MC EXCLUSIVE Yes Bank’s deposits costs to be at par with larger peers in 2–3 years, says MD & CEO Prashant Kumar

For quite some time, we have been talking about reaching return on assets (ROA) of 1 percent by FY27 and 1.5 percent plus by FY30. We are tracking those targets and working towards it through different levers. One is in terms of income, which consists of net interest income and non-interest income. The second lever is in terms of cost. The third part is where we used to have a huge shortfall - PSL (priority sector lending). Around 11 percent of our assets were sitting in the RIDF (Rural Infrastructure Development Fund) which impacted our profitability. In FY24 and FY25 there has not been shortfall in PSL, and now we have started getting back that money. Share of RIDF has come down to 8.7 percent, and reduce to below 5 percent by FY27. The fourth part is reducing credit cost.

You see further scope for that?

Absolutely. Now there is no need for making any provision for any past loans. The bank started the journey (of reducing NPA) when the gross NPA was almost 17 percent. We have now reached to a position where net NPA is 0.3 percent. We have 80 percent provision coverage and there is no requirement for ageing provision. There is no need for any provision for either for non-performing asset or non-performing investments. The only credit cost which may accrue could be from fresh formation of NPAs.

How do you see the new LCR guidelines?

What RBI had proposed in the draft guidelines was a 5 percent additional run-off factor, now reduced to 2.5 percent. At the same time, they have also given relaxation on deposit from the non-financial institution where the runoff was 100 percent initially which has been reduced to 40 percent. If you see the net impact on the banking sector, it's a positive. Nobody should have any complaints.

What are the three things working favourably for the bank?

One is that the balance sheet has become very strong. We have worked very hard for last five years. Sometimes people don't appreciate that fully. We made provisions for almost Rs 30,000 – 40,000 crore initially, which is not a small.  How would this money come - either from future earnings, which is not possible or from recoveries. We have recovered more than Rs 30,000 crore and reached a situation where balance sheet and future earnings are totally insulated from the any past legacy issue. That's a big turning point for the bank.  The second turning point is 11 percent of assets in RIFDs, where returns are 3 percent below the repo rate. The third part and the most critical one is that we have been able to get the confidence of our customers. Last five years, our deposits have grown by 2.7 times or a CAGR of 22 percent which is much high compared to the entire banking industry’s deposit growth. This performance was possible only because customers have the trust and confidence in the bank. Also, at no point in time our digital positioning has come down. We continue to be very strong on the digital side.

There are two things remain as areas of improvement - cost to income ratio and net interest margin. How do you see this shape up?

This is a mid to long-term strategy. Our cost to income ratio has already fallen to 67 percent in the last quarter. Our cost to income will come below 50 percent in next four to five years. One of the issues for us was always on the income side and it's important to understand why income is not in line with the other large banks. Given the kind of troubles our bank has come through, our cost of deposits will be higher relatively. The first call which we have taken is to reduce the rate of interest on deposit and it’s a significant reduction. We have more room available to reduce the rate of interest on deposits.

Now that you are get into affordable housing, used cars, etc., how do you see the positioning of Yes Bank being positioned vis-à-vis your larger peers who have positioned themselves as mass affluent banks?

Their (larger banks) journey is different and a very long journey. If you are having such a long journey, then you are in a position to control the cost of deposit and can go into those products where margins would be reasonable. We have started reducing our cost of deposit now. To protect our margins, we need to go into those market segments where yields are better. When we would be able to reduce our cost of deposits, we would be at par doing all those products. In two - three years, our cost of deposits would be at par with any other private sector bank.

On microfinance loans, you’ve organically built Rs 1,700 crore of loan book, but 5 percent of the book is under stress. Does it signal that the rural stress is real and how would you want to grow this book?

We are very cautious whenever we take any decision. It is not like when we were exploring opportunities in the MFI space that we were not aware signals on asset quality. Regulator has given those signals well in advance. Our call was that unless we get a deal on our terms, we will not pursue it. Because of the stress in microfinance, growth in the MFI book was hardly Rs 50 crores in Q4. We are very clear that if we are seeing some stress in some sectors, we will not grow.

When do you see this trend of troubled retail cycle ease out?

It has already started. We estimated that in Q3, things would plateau. Going forward, the things would start improving. In Q4, our retail slippage has come down by 40 basis points. In another 2 – 3 quarters there would be normalization.