Likely to grow at 18-20% this yr: YES Bank's Rana Kapoor

YES Bank has reported its fourth quarter (Jan-March) numbers. The lender’s net profit stood at Rs 272 crore, aided by robust interest income. Net interest income or the difference between interests earned and paid out climbed 29% to Rs 448 crore.

Rana Kapoor, managing director & CEO of YES Bank says even though the current environment is tough, an improvement in their CASA saw their margins remaining intact at 2.8%. With a transmission of lower cost of funds as well as improved liquidity in the markets, he expects margins to start improving again in the latter half of this year.

Kapoor says 2011-12 was a year of consolidation and he continues to remain cautious in the first half of this year. He says that the bank is looking to raise USD 400-500 million in the second half of FY13. "In all probability this will be a global depository receipt (GDR) cum qualified institutional placement (QIP) somewhat akin to the QIP we did about two-and-half years ago," he says.

Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying video for more.

Q: How do you see your margins shaping up in an environment where you raising your savings bank interest rates? Do you think you will be able to protect your margins around current levels?

A: Margins in a difficult year gone has stayed fairly intact at 2.8%, that’s partly because of the improvement in YES Bank's overall CASA levels by over 4.5% year-on-year (YoY) to an overall CASA now of over 15%. So that is actually helping us to in a way offset some of the rising cost of funds and therefore because on increasing CASA, savings account (SA) levels have gone up by over 200% in last one year and over 106% quarter on quarter (QoQ).

So that is helping us to preserve margins at 2.8% levels and as we see transmission of lower cost of funds as well as improved liquidity in the markets, I do expect in the course of latter half of this year that margins will start improving again.

Q: Are you confident this is a CASA rate you can maintain sequentially in FY13?

A: 2011-12012 has been very significant and redefining for our CASA as it grew by over 55.5% YoY. Obviously this kind of growth is difficult to sustain although the management team at the bank remains fully committed of achieving a CASA ratio of 30% by 2015, which basically means that give or take every year we should do increments of almost 4-5% improvement in our CASA levels. So the management target is to take this 15% to 20% by FY13 and 30% by FY15.

Q: Any capital raising plans of your own right now?

A: We have taken an enabling approval from our board and subject to shareholder approvals in July this year; we contemplate raising capital between USD 400 to a best case of 500 million in the later half of this fiscal year. In all probability this will be a global depository receipt (GDR) cum qualified institutional placement (QIP) somewhat akin to the QIP we did about two-and-half years ago. The timing of this is not decided, as this is an enabling approval to raise core tier-1 equity but most likely March quarter next year or possibly even the following year.

Q: Different banks have reacted quite differently to the Reserve Bank’s last monetary policy cue. What is your sense of where rates might be headed for your bank in the next month or so?

A: The RBI has sent very positive signals on the repo rate cut of 0.5% as well as the CRR adjustments of almost 1.25% but the fact of the matter is there is still a liquidity concern in the market. There has to be more confidence in the overall liquidity situation, so that the liquidity deficit is narrowed down to a more sustainable and manageable level of lets say around 50-60k crore. We are not seeing that right now.

When that happens I think banks and the Asset Liability Committee (ALCO) will have far more confidence to reduce and transmit lower deposits and lending rates and this will probably take another three months and if there is a further action on CRR or repo by September, I am sure by that time banks will be more than ready to start transmitting lower rates.

Q: For now your credit and deposit growth rates have seen some degree of moderation. Do you expect to see more moderation going forward?

A: In my judgment, it has actually been prudent growth because in a risk environment like what we have seen in a year gone by 2011-2012 growth was not in fashion. In banking certain periods of time because we are macro economic players, we are subjected as banks to macroeconomic cycles. So the year 2011-2012 in a way epitomized consolidation. There was a premium on management teams who were able to consolidate and yet get productivity gains, yet get overall more efficiency going in our management systems.

On a loan growth of 10.5%, deposit growth of 7%, credit substitutes included we have grown by about 20.5% but the more important thing is that profit and loss (P&L) has grown by almost 34.5%. That is really the key to management changing gears in the balance sheet and driving more P&L stretch, more P&L elasticity. That is one strength that YES Bank has been able to demonstrate in 2011-2012 as we did in similar conditions in 2008-09.

Q: What would you be confident of guiding in terms of credit and deposit growth going into the current year?

A: I look at P&L growth as a key driver. We have every reason to believe as demonstrated in two cycles over the last two years and definitely over the last eight years since our inception that we will do anywhere between 30-35% P&L growth. Balance sheet growth is a matter of churn of balance sheet velocity, the ability to sell down risk and underwrite risk.

As long as we are managing the balance sheet efficiently and generating RoEs of 23-24% that’s the need of the hour in times like this because the risks have not gone away. It is still there in the system and we should not challenge the system when you see them right in your face. I would be a little cautious in H1 of this year and we will probably grow about 18-20% here in this year but we will grow P&L by at least 30%.

Q: The problem for most banks has been in regards to asset quality. At YES Bank have you been feeling any pressure on that accord?

A: Asset quality is really the centre point or the nerve centre of the bank. Over not just last one year but for the last four years or 16 quarters, we have been able to demonstrate a significant resilience in our overall gross NPA position because that is only 22 bps. Our net is only 5 bps but 5 bps is Rs 17.5 crore in absolute amounts on a balance sheet of Rs 73.5 thousand crore. You have the see in numbers in tandem with the overall loan loss coverage which in our bank is over 340% and our specific coverage is at 79.3%.

So when you see this in totality you will see that there are enough buffers as in provision buffers and there is enough capital buffers because our cap ad is at 17.9%. So while credit risks are going up, the ability to proactively manage and de-risk is a strength which YES Bank’s management team has demonstrated quite regularly and we are not going to compromise that in the future.