Looking for good names as equity partners: YES Bank MD & CEO Prashant Kumar

'Whenever interest rates go up, there is an upside for the bank in the short run', said Kumar

Prashant Kumar, MD & CEO of YES Bank, says after steadying the ship in the last two years, the bank will focus on growing the business from this financial year. In an interaction with Manojit Saha, Kumar says the bank is planning to raise $1 billion equity capital in the current financial year. Edited excerpts:

After you took charge of YES Bank in March 2020, the focus was on steadying the bank. There has been improvement on several parameters, like CASA ratio, margins, credit cost and asset quality. A new board will also be formed after replacing some of the board members. What is the road map now?

What you have rightly said the first year was in terms of steadying the ship. In FY22, we have grown in terms of business and made profit. FY22 was the first full-year profit that’s more than Rs 1,000 crore. Last year, we have seen growth in business in terms of deposits, loans and also in terms of making recoveries from stressed assets.

Now, we are coming out of the reconstruction scheme with the formation of the alternate board and for this financial year and the coming years, the focus will be on business growth and improving profitability. The contributor for this growth will be a loan growth of 15 per cent, which will be coming from retail, and MSME to the extent of 25 per cent and 10 per cent from large corporates.  

In the last two years, we made a recovery and resolution of about Rs 13,000 crore from the bank’s stressed asset pool. This journey will continue in the current financial year also where it will be making recovery and resolution of Rs 5,000 crore.

We are very strong on digital capabilities. In fact, today every third digital transaction of the country is supported by YES Bank. Every month, we are handling almost 2.5 billion digital transactions, which translates into Rs 4.5 trillion.

What is the YES Bank’s capital raising for the current financial year?

We will be raising capital to create a buffer, which would improve our common equity tier-I capital ratio from 11.5 per cent to 13.5-14 per cent. That would require about Rs 7,500 crore. Today the market conditions are not very conducive for capital raise. During the current financial year, we would be looking to raise capital to the extent of a billion dollar.

Have you decided on the instrument through which capital will be raised?

We are exploring all options. It is important to have some partners (for equity) with good names. Because that will also give comfort to the existing investors. So we will be looking for options where we not only have the capital but also credible names.

Like private equity players…

They could be one. Private equity, sovereign funds.

YES Bank’s asset quality has improved but the stock of gross NPA remains high. Can you throw some light on when you plan to set up the ARC and transfer of assets?   

I agree that there has been a delay. At the same time, you would appreciate it would be a very large transaction. We have a stressed asset pool is around Rs 50,000 crore. Also, this is a first of its kind in the industry. And, when you are entering in a partnership with a foreign player, they would like to ensure their interests remain protected over a period of time. We are trying to resolve issues. It is taking some time but we are hopeful and confident to do this very soon.

Earlier plan was to sell about Rs 50,000-crore of NPA. That’s still on…

That’s still on. We would be trying to dispose of all the stressed asset pool, both on the wholesale banking and retail side.

So, you will become a zero NPA bank. Is that correct?

Yes, right.

Do you think ROA guidance of 75 bps ROAs for FY23 is optimistic?

We are confident about achieving 75 bps ROA guidance. We would be inching towards its target of 1 per cent ROA in the current financial year. We are confident because in difficult times last year we were able to grow by 27 per cent in retail and MSME. There has been a growth of more than 30 per cent in medium enterprises.

Overall loan growth was around 9 per cent last year, and the reason was… there were two things which happened. Large corporates deleveraging balance sheets and repaying to the banks. Second is as a strategy our aim was to reduce large exposures — it was more of a debulking and de-risking of some of the portfolios which has been done now.

We have disbursed almost Rs 70,000 crore last year. That kind of growth will definitely happen in the current year which could result in a loan growth of 15 per cent. We are also continuously increasing the Casa [current and savings account]. For the past five months, around 100,000 new savings accounts have been opened in the bank every month.

Have you seen healthy credit pick-up in the first quarter of FY23?

Though interest rates have gone up we have seen good demand in the first quarter. We need to be cautious about the future. If there is further increase in the rates which everybody is expecting, it may impact the demand… we need to be watchful. Also need to be watchful how rising interest rates impacts the credit quality.

Your net interest margin improved in the fourth quarter to 2.5 per cent, mainly due to reduction of cost of deposits. How will the margins pan out in a rising interest rate scenario?

Whenever interest rates go up, there is an upside for the bank in the short run. Our advantage is we have a CASA ratio of 31 per cent. There is an opportunity to improve it to 40 per cent in around two years. We expect to exit FY23 with an interest margin of around 3 per cent.