Exclusive Interview: YES Bank to raise Rs 7,500 crore this fiscal, ARC announcement 'any day' now, says MD Kumar

Edited excerpts:

After 2 years, YES Bank posted an annual profit. Will the profitability trend sustain?

Absolutely, there is no doubt about it. I think, if you see our performance on a quarter-on-quarter basis, it is better than the previous one, both in terms of business and profitability.

The performance is not good only in one quarter, but it is a continuous improvement. We have already started moving on the growth path.

We have disbursed almost Rs 70,000 crore of loans in the last financial year. The legacy issues were taken care of even 12 months back and that is why we have seen good growth in the last 12 months.

NIM (net interest margin) have expanded, recoveries are much better and slippages are under control. I think, with this momentum, not only will we be able to show a good growth on business side, but also post continued, sustained profitability.

You met all targets in FY22 except for the ones on loan growth and RoA. For FY23, you are again targeting 15 percent plus overall loan growth. But is corporate demand back?

On the asset growth if you see, except the large corporate (segment) we have grown by 27 percent. So, we are targeting 25 percent growth in that segment and there is absolutely no issue around that.

On the large corporates, why we are going for low growth number is because we do not want to go for the lower yielding segment in a big way. For good-quality large corporates, there is always a competition for the price. So, it does not make sense for us to go for those corporates just to have a better topline and deploy our funds at 5.5 per cent or 6 per cent.

Demand is coming because of two-three sectors. Last year, corporates raised money but they were raising money from the market and repaying to banks. Now that the economy has changed, they are coming to banks.

What are the sectors generating demand?

We are seeing that infrastructure is something where there was momentum last year also. Along with infrastructure, we are seeing demand coming from the engineering side, chemicals, healthcare, and also on the services side.

And will you be able to achieve the RoA target of 75 bps?

We would continue to see extension on our NIMs.  We exited (FY22) at a NIM of 2.3 percent and we are very confident of exiting FY23 with a NIM of around 3 percent. In addition to extension of NIM, another important factor is the recovery and upgradation.

We would definitely have more than Rs 5,000 crore of recovery and upgradation during the current financial year. And with the kind of control on slippages, I think, even in the worst case our slippage will not be more than 2 percent.

These three factors will definitely give us an RoA of 75 basis points. And if recoveries happen as per our estimates, we would be able to touch an RoA of even 1 percent in FY23.

What is your outlook on asset quality?

As per the recovery part, I think, there would be much better reduction on the net NPA number because every recovery is giving us a 30 bps of impact on P&L (profit and loss statement). We would be coming down to around 10 percent range on GNPA (gross non-performing assets) and net NPA number we will be targeting at 3 percent.

But the way we will process moving ahead, in terms of formation of our ARC where we would like to transfer all the NPA pool, there would be hardly any NPAs.

Can you share an update on the formation of the ARC?

We are at a really advanced stage of finalisation of our partner. This can happen any day. As per regulations, banks are not permitted to invest more than 20 percent. So, our participation will be maximum to the extent of 20 percent.

The formation of ARC will be done in a very transparent way in terms of what the partner has identified and which bid has been finalised. Then it could also be offered to another ARC in a SWIFT challenge mode.

So, you are saying that the ARC can be sold off at a later date…

If somebody is giving a higher price than the partner, then this facility is there. I think, it is highly unlikely but we have to go through a transparent process, and if there is a better valuation of our stressed pool in the market, as compared to whatever would be given by the partner, then definitely we need to go for it.

What are your expectations from the proposed ARC? Can you share some internal targets if you have outlined any?

There are two things, resolution and getting back our recoveries. But, I think, the bigger piece which we need to see is that in our current market we do not have ARCs which are able to demonstrate a good recovery trajectory. I think, it is important to set up some of the creditable ARCs in our country because there is a huge-stressed assets market.

Our thought process is that this ARC should not only revolve this pool of assets but also become a creditable ARC in the market and start aggregating stressed pools from other banks and financial institutions.

Will you be able to achieve this goal since NARCL too was formed for the same purpose?

