Speaking to CNBC-TV18, Rajat Monga, chief financial officer, Yes Bank says the bank’s interest costs have gone down by approximately 2 percent from the earlier 10 percent, keeping in mind the 1 percent subvention seen in hedging cost provided by the central bank.
The RBI converts the lended cost of FCNR deposits in rupee terms at close to 9 percent and then on top of that it does not attract cash reserve ratio (CRR), statutory liquidity ratio (SLR).
Hailing the RBI's move to allow banks to raise more capital from overseas markets , Rajat Monga, chief financial officer, Yes Bank says the lowering of rupee-dollar hedging costs will incentivise banks to lend in Indian currency.
Speaking to CNBC-TV18, Monga says the bank’s interest costs have gone down by approximately 2 percent from the earlier 10 percent, keeping in mind the 1 percent subvention seen in hedging cost provided by the central bank.
Additionally, Monga says the outlook for non-performing assets are less vicious in the near-term and net interest margins are likely to improve by 4-5 basis points (bps).
Below is the edited transcript of Monga’s interview to CNBC-TV18.
A: It is definitely a window of opportunity because the pricing has become quite attractive. If one looks at the math behind the summation that will go behind hedging cost etc, for a one year funding structure, about 60-70 bps of LIBOR, 150 point of spread and about 5 percent hedging cost will make it quite attractive in rupee terms.
It is quite important that RBI has given the levy in terms of lowering cost of hedging. That will incentivise the borrowers who will be able to raise foreign currency resources, swap them into rupees and also on lend in Indian currency.
Q: How much do you all already have in terms of overseas debt, what percentage of your tier I capital have already raised and therefore what elbow room do you have?
A: We would have used about 60-70 percent of the limit and that number changes depending upon old and new transactions maturing. So there would be about 60-70 percent utilisation of the old limit. And the new limit, RBI has doubled the limit. So, I think there would be about Rs 2,000-3,000 crore ability in terms of using that window for that kind of size of borrowing opportunity but over time.
Q: Do you think your costs of money is going down, how much may it go down by?
A: The cost will be a function of 2-3 variables. One will be the tenure of the funding. Lets take an example of one year funding. One year funding will be available at LIBOR plus 150 bps. Now LIBOR for one year will be about 60-70 bps, add to that 150 bps of spread. So, about 225 bps will be the dollar cost of taking one year dollar funding. Now we cannot keep that in dollar so we will have to swap that in rupee and pay the hedge cost.
Now the hedge cost is running at about 6.5 percent and RBI is offering 1 percent subvention on the hedge cost. So, it would be about 5.5 percent which will be the net hedge cost given the fact that RBI is willing to give the hedge at 1 percent below market. So, if we add all this - 70 bps, 150 bps and the remaining 4.5 percent will give us the landed cost of rupee. In this case, it would be a little less than 8 percent.
Yes Bank stock price
On September 02, 2014, Yes Bank closed at Rs 609.05, up Rs 12.45, or 2.09 percent. The 52-week high of the share was Rs 612.30 and the 52-week low was Rs 224.00.
The company's trailing 12-month (TTM) EPS was at Rs 39.85 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 15.28. The latest book value of the company is Rs 172.66 per share. At current value, the price-to-book value of the company is 3.53.
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