'As these segments are growing at 25 per cent for the last three years, credit quality has been extremely good.'
At a time when most lenders are focusing on growing their retail loan portfolio, YES Bank is planning to cut retail loan growth, which will help the lender to improve margins.
Prashant Kumar, managing director and chief executive officer of the private-sector bank, in a telephonic interview with Manojit Saha/Business Standard, says the core capital of the bank is set to improve after investors -- Carlyle Group and Advent International--convert the warrants into equity.
What is the strategy of YES Bank on loan growth?
There are two things. Growth in advances needs to be lower than growth in deposits.
On advances, we would be growing, say, at 17-18 per cent, and deposit growth would be 18-19 per cent.
As regards loan growth, our focus is on MSMEs (micro, small, and medium enterprises) and mid-market (mid-corporate).
As these segments are growing at 25 per cent for the last three years, credit quality has been extremely good.
Good fee income and margins are there. They give us liability also.
The second thing is: On large companies also, a sector that was not growing for us, we have started seeing growth.
In retail, we are bringing down growth. Retail earlier grew at 35 per cent plus, and so we would like to bring it down to 20 per cent.
So the contribution to loan growth will come from MSMEs, mid-market, and then retail and large companies.
But definitely, MSMEs and mid-corporate will be the focus.
Is it due to concern about the unsecured books?
It is not because of credit quality but because of profitability. It would not make sense for us to grow car and home loans aggressively.
We will not be able to make money. We would like to grow more on the profitability part.
The bank's net interest margin fell to 2.4 per cent in the fourth quarter as compared to 2.8 per cent in the same period of last year. So you want to address that issue ...
That issue is being addressed. Fundamentally, if you look at 2.4 per cent, it is because the funds that we had to keep in the RIDF (Rural Infrastructure Development Fund) [to meet priority-sector targets].
In FY24, we had to put an additional Rs 14,000 crore in the RIDF, which brought down the margins.
If you take the impact of the RIDF in the margins, it is 70 basis points.
The margins have bottomed out. And there will be only improvement.
Will you put funds in the RIDF this financial year also?
No. As of March 31, 2024, entire PSL (priority-sector loans) and the subcategories have been taken care of.
So there would not be any additional demand (for RIDF investment) because of PSL [shortfall].
The drag because of the RIDF will start coming down now. So the margins should look better and we would also not like to do those products where margins are very low.
In retail the cost of funds is high and margins are also there. In large companies, at least, the cost is lower.
Deposit growth is lagging credit growth but you are saying the bank will grow deposits more. How will you achieve that?
Last year also, our deposit growth was 22 per cent while loan growth was 14 per cent.
We want to grow deposits around the same rate, around 20 per cent. We will be able to do this without raising interest rates.
While the bank's gross non-performing asset (NPA) and net NPA ratios are healthy, is there a concern on retail assets?
No. There was an issue on the retail side, which we corrected. Last year we saw some stress on the unsecured side and corrective steps were taken.
As a result, the March quarter was better (slippages) than the December quarter.
What is the plan to raise capital?
As of now, we do not require capital. Our core equity (CET1) is 12.2 per cent. One of the investors -- Carlyle Group (private equity) -- opted to convert its warrants on March 31.
So 12.2 per cent has gone up to 12.7 per cent. Another investor (Advent International) will convert the warrants in this quarter, by June 30, and then the core equity will go up by 50 basis points, to 13.2 per cent.
There are media reports that YES Bank is selling stake to investors. Can you confirm this?
We don't comment on market speculation.
Feature Presentation: Aslam Hunani/Rediff.com
