sharma, “SBI, ICICI Bank Profits Rise under Higher Bond Investment Returns,” Livemint.com & the
Wall Street Journal, January 25, 2009. http://www.livemint.com/2009/01/25230613/SBI-ICICI-Bank-profits-rise-
o.html, accessed September 2010.
12
ICICI Bank, 2009-2010 Annual Report (Mumbai: ICICI Bank, 2010), p. 57, http://www.icicibank.com/
aboutus/annual.html, accessed September 2010.
13 Reserve Bank of India, Priority Sector.Lending- FAQs, http://www.rbi.org.in/scripts/FAQView.aspx?
Id=8, accessed September 2010.
14 Aveek Dutta, “Farm Loans to Banks by Microfinance Firms See Big Spurt,” Livemint.com and the Wall Street
Journal, April 11, 2010. http://www.livemint.com/2010/04/11212151/Farm-loans-to-banks-by-microfi.html,
accessed September 2010.
15 Reserve Bank of India, Report on Trend & Progress on Banking in India 2008-09, pp. 286–294.
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RTP0809PRD_Full.pdf, accessed September 2010.
16
S. S. Sangwan, “Financial Inclusion and Self Help Groups (An Abstract),” NABARD, Chandigarh 2008.
http://www.nabard.org/databank/IARD%20Web/csidfiles/Financial%20lnclusion%20and%20SHGs.pdf, accessed
September 2010.
17“Informal Lenders are Giving Banks a Run for their Loans,” the Economic Times online edition, November 20,
2007. http://economictimes.indiatimes.com/Banking/Informal_lenders_are_giving_banks_a_run_for_their_loans/
articleshow/2554678.cms, accessed September 2010.
30
18 Aspects of India’s Economy, Chapter IV, Section 5. Research Unit for Political Economy (Mumbai 2008),
http://www.rupe-india.org/44/impasse.html, accessed September 2010.
19N. Srinivasan, Microfinance India: State of the Sector Report- 2009. SAGE Publishers (New Delhi 2009),
http://www.sagepub.in/browse/book.asp?bookid=1438&Subject_Name=&mode=1, accessed September 2010.
20 Microfinance in India- Current Trends and Challenges. Centre for Microfinance at Institute for Financial
Management and Research (October 2006), page 1. http://ifmr.ac.in/cmf/wp-content/uploads/2006/11/MF-in-
India-(WA4.10.06).pdf, accessed September 2010.
21 Ibid, p. 1
22Reserve Bank of India, Master Circular- Prudential Guildelines on Capital Adequacy and Market Discripline-
New Capital Adequacy Framework (NCAF), February 8, 2010, http://www.rbi.org.in/scripts/NotificationUser.
aspx?Id=5494&Mode=0. Accessed November 2010.
23 Ibid.
24 “Resounding ‘Yes’ for YES BANK,” Asiamoney online edition, June 12, 2006. http://www.asiamone.com/
Article/2056234/Search/Results/Resounding-yes-for-Yes-Bank.html?Keywords=yes%2bbank%2bceo, accessed
September 2010.
25 “Banking on Innovation,” OutlookBusiness online edition, September 19, 2009.
http://business.outlookindia.com/article.aspx?261656, accessed October 2010.
31

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9-311-063

REV: NOVEMBER 8, 2010

YES BANNK: Maiinstreaming Develop

Ass Ghosh, a lon

Copyrigght © 2010 Presiden nt and Fellows of Harvard

India—from the License Raj to “India Shining”

Indian Banking Sector

Banking the Unbanked: Priority Sector Lending and Financial Inclusion

Development Banking at YES BANK

Agribusiness, Rural and Social Banking

Sustainable Investment Banking

Responsible Banking in Thought

Up for Approval—the Financial Inclusion Program and Tatva Capital

The Financial Inclusion Program

In addition to a range of basic bank credit procedures including identification of borrowers,

Future of Development Banking at YES BANK

Exhibit 1 India Macro Economic Indicators

Employment by Economic Activity

Economic & Social Indicators

Exhibit 2 Indian Banking Sector—Indicative Statistics (2009–2010)

SBI 2009–2010 Annual Report (http://www.statebankofindia.com/webfiles/uploads/files/1275994607852_7_PERFORMANCEHIGHLIGHTS.pdf, accessed August 2010.

RBI Norms for Priority Sector Number of Banks

Public Sector Banks (27 Total)

Private Sector Banks (22 Total)

Foreign Banks (27 total)

Source: Economic Survey of India 2009-10, Government of India, (http://indiabudget.nic.in/es2009-10/chapt2010/

Tenor of NABARD bond 7 years

Shortfall of PSL Achievement Interest Rate for the Shortfall

Source: YES BANK company documents.

Exhibit 4 YES BANK- Timeline of Liability Raising Instruments Used (2003-2010)

Source: YES BANK company documents.

Exhibit 5 YES BANK Organizational Structure

Source: YES BANK company documents.

Capital and Liabilities

Source: YES BANK company documents.

Exhibit 7 Framework of the Development Banking Group

Responsible Banking in Thought Responsible Banking in Action

RESPONSIBLE BANKING INCLUSION SUSTAINABLE INVESTMENT BANK

Responsible YES Use of Business South Asia

Deal Generation Deal Generation

Other Bank Divisions:

– Corp. & Inst. Banking

Credit (SHG model)

Source: YES BANK company documents.

Exhibit 8 Sustainable Investment Banking (SIB)—Key Achievements

Year Company/Fund Information Transaction Details

Source: Company documents.

Exhibit 9 Responsible Banking in Thought—Key Achievements

Year Company/Program Information Transaction Details

GiveIndia payroll deduction program Contributed $22,000 through employee donors as

Planet Earth internet portal Publicize realities of corporate/social/environmental

Source: Company documents.

Corporate Bank & Development Banking (CB & DB)

Wholesale Corporate SME Corp Bank Development Corp. Fin. Standalone

Asset Balances 4,355.39 1,868.42 - - - - 615.78 256.12 - 187.94 7,283.65 1,059.84

Source: Company documents.

Corporate Bank & Development Banking (CB & DB)

Wholesale Corporate SME Corp Bank Development Corp. Fin. Standalone