YES Bank has improved its net interest margins and profitability ratios sequentially in the September quarter. Speaking to Business Line , Mr Jaideep Iyer, Deputy CFO of the bank, said that focus on P&L efficiency than just growth has led to improved performance of the bank. Excerpts:
How did YES Bank manage profit growth despite moderation in loan book growth?
We took this opportunity to do some good credit-structured business which started a couple of quarters ago. If we look at our bond and commercial paper book, we combine that to call ‘customer assets’. That has gone up around 25 per cent year-on-year.
On the loan book side, our loan book had a very high base last year because of telecom. The other thing is in the last couple of quarters we are focusing on de-bulking our loan book. We want more business from new-to-bank customers and have a more diversified business. That is the reason for lower growth. We are focusing more on P&L efficiency. When we were witnessing high growth on loan book, we ended up having lower proportionate PAT growth. Now we are reversing that trend. However, lower growth is a short-term phenomenon. For the year, we will guide loan growth of around 25 per cent and customer assets may grow at 30 per cent.
You have a 63-per cent growth in non-interest income. How much of it has come from core fee income?
In our case, non-income growth was completely driven by fee income as there is no trading and forex gains.
Can you tell us why there is a rising proportion of restructured assets and give an outlook on the asset quality?
Restructuring is largely because of the MFI segment, which is part of CDR restructuring in line with other banks. This was a known problem for some quarters.
While the asset quality is stable, improvement trend has stopped, unlike FY11, which showed significant improvement. Now we are in a stable to marginally declining state when we look at something like rating: downgrades versus upgrades.
We are now on a low base in terms of NPAs with high provisioning. At 80 per cent provisioning, we are not much worried about the past. In fact, there is recovery potential from the past slippages. That will help offset the new slippages.
Can you give your guidance on NIM for the bank?
It will continue to be 2.8 -2.9 for the next couple of quarters until we start seeing some meaningful improvement in CASA. We are also adding leverage which is negative for net interest margins (NIM). SLR and CRR continue to be a drag on NIMs in a high interest rate scenario.
I would say that while interest spread is in our control (spread has gone up by almost 50 basis points), there is less control on NIM. Definitely, the worst is behind us in terms of NIM.
As the RBI is trying to reduce banks’ dependence on NBFC for priority sector lending targets, how YES Bank planning to meet these targets?
The RBI only plugged direct balance sheet lending by banks to NBFCs. Currently, loan assignments continue to happen. We rely on corporate and agriculture clients to take the benefit of their supply chain distribution to give credit to farm sector.
There will be some difficulty in meeting certain sub-components such as direct agriculture or more importantly weaker section. Some of that will translate into Rural Infrastructure Development Fund.