YES Bank has been a steady performer in the banking space even as the growth in the overall banking sector has been subdued.
As part of its strategy for the next level of growth, the bank has envisioned a balance sheet size of Rs 1.5 lakh crore by March 2015.
We believe that RBI will pause, before cutting repo rates again. The priority for the central bank at this point of time is to reduce the volatility in the rupee, and cutting interest rates or infusing liquidity will not be a good signal for the currency in the short term. While RBI may defer its policy action, directionally the interest rates are trending down, given moderating inflation and exacerbated growth concerns.
The base rate for YES Bank has not changed whole of last year. Are you looking to cut base rate anytime soon?
We may look at reducing rates, but will not be in a hurry to do so. There is enough risk aversion in the system and hence there is no competitive pressure on the system to cut base rates. But broadly we will be in line with other market players.
YES Bank launched its version 2.0 strategy in April 2010, which was aimed at establishing 900 branches, Rs 125,000 crore deposit base, Rs 100,000 crore loan book and a Rs 150,000 crore balance sheet size by 2015.
This is almost twice of what you have currently. How much of this growth can you achieve in the next two years?
After we envisioned our strategy in 2010, the economy has considerably slowed down. We currently have a loan book of Rs 47,000 crore, and we may miss the Rs 1-lakh crore target by a couple of thousand crores (by 2015). Deposits should be around the Rs 120,000-crore level. So broadly we should be able to reach our targeted balance sheet size by 2015. While we targeted 900 branches initially, it seems a bit stretched. Broadly over the next two years we should have branches in the range of 750-900.
So you are confident of growing your loan book by about 25 per cent over the next two years?
Yes we are confident of growing around that level. Our market share is still around 1 per cent. On the corporate side which contributes 65 per cent of our loans, the opportunity is around Rs 40 lakh crore. Given our franchise today, we have access to large opportunities. In fact, we are limiting ourselves by growing 25 per cent and not higher due to the risk environment and also the fact that we want to grow across segments. So we are focussing on retail and SME.
When you expand branches to 900, you will still be lower than say Axis Bank which has 1,900 branches. Will you continue to expand aggressively after reaching 900 branches?
We believe that after 750-900 branches, the marginal utility will start to come down. Currently we are in a situation where more branches mean more visibility. Beyond a point after being optimal, while growth will be important, marginal utility may start to wane. So we should continue to add 150-200 branches a year after the 900-branch mark.
What levers will drive your net interest margins (NIMs)?
Structurally our incremental growth in the low-cost current and savings account (CASA) will aid margins. Ideally a 3-5 per cent increase in CASA ratio will mean 15-20 basis points increase in NIMs. Also this is at differential interest rate of 6-7 per cent we offer on savings account.
Following the deregulation of interest on savings account, YES Bank was the first bank to offer differentiated rates on savings account. So in the long term, lowering rates on such savings account will also help in scaling up margins.
Currently our savings deposit is around 10 per cent of overall deposits. When we scale it up to around 20 per cent, then the benefit of reduction in interest rates will be even more.