It is a large market. It is good to have competition.

YES Bank has been able to regain depositors’ trust. But when will it be able to achieve a better valuation?

I understand very little about the market. I think, the most important part for us is in terms of continuously giving an improved and sustainable performance. I think, we as a team are great.

We also need to appreciate the journey that the bank went through. The journey when the bank started, that was a time when the bank was about to be closed down. Then despite Covid-19 being there for three years, lockdowns and other challenges, the bank has been able to not only earn the confidence of customers, but also has been able to resolve legacy issues and has already started moving on the growth part.

I am confident we will continue to deliver on these parameters and the market will definitely reward us for that.

How much of the management’s bandwidth is still getting consumed by YES Bank’s legacy issues?

I think, the kind of management bandwidth these issues are occupying, that is one of the main issues why we would like to go for the ARC structure and transfer the entire pool of NPAs.

Because if you see the real impact on P&L by launching the ARC,  that is not significant. It would be more in terms of how it can take care of management bandwidth and how the management can focus more on growth. That is something which is definitely important.

Today, we are having a separate vertical which takes care of the entire stressed pool and the residual bank is not impacted. But definitely these are complicated issues and the top leadership always remains engaged.

Can you share your capital-raise plans for FY23?

I think, this approval from the Board (to raise Rs 10,000 crore) is there till 31^st March 2023…why we want to raise the capital is not for growth. Business expansion will not be impacted even if we don’t raise capital. Now we have reached that stage where all issues on assets and liabilities have been taken care of, and now, I think, we need to make our balance sheet much stronger.

And to move to a stronger balance sheet, if we see our competitors, everybody would be having a CET (common-equity tier) of 13.5 percent to 14 percent minimum, and, I think, even we should have it. I think, this is something which we would like to do but at the same time we have to be mindful because there would be dilution of stake for existing equity holders.

We cannot dilute at a price which impacts their interest. Thus, we would like to raise capital when we have the right kind of construct. We also have good names coming…we also need to see the market conditions. When markets are not good it does not make sense to raise capital and since we are not in hurry or any compulsion, we can raise capital which is of the maximum benefit to our stakeholders.

Considering the investor equity dilution constraint, will you then raise the whole portion of the Board-approved Rs 10,000 crore or less?

No, the entire Rs 10,000 crore is not required. If we want to take it from 11.5 percent to 13.5 percent and 14 percent, then the quantum would be around $1 billion or Rs 7,500 crore.

Are existing investors on board with your fund-raise plans?

What I can understand from the mindset of equity investors is that they are not concerned so much about the broad base of equity investors. They are more concerned about the growth prospect from hereon -- whatever is the base, how we can grow on this in terms of delivery or return.

I think, we have a very good franchise which is not only able to grow but also in terms of the digital story. I think, going forward, any bank that is very strong on the digital side, they would be having a future.

Your credit card infrastructure was affected due to the Mastercard ban. What is your strategy on regaining market share?

After the Mastercard problem, now we are issuing more than 50,000 cards every month. We are almost at 11.6 lakh cards. Next year, in FY23, we will be issuing at least six lakh cards. Along with issuance of cards, we are also seeing good growth on our spends and the book significantly. I thin, this is a good business for us and we would like to further escalate that by issuing more cards and more spend.

Are there any inorganic growth chances that you see in FY23?

I will just give you a perspective and this is my personal opinion. I believe, today banks need to have a balance sheet size of at least Rs 10 lakh crore to remain relevant in the market because costs are very high.

If you do not have a large balance sheet, it becomes difficult for you to deliver on quarter-on-quarter basis. Once we have achieved normalcy, going ahead, if we get any opportunity for inorganic growth on the balance sheet we will, because today we have Rs 3.20 lakh crore (balance sheet).

Now Rs 3.20 lakh crore becoming Rs 5 lakh crore or Rs 6 lakh crore will take a very long period of time.

But if there is any opportunity (for) some merger & acquisition, where the balance sheet goes up in the range of Rs 5-6 lakh crore, I think, that would be good. Consolidation is extremely required.