CASA deposits improving, see 30% growth in FY14: Yes Bank

Boosted by higher interest income and fee income, Yes Bank's profit in the third quarter of FY13 grew 35% year-on-year to Rs 342 crore. The private sector lender is confident to maintain improvement in both net interest margin (NIM) and current account, savings account (CASA).

Chalking out a new growth plan for next fiscal, Rajat Monga, CFO of the bank said, "Rate environment and the continuing momentum on CASA is giving us confidence to look at further improvements in NIM as we get into FY13-14 as well as growth trajectory of give or take 30 percent that we are budgeting for the next year."

During the period, gross non-performing assets (NPAs) declined 7 basis points quarter-on-quarter to 0.17 percent while net NPAs fell to 0.04 percent in third quarter as against 0.05 percent in previous quarter. But provisions against bad loans were up by 78.9 percent QoQ to Rs 56.7 crore in October-December quarter.

According to Monga, the bank is hoping to improve liquidity due to rate cuts as deduction of 50 basis points in March quarter and another 50-75 bps is expected in FY13-14.

Below is the edited transcript of Monga's inetrview to CNBC-TV18.

Q: Walk us through the kind of performance you have seen in this quarter. Can you extrapolate it in terms of expectations for FY14?

A: Our broad growth assumptions have been in the range of close to 30 percent basically business growth, which could be customer assets growth, deposit growth. Our trajectory for our version 2.0 plan got anchored in about 30 percent per annum growth trajectory. We have been more or less adhering to that trajectory including in this quarter where we have bottomline growth of about 34.7 percent year-on-year. We have attained net interest margin (NIM) of 3 percent in this quarter, which has resulted in a 36 percent improvement in net income. There has been a strong non-interest income growth as well along with the net interest income (NII) growth in this quarter. So, overall, it has been well on track in this quarter particularly.

We are more confident as we get into FY13-14 given the tailwinds we will get from improving liquidity and interest rate environment. We are expecting 50 bps rate cut from  the Reserve Bank of India (RBI) of in the March quarter and another 50-75 bps as we get into FY13-14.

We also have been witnessing sharp improvements in current account and saving account (CASA) deposits. The deposit mix has improved from about 11 percent of our total deposits same time last year, to 18.3 percent as we wrapped up this quarter. So, this also has been a key driver to our NII and therefore bottomline and profits. The rate environment and the continuing momentum on CASA is giving us confidence to look at further improvements in NIM as we get into FY13-14 as well as a growth trajectory of about 30 percent that we are budgeting for the next year.

Q: Focusing on a couple of sticky accounts, you did have exposure to Deccan Chronicle up until the last quarter. How have you treated that account? Have you begun monetising on the collateral? What is the plan there?

A: We had one significant problem account which surfaced in September quarter. We were able to ensure a quick recovery of about third of the exposure through collateral enforcement, which was a more liquid variety of collateral. The decision that was taken at that time was to step up provisioning on that particular exposure. So, we had taken a 45 crore provisioning in the September quarter. Overall the remaining exposure with this problem account is more than 80 percent covered with visibility of some short-term recovery and definitely some medium-term recovery as we continue to hold land and buildings as collateral in our exclusive charge holder position.

This particular problem account is going to be accretive to the profit and loss with time. It is difficult to predict how the recovery will transpire but this has been more than sufficiently provided for already.

Q: While the interest income and margins have been strong, there are some concerns with regards to the kind of off balance sheet exposure that Yes Bank has. Would you care to address those issues?

A: I do not think there is any concern at all. Infact, the off balance sheet exposure that the bank has, is of a better risk quality than the on balance sheet exposure. The off balance sheet exposure is very simply transactional, split between interest rate swaps, between foreign currency forwards.

We have to offer these products to our customers to hedge their interest rates and currency exposures. This is the largest off balance sheet exposure, but these exposures do not translate into risks. These have high notional worth that you see on the banks numbers, but these have very low degree of receivable risks. So, if I have a 100 crore exposure to an interest rate swap with a company, my real risk is only half crore to one crore. This is because of the mark to market (MTM) that these exposures will create. The next bigger topic of balance sheet exposure is trade and guarantee related. It is a very run of the mill business that the banks will do through letter of credit (LC), legal undertaking (LUT) and biased credits and performance guarantees. These are basic banking products that we offer to our customers. So, I do not think the street has legit reasons to be concerned.

Q: Update us on what kind of slippages you see in this quarter?

A: We have gross non-performing assets (NPAs) of 17 bps. This has come lower from September. As of September 31, 2012, we were 24 bps on NPAs. So, we have a reduction of 7 bps. The net NPA position has been flat. So, we had 4 bps on NPAs as of September 30.

We maintain that number as of December 31, 2012. The restructured book has come down slightly in the absolute terms because the restructured loans have been serving the principals that have been falling due. There has been no new restructuring in the current quarter. The position of restructured assets as on December 31, 2012 will be 43 bps to our loan book. The overall asset quality position is among the best in the industry and continues to be strong. We have been reasonably proactive with the risk management over the past two years and that is showing in the numbers off late. The visibility of the economy is only getting better. So, as we get towards the later half of FY13-14, we will also begin to experience recoveries from our small position of NPAs. Overall we are quite confident on that side as well.