Expect credit growth at 16%; rate cut imperative: Yes Bk

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Expect credit growth at 16%; rate cut imperative: Yes Bk

Rana Kapoor, managing director and chief executive officer of Yes Bank comes across as a harbinger of hope. While the market today is fretting over GDP estimates falling down to 6.9%, and Kapoor agrees it is below expectations, he says that the economic climate is likely to improve in FY13.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See latest News about Yes Bank See previous management interviews See what other Experts & Brokerages are saying about Yes Bank YES BANK BSE | NSE 29/05/12 Are Mutual Funds betting on YES BANK?

Rana Kapoor, managing director and chief executive officer of Yes Bank comes across as a harbinger of hope. While the market today is fretting over GDP estimates falling down to 6.9%, and Kapoor agrees it is below expectations, he says that the economic climate is likely to improve in FY13.

Speaking to CNBC-TV18, he says that there is a possibility of further liquidity injection into the system and monetary action is a need of the hour.

Kapoor sees 16% credit growth this year and expects it to pick up to about 18% in the next fiscal. Restructured assets for YES Bank currently stand at Rs 175 crore. "The systemic risks are being mitigated gradually," he says.

Below is the edited transcript of the interview. Also watch the accompanying video

Q: What is your sense about the Reserve Bank; we have just got the GDP number which has come in at 6.9%, the worst number since the Lehman crises that's of course a forecast for FY12. When are you expecting the first move from the Reserve Bank in terms of policy cut?

A: Definitely a 6.9% GDP number for Q3 is well below expectations because the overall mindset was just above 7%. When you start looking at industrial numbers - mining, construction, manufacturing- they decelerated quite significantly. The silver lining is trade and somewhat the services sector. So I think it definitely calls for a monetary action, it calls for further liquidity injection in the markets, and it's about time we got prepared for repo adjustments downwards because there needs to be a positive signal as far as cost of funds is concerned, apart from the fact that there is definitely fiscal consolidation requirements by the Government of India.

Q: We understand there is need of fiscal consolidation which is required. From your perspective its early days but we are inching closer towards the budget, what do you want to see or what do you expect from the budget which could be decisive or better the situation for FY13?

A: While there will be pressures on fiscal deficit next year as well, there should be clarity and definitely a direction as far as achieving the FRBM target of 3% is concerned. That basically means a shift from expenditure as consumption driven to more investment formation driven. We need to see some rationalisation of subsidies, stimulation and some form of structural reform in areas which have been pending for very long - retail-FDI, second generation reform at least very positive signals in terms of building the overall confidence. I do see a wider application of service tax across a broader range of services. So, there will be a step up in revenue and some baby steps need to be taken in terms of fiscal correction on the expenditure front as well.

Q: Your net interest margins were at about 2.8% in the quarter you last reported. How are you expecting things to pan out from hereon? Is it possible there will be more pressure since you are one of the first to give 7% on savings?

A: The overall market conditions and monetary direction seems to be of relatively relaxed, although somewhat calibrated relaxation in monetary policy which augurs well for Yes Bank. We will see an overall reduction in cost of funds going forward. We will see improvements in NIM. Because of saving account (SA) deregulation, we saw almost SA balances improved by 40% in less than two months in the December quarter. I am seeing a period of improvement in net interest margins preservation of asset quality and improvement in the overall economic climate towards the second half of the new fiscal year.

Q: For the industry as a whole what would you peg credit growth to be?

A: In our judgement it will be more or less in tandem with what was stated in the last monetary policy for FY11-12, it should end around 16-16.5%. For next year, there should be a pickup to levels of 17.5 to 18% because the mood is improving. The beginning of this calendar year, last 5-6 weeks have been very good, not just within our own country, but even in the US market, there is a sign of hope in the euro zone, there is a liftment in the Japanese sentiment and concerns on soft landing in China have mitigated to a very large extent. So, global forces are definitely very encouraging as we have got into the second month of the calendar year. The Indian situation is also somewhat alleviating. What we need our second generation reforms and high confidence budget which I hope will happen next month.

Q: Your net NPLs rose very little 5.6% quarter-on-quarter. but there have been some analysis done on funded and non-funded exposures of banks to all stress sectors airlines, textiles, infrastructure and there, the numbers that we have slightly dated may be 3 months old but nevertheless your funded exposure to stress sectors is 15.1% of the total book, non funded is 11.8% and total exposure is 26.9%. Would you worry about this or have you brought this percentage down in the past quarter?

A: You have to look at what happened in 2008-09 when there was a severe shock to the Indian economy and then if you look at subsequent periods 2009-10, 2010-11 and the again the last three quarters of 2011-12, when you put 15 quarters in perspective certainly the risk management function at Yes Bank has been very proactive, very dynamic to provisioning and through early reorganization of red flags in sensitive sectors. We do have some exposures but these are to the top-ranked players in each of the industries.

In the business of banking risk is related to structure. So it's very important that the structures' underlying exposures are well documented and are well crafted to ensure that cash flow capture is there, good collateral coverage is there, so on and so forth. So if you see our numbers, net NPA is at almost 4 bps and the December 31st gross NPA is at 20 bps, overall provisioning coverage is at slightly over 80%, general coverage at over 300%...

Q: Would you worry that 0.2% could go to 0.5% or something?

A: No, we are a very counter-cyclical bank. We are contrarians; we have reasons to believe that the economic climate is definitely going to improve in the new fiscal 2012-2013.

We have not had any credit impact or over dues which are the early stage reflection of a potential bad asset or a restructured asset because if you see restructured assets are only Rs 175 crore at 0.49%.

So my point to you really is that with an improvement in the in the economic climate, global forces, abundant liquidity globally with an improvement in the exchange rates by almost 10% in the last 5-6 weeks, the overall systemic risk are actually mitigating, all be it very gradually. This will help the banking system in the country. Yes Bank even though now we are the fourth largest bank in terms of private sector lead tables, we have reasons to believe that proactive management is very key and good structuring absolutely critical to spot problems and to alleviate problems well in time.