‘We managed to re-price assets in line with the cost of funds'

After the March quarter results were announced, we spoke to Mr Jaideep Iyer, Deputy CFO, Yes Bank, on margins, asset quality and other issues.

Excerpts from the interview:

How has Yes Bank managed to maintain its margins sequentially despite the sharp rise in borrowing costs?

We managed to re-price assets in line with the cost of funds given that majority of the loans were floating or of short-term maturities. Currently, Yes Bank has 50 per cent of the loans on floating rate and another 40 per cent with maturities of less than one year.

What was the source of loan book growth?

The predominant proportion was working capital loans which are short-term in nature.

Deposit growth outpaced advances growth. Where did the incremental deposits come from?

The incremental deposits came from both categories — wholesale and retail. Currently, CASA and branch banking constitute 25 per cent of the total deposits, while the rest can be assumed to be wholesale deposits. However, certificate of deposits were 11 per cent of the total deposits.

Has the cost of funds peaked or is there scope for further increase given the expected monetary tightening?

As harsh liquidity conditions subsided in April 2011, deposit rates have come down a bit. Retail deposit rates may have peaked while the same cannot be said about the lending rate, which may go up further. SBI has already hiked its base rates. Other banks may follow suit. However, there may not be a sharp fall in deposit rates as the policy rate is at 6.75 per cent.

Will rising lending rates not impact the asset quality of the bank?

Majority of our loans are of working capital nature, which act as input costs for the borrowers. They can pass the rising input costs to the customers. It is the term loans/ long-term loan borrowers who find it hard to manage their interest costs during the rising interest rate scenario.

On the impact new bank licences will have on competition.

A few new banks may come into being, but the process itself may take another one-and-a-half years. In five years of our existence we could gain a market share of only around 0.8 per cent, which didn't affect the larger private banks. Therefore, competition still has a long way to go.