Case learning s Yes Bank: Competitive Strategy of a late entrant

Before nationalization people did not have easy access to bank so nationalization helped in spreading the banks. Banking sector before 1990 reforms: y y y y High entry and exit barrier Homogeneity Highly concentrated Natural monopoly of public sector banks due to large size and spread

Why were reforms required?

y y y y Banks had high NPA s(non performing assets) and less profits To improve efficiency of sector. To increase the penetration of banks. Encourage private sector to enter the market for increasing competition and efficiency.

What was the strategy adopted by Rana Kapoor for yes bank to enter the market?
 He focused on Bridging the gap in terms of service.  He did not go for retail banking or the mass customer but focused on serving priority sector (small and medium enterprises, agriculture, life sciences, telecommunications etc.).This gave him support in terms of Government s assistance.  Funding the sunrise sector which was ignored by other banks.  Selected corporate banking as the niche market.  He focused on commoditization i.e. non-marketing services.  He had an edge over other banks due to latest technology.  He hired (poached) highly experienced people from various industry segments by giving them power to take decisions independently.  He employed Knowledge bankers who could serve advisory to the clients.  He focused on short-run approach

What could have been the negative side of Rana Kapoor s entry strategy?
y y y y He focused on sunrise sector that was not yet evolved and thus took high risk. As he did not adopted retail banking and had a limited number of branches, the Bank lacked accessibility. Expensive HR. Small product profile.

Why did he later entered retail banking?

y y y Economies of scope. As he made a successful entry the question now is the survival in the market. Thus he adopted retail banking and other services which were offered by other banks. He was worried about the entry of new players into market as his technological edge could be replicated.

What future strategies should Yes Bank follow?

y y y y y Increase the Customer base to get more CASA deposits. The bank needs to focus on small and medium towns which provide high growth prospects by using his technological edge. Provide insurance services. Open international branches to serve strong NRI s market. He can hire fresher s by providing them few months training.

How is the market structure of banking sector?

Banking sector is dynamic and continuously evolving so there is no fixed market structure. When we see in pre-reform era the banking sector has monopoly by state led banks like SBI, PNB, etc. With the Liberalization policy of 1990 s the sector was opened up and had perfect competition and allowed entry of private players. Among the top players, there is a perfect competition. There are also some traits of Monopolistic competition on the basis of the differentiation of services. Here, the firms have different cost structures but are forced to offer similar products so we can say that there are some traits of oligopoly competition.