Yes Bank will continue to grow its deposits faster than loans, managing director and chief executive Prashant Kumar said in an interview, emphasizing the importance of balance sheet stability. He doesn’t expect the strategy to adversely impact the bank’s profitability as the incremental deposits are not high cost.
On the delay in State Bank of India’s (SBI’s) proposed stake sale in Yes Bank, Kumar said that as the largest shareholder, SBI doesn’t leave matters unresolved without offering a reason for the delay. Edited excerpts:
From March 2020 to now, with how much of certainty and confidence would you say that a lot of the things that the bank had encountered is well behind it? Earnings growth is not a smooth curve yet and a lot of the valuation run up in the stock price seems driven by news about SBI stake.
As a bank, we don't work for market valuation. Our core job is to produce a consistent performance. If you see our (earnings) trajectory, every quarter has been better than the previous quarter. The core matrix of the performance, quarter on quarter is improving, whether this is in terms of the NPAs, capital, deposit growth, and even in terms of overall profitability. We work on the fundamentals and bring about those changes. I am not worried where we were four years back, and if you ask me whether those problems have been taken care of, I will say with lot of confidence that they have. The only thing where I would be seeing a lot of scope and requirement to improve is profitability.
What’s taking SBI so much time to close in on the Yes Bank stake sale considering that you're a healthier bank today versus what was in FY19 or FY20?
I don’t know what is stopping SBI. You have to ask them to find out this.
Can Yes Bank be run as professionally managed bank like ICICI without an identifiable promoter?
Even today we don't have any promoter. SBI is not playing (the promoter role) and they never intended even from the reconstruction period. SBI has been a financial investor, which came to support the bank. We forget what could have been the impact on the entire economy, if SBI has not rescued (Yes Bank). As per regulations, ultimately one bank cannot remain invested in another bank for a very long time. The only thing I can say is that it is in the DNA of SBI’s thought process that then when they come out for finding out a solution, they don't leave in between. The solution has to be in a sustainable way.
On deposits, you've been surprising the market positively as your deposit growth has always outperformed loan growth. Will this remain your strategy? If yes, what about the carrying cost of excess deposits?
Our incremental deposits are not happening at a higher rate and hence there is there is no carrying cost. The one thing as a culture and as a strategy, which we were very clear about from day one, is that deposit growth has to be higher than the loan growth. We would also try to see that the CASA growth rate exceeds the overall deposit growth. Today, all banks have digital apps and every bank offers online banking. There is nothing unique on these fronts. But the one piece where I see opportunity, despite many alternatives which are available, is on service. If your service standards are better, your engagement with the customer will be better. When we did our rebranding last year, it helped. It sent a message that the bank has come back to take care of your requirements.
Yes Bank is also one of the storied rescues in Indian corporate history. Did you face a challenge in getting your deposits are grow because there will be some natural fear and apprehension around it?
The customers saw the rescue as being initiated by the government, Reserve Bank of India, State Bank of India and banks. That gave them a lot of confidence. Our deposit base at the time of reconstruction of the bank came down to as low as Rs 99,000 crore. Our CD ratio was 165 percent, and the RBI gave us a funding line of Rs 50,000 crore for a period of six months. Not only we were able to correct the CD ratio from 165 percent to less than 100 percent, but we were also able to repay the Rs 50,000 crore of funding line to RBI within six months. Those were very positive triggers for the customer to have that confidence. The third factor was in the height of Covid we were able to raise $2 billion from the market in July 2020, whereas in FY19 – 20 the bank was struggling to raise equity. During the height of Covid, sitting in our offices we rolled out the largest FPO (follow-on public offering) in the country very successfully. These events gave lot of confidence.
Lastly, in terms of customer engagement, right from day one, we reached out to the customer and were constantly communicating. We are proud to say that Yes Bank was the only bank where employees didn’t miss a single day in office entire. We didn’t work from home because our philosophy was if our branches are open, you can't sit at home and work.
A rate cut seems imminent in the next 3 – 6 months. Is the banking system ready to absorb and at Yes Bank, how do you see yourself absorb a rate cut?
Earlier, the larger portion of banking assets were on MCLR which is a derivative of the deposit. In last 3 – 4 years most loans are linked to the external benchmark, which is mostly the repo rate. Whenever there is a liquidity variance in the system, it means a large part of your asset side will be negatively impacted. If banks have a large proportion of deposit from the retail side, there would be bigger impact on the profitability. Banks where a large portion is by way of corporate deposit may see an immediate upside. However, overall, for the system, a rate cut would have an immediate negative impact on the profitability.
How do you see the overall economic situation at this point?
We are seeing that corporate demand is coming back. The excess capacity is getting utilized. There is a need for corporates to install new capacities. There is also more availment on the working capital side. We are seeing this with large to mid-sized corporates. Demand also improving on the MSME side also because they are part of the value chain. The retail segment for the system is seeing a downward trend due to increasing delinquencies because we are seeing a behavioral change.
People seem to be either spending money or investing by taking leverage, instead of taking from savings. Recently Sebi came up with research that retail investors have lost Rs 75,000 crore (in F&O trading). This does not seem to be coming from savings. There is a huge possibility that whatever stress we are seeing on the unsecured retail and the credit card segments may be attributed to people investing and losing money on F&O segment. For a country like ours, losing Rs 75,000 crore is not a small money.
When we're talking about a resurgence in corporate demand, and the bank now being much healthy today, would you consider changing your cautious approach on corporate loans?
Our strategy in terms of risk management continues to be the same, which is to keep it granular. I am seeing a bigger opportunity coming from the large sectors. So it’s a wider base of customer. Earlier when we sanctioned a working capital limit the utilization was 30 – 35 percent versus 50 – 60 percent utilization that we are seeing today.
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