Private sector lender Yes Bank is expecting its net interest margin (NIM) to improve by about 0.20 percent following reduction in cash reserve ratio and statutory liquidity ratio announced by the Reserve Bank.
"The SLR and CRR reductions are going to benefit most banks, including us. I do expect our NIM which is 2.8 percent at present and which has been fairly steady over the last 6-9 quarters, will improve to a level of 3 percent by end of FY13," the bank's founder, managing director and chief executive Rana Kapoor said.
In the last two months, the RBI has announced a two percentage point reduction in the SLR to 23 per cent or the amount of deposits to be parked in government securities, which was followed by a 0.25 percent cut in the CRR to 4.5 per cent or the amount of deposits to be kept with RBI.
Both the liquidity-infusing measures are expected to make additional money available for lending.
Banks do not earn any interest on the CRR while the return on the SLR through investments in the low-risk government securities is less than what they would earn by lending.
Reacting to the SLR cut, country's largest lender State Bank of India first announced a contraction in spreads in select loan categories like small businesses, housing and auto, while the CRR cut prompted it to cut the base rate or the minimum rate of lending by an equal measure last week. SBI's competition is yet to react to its base rate cut announcement.
Meanwhile, Kapoor said the bank is targeting to grow its credit by over 26 percent and deposits by 18 per cent during the year.
When asked about concerns over the asset quality, given the gloomy economic conditions, Kapoor said banks need to be cautious and use the opportunity to introspect and build the right kind of internal systems.
On the rise in restructuring, he cautioned that it should not be done for "evergreening."
Also, when asked about reports of Yes Bank thinking to exit corporate debt restructuring (CDR) cell, he said, "we are a medium-sized bank and our presence or lack of it will not make a difference in the CDR forum."
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