Apr 18, 2013 03:02 PM IST | Source: CNBC-TV18

Aim to end FY14 with NIM of 3.15-3.2%: Yes Bank

Private sector lender Yes Bank's fourth quarter net profit rose 33 percent year-on-year, beating estimates to about Rs 360 crore.

Private sector lender Yes Bank's fourth quarter net profit rose 33 percent year-on-year, beating estimates to about Rs 360 crore.

Net interest income (NII) increased a little over 42 percent to Rs 638 crore during the same period.

Though its net interest margin (NIM) remains unchanged at 3 percent in Q4, CFO Rajat Monga expects margins to rise by 15-20 bps in FY14 and hopes to close FY14 with NIMs of 3.15-3.2 percent.

Also read: Long term investor can hold Yes Bank, says Sekhar

Below is the verbatim transcript of his interview to CNBC-TV18

Q: Before getting to your numbers, you have approved some fund raising. What method will be use to raise the capital that you seeing to?

A: This fund raising is more of a routine approval, which we have taken to the board. We will also take it to the shareholders during the annual general meeting (AGM) in the course of this year, likely in the month of June. This is more or less a routine approval, where we are seeking the shareholders to empower the bank management to raise capital up to USD 500 million.

The approval will be sought not for a specific route. It will be for a generic route. It could be through a qualified institutional placement (QIP), through a depositor's receipt or through any other method.

So, it is more of an enabling approval, than taken for very specific plan. So, I think the plan will evolve on the basis of how the market conditions behave. How the equity markets, the banking markets and the growth prospects of the country change over the course of the next few months. So, this is a very generic and enabling plan. Therefore, no specific execution timeline I have to offer on this.

Q: Can you walk us through how much you expect margins to improve by through the course of FY14?

A: We can expect that the margins should be about 15-20 bps higher. In fact margins can already be higher, but for the fact that the funding market became quite tight in February and March of the quarter gone by. This has postponed the expression of some of the margin factors, which has already improved.

So, there is a reasonable case for us to be closing the year at about 3.15-3.2 percent net interest margin (NIM) from the larger 25-30 percent bigger balance sheet as well concurrently to that number.

Q: There is a bit of concern though about the small increase on your gross non-performing assets (NPAs). Could you explain what kind of slippages you had through the course of this quarter whether that is something that is going to linger?

A: If I can leave aside for the moment the very small account situations we had only three slippages in this quarter. Very small a number to derive any trend or begin to generalise anything from the outcomes of the quarter gone by. The adds to NPA book is only been 15-20 crore.

So, it is a modest number. It is very difficult to generalise such small a sample. However, yes, if one looks at our larger portfolio and prognosis. On top of that I think we seem to be reasonably comfortable for the next year. The provisioning cost should remain range bound somewhere in the 50-60 bps provisioning cost category as far as consequences on asset quality even for the next year is concerned.

The economy in our judgment may have bottomed out already. We are seeing some of the other supporting macro economic variables also improve. Inflation is coming down, it will come down even further. We have seen gold and crude prices correct significantly in the last ten days if that sustains, it is a very dominant relief on the current account deficit situation of the country. Interest rates have been cut by Reserve Bank of India (RBI). They will cut interest rates again in our judgment in the May policy and they might have to support the interest rate cuts with more monetary transmission.

As we lower rate, as we balance inflation and as we transmit the benefits to the industry, asset quality should begin to improve naturally on the back of that.

There has to be, still a lot of work we have to do on the policy front to make investment cycle become viable all over again. This will be a more sustainable angle to the economic revival, otherwise we are beginning to believe that the economy should have bottomed out already. Without the benefit of significant changes in policy, we may not have a sharp revival in terms of the current economic conditions. Nevertheless we will see improvement in the economy and therefore the relief on the asset quality.

There will also be good compensation coming in fiscal ‘13-14 on account of bond gains that banks will be able to monetise as interest rates come down. As bond yields fall further, the affordability of NPAs is going to be a bit easier.

So, I think in our judgement at an industry level as well the burden of NPAs is already behind the sector. While there will be more NPAs, but the increase in NPAs will be slower and the affordability of the NPAs from the bank\\'s profit and loss (P&L) standpoint will be stronger. I think overall it looks like a situation of modest improvement as we go along in fiscal ‘13-14.

Q: Talking about specific problem account, how are you treating the remaining exposure of the Deccan Chronicle loan?

A: There is no remaining exposure. We would have mentioned in the earlier communication that we had provided about 80-90 percent of the loan outstanding on our books by December quarter end itself. What has happened in this quarter is on top of that the loan has been sold to an asset reconstruction company for about half the notional value.

So, as far as the balance sheet of the bank is concerned in relation to this particular name, there is no economic linkage left.

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