yes bank: Yes Bank’s NIMs won’t be impacted going forward: Prashant Kumar

“The transfer of our assets to the ARC should happen within November and because we are working with reasonably tight timelines, we are quite confident to conclude it within November. After this transaction, our gross NPA would be in the range of 2% and net NPA would come down to 1%,” says Prashant Kumar, MD & CEO, .

Strong NII growth is contributing to your growth. How sustainable is this?
Basically there are two things. In terms of net interest income (NII) growing by 32%, one of the reasons is because of advances growth which is up 11% but the most important is in terms of the mix of our loan component. In terms of retail, it is growing at 43% and SME is growing 19%, mid-corporates are growing at 34%.

The overall number of 11% it is mainly because of the 18% reduction of large corporates. But loan growth is going up, NIMs are improving and one of the major factors for improvement of NIM is that yield on advances has grown by 50 basis points whereas we have been able to curtail the cost of the deposit by 10 bp even in the rising interest rate scenario.

Going forward, we are expecting that the mix of our loan book would continue to tilt in favour of retail, MSME and mid market which would give us higher yield. Since we are working very strongly on the growth in our current account and savings bank, even in the rising interest rate scenario, we would be able to have quite a reasonable control on the cost of deposit. So going forward, we would be seeing improvement in both NII as well as in the NIM.

The bank’s target for CASA is 35%. How is that going to be achieved in this super competitive market?
Our current account growth has been 21%. The savings account growth has been 18%, term deposit growth is 11% and even the current account end of period growth is 21%. But on balance, our growth is 38%. Similarly, on the savings bank also our average growth is 30%. I think that is helping us in terms of controlling the cost of the deposits and going forward, we would continue to work on this. So we do not work on the end of period ratios. We work on a daily basis and if our average CASA ratios are improving, that helps us reduce cost.

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How exactly are you looking at competition? What is going to be the impact on the cost of funds, as well as the NIMs?
In the current interest rate scenario, the cost of deposit would start going up but it will not impact our NIMs because the proportion of our retail and MSME loan is moving up. It is now 54% and in retail and MSME, the advantage is they are linked to the external benchmark, they are not linked to the MCLR and whenever there will be a change in rate of interest, this is also passed on in our cost of the loans. So our NIMs are not going to be impacted going forward.
Definitely the cost of deposit would continue to move northward but since we would be working on retail CASA (current account and savings account), we see most of the banks increasing the rates on term deposits. So the incremental cost of deposit is going up but overall it would not impact our NIMs.

Your provisions though have risen impacting your profit. Tell us a little bit more about where you see the credit cost trending going forward?
This was just a one-off quarter where there was a provisioning requirement of Rs 750 crore in just two accounts. This is a one-off and not a normalised thing. Our net NPA ratio has already come to 3.6%. We think we would be able to contain the overall credit cost going forward within 50 to 60 bps. Our slippages number is continuously coming down and the slippage as per our guidance was 2%. We have been able to contain it.

Even in this quarter, the provisioning requirement on account of slippage was minimum, just 10% whereas our net NPAs are continuously coming down. Going forward, we are not going to see those kinds of things and this was just one off quarter where the two large provisioning requirements came.

Your loan growth has been lagging your peers. Where do you expect your loan growth to be for fiscal FY23?
We have not been calibrating but definitely we are seeing all our engines on the retail and MSME and the mid market are growing very well. Retail is up 43%, MSME 19% and mid market is 34%. The overall number on the loan growth is because of the 18% reduction on the large corporate front which is on account of two-three factors.

One, some of the scheduled repayments are happening. Second, in terms of our strategy call, where we would not like to underwrite any loan or reduce our rate of interest from the large corporates. In some of the cases, it is a refinance case where the other banks have taken a rate of interest which does not make commercial sense for us. So it is not like a calibrated loan growth but this is our strategic direction. Last quarter there was a 9% reduction in large corporates. This quarter, there were some pre-payments and there were some recoveries in stress loans which I think is good for us. So overall, we are not worried and year-end, we would be clocking around 15% loan growth overall.

What then would be your recovery guidance?
Our recovery target was Rs 5,000 crore. We have already done Rs 3,100 crore worth and we are going to see a good traction and we are quite confident about exceeding our target of Rs 5,000 crore.

Last year also, we have done more than Rs 7,000 crore but this time, the best part is that out of Rs 3,100 crore, most of the things are coming from the recoveries. Upgradation is just Rs 300 crore or just 10%. 90% is actually coming through cash recovery. This is very good for us in terms of benefit on the P&L and in terms of the provisioning. So the recovery momentum continues.

What is the timeline and steps for the fundraise that you are planning?
We already have got approval from Competition Commission of India and now we are just waiting for the regulator’s approval. The moment that happens, which we are expecting to happen during the end of November. Within 15 days of regulatory approval, the capital would actually come into the bank. So hopefully it should happen in November.

Can you share with us the timelines as well as the steps for the asset reconstruction company (ARC)? What are the gross NPAs that are going to be taken over by the ARC?
This transaction on transfer of our assets to ARC should happen within November and because we are working with reasonably tight timelines, we are quite confident to conclude it within November. After this transaction, our gross NPA would be in the range of 2% and net NPA would come down to 1%.

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