Can sustain 27-30% credit growth over next few years: Yes Bank

Kapoor prefers organic growth for the bank but is open to looking at any good opportunities as and when they arise.

Considering the high focus on maintaining good asset quality, he does not expect gross non-performing assets to exceed 1 percent.Below is the transcript of Rana Kapoor's interview to CNBC-TV18's Latha Venkatesh.Q: Let me come first of all to the growth, asset quality is not a problem with Yes Bank but a 33 percent interest loan growth is a very impressive number at time when growth is scarce. Is this repeatable?A: If you see last year which was a very tough year, FY15-16 we grew the loan book at 30 percent. The fact is that our overall denominator is still like a medium sized bank which is now leaning towards a small large bank. So, our growth last year was 30 percent and we have reason to believe that with the sectoral and fairly well fine tuned segmented, geographic as well as sectoral strategies we have reason to believe that we can address the credit demand in some sectors which is resurfacing.Q: So, this 33 percent is manageable? A: 33 percent is not sustainable beyond a point but we have reason to believe that next four years which is the third phase of Yes Bank's lifecycle of growth from a small large bank into a medium large bank till 2020, we have reason to believe that we can sustain between 27-30 percent credit growth and because of these sectoral strategies we have there is reason to believe that with good credit filters, relationship management, intensified product penetration that this can be done.Q: If you can tell me where the growth came from, where this 33 percent came from?A: Fundamentally the growth is coming in from the sectors we focused on literally from inception. Some of them continue to be sunrise sectors like agri business. We have reason to believe that in renewable energy we have a fairly significant market share apart from substantial market and mind share in that particular business.Q: Broadly is it corporate, retail, SME, MSME, midcap?A: The engines are all moving, the interesting thing is that the corporate businesses because of our proven track record and relative resilience in asset quality give us an opportunity with that proven track record to build market share and mind share. At the same time all the growth engines and what we like to believe in our SME businesses which is not small anymore, it is 23 percent of our total advances and if you look at even the consumer and commercial retail which is clubbed as retail banking is almost inching up to double digits, it is about 11 percent.So, with the overall branch banking driven growth and strong growth in retail liabilities and with credit cards which is the last mile product launch, we are going to be a very comprehensive retail bank in this year. Q: Other income has contributed substantially to your profit, it straightaway goes to the bottomline. The notes to accounts gave us very broad ideas that it comes from guarantees, letters of credit, financial advisory, selling of products, can you give me a breakup, did a substantial amount come from sale of securities, investments?A: Overall if you look at the composition of our earnings in this quarter, we were approximately 60 percent driven by net interest income and just around 40 percent by non interest income. This was a very good quarter because what we are seeing is increased market share on corporate banking and in corporate finance, the reason is that our branch that we setup in Gandhinagar - the international banking unit - that is giving us new breakthroughs in clients like pharmaceutical sector which was difficult to compete with when we did not have a offshore loan book.Q: How much was fees and how much was say sale of securities or profit booking?A: Sale of securities is not a very large number, it is about Rs 140 crore. At the same time it is a number which we believe in the course of this year, with the interest rate outlook will be meaningful and we will use this number to may be add to our contingency reserves in course of time and that is the whole idea that not everything should be booked to P&L but should also be in a way allocated towards building gradually a contingency reserve as well.Q: How much of equity dilution will come because of QIP you think? What are you prepared for as an upper limit?A: When we discussed this three months ago, I had shared with you that we expect overall dilution of around 12-13.5 percent. So, I will pretty much stick to that number, may be 12-13 percent. The fact of the matter is that the continued resilience of the asset quality of the bank, the sustained profitability of the bank, increased market share of the bank, the outreach of retail and branch banking is in a way helping to rerate the bank. We have had a soft landing on asset quality.Q: If it is 12-13 percent equity dilution, your return on equity (RoE) at the moment is about 21 percent, how many months will it take or how many quarters will it take to come back to 21 percent?A: When we meet investors this question comes up invariably in every meeting. Equity capital raising for a bank like ours is value and earnings accretive from day one. So, we have reason to believe that give or take 6-8 quarters we can restore RoE back to 20 percent and at the same time because our RoE is a 20 percent and our dividend payout policy is about 80 percent retention and 20 percent dividend payout, that in itself gets us about 20 percent of organic growth through retention of profits.So, the incremental capital that comes in is going to help us to grow at 30 percent and with that we can become RoE competitive in less than 6-8 quarters.We have done it in the past, if you see our 2010 capital raise, USD 225 million, within 4-5 quarters we were back to 20 percent. If you look at our USD 0.5 billion capital raise in May 2014 which was a very big success, it has doubled in value since then, that also enabled us to get back to 20 percent RoE in less than 8 quarters. So, it is value and earning accretive.Q: Will you be wanting to takeover, do some buying up of say a microfinance or a small bank. We just saw IDFC do that. Small bank business fairly lucrative, look at the way Equitas and Ujjivan are doing. Will inorganic be a thought?A: I must confess that the DNA of Yes Bank which has been in a way personifying in itself over the last almost 12 years is driven by hardcore entrepreneurship, what we call professional entrepreneurship. So, the ability to create building blocks within the bank, to make them profitable within reasonable timeframes is the real entrepreneurial joy of our top management. So, we will look at acquisitions as and when they come through but there is a fair amount of organic capacity, bandwidth, bench strength, the bank has to be able to build businesses organically.We are building a securities business as a subsidiary which is going to be more in retail, broking an asset management in course of time, we have got a licence. So, our ability as a bank with a professional DNA, as the professionals bank of India is really organic. What happens is HR in India needs to be very homogenous and sometimes when you address it and put a shock in the system it can take couple of years to recuperate. The systems have to synergise, IT has to be very friendly on the interfaces involved. So, a bank like ours which is still like a brand new bank even though we are 12 years old has the ability to engineer new businesses organically.Q: So, your preference is organic?A: Prefer that, more weightage on that but if there is a very sweetheart deal, why not? Q: There will always be one or two sceptics out there who would feel that if you are growing 33 percent at a time when the economy is still difficult, have you become a little more shall I say courageous in lending? What are yourself given targets on non performing loans (NPLs)? Do you think you will go maximum to 0.8-0.9 percent, how might the subsequent quarters look like?A: The guidance on gross is that we should not exceed 1 percent. We have a minimum provisioning policy literally of 60 percent and right now our overall provisioning coverage is 64.2 percent. Which means net-net we should not fall or increase net NPAs beyond 40 percent.At the same time there is a lot of focus and visibility on recovery of losses, recovery of NPAs, reducing restructurings as you will see in our numbers, we have made significant progress in reducing restructurings overall. In sale of assets to asset reconstruction companies (ARCs), security receipts, when you look at the totality of the asset quality, I can promise you today, we are outperforming the perceive retail banks in the country. We are AA+ rated but we want to be AAA but I am sure you are talking in equity context.