Yes Bank's Legacy Issues Are Over, Says CEO Prashant Kumar

Private sector lender Yes Bank Ltd. has left legacy issues behind and is now focused on recovering dues stuck in bad loans and improving its lending margins, said its top management.

Yes Bank reported a net profit of Rs 367 crore for the fourth quarter and turned in its first annual profit since 2018-19. The bank was reconstructed in March 2020.

The Mumbai-based lender expects to see its net interest margin rise to 3% by March 31, 2023, from 2.5% currently. The three factors that will aid the bank in improving its margins include a reduction in cost of funding, growth in advances and improved asset quality, said Chief Executive Officer Prashant Kumar in an interview with BloombergQuint.

"We exited the year with around 2.5% NIM and are hopeful of exiting the next financial year at around 3% NIM," Kumar said.

According to Kumar, Yes Bank will see an increase in the proportion of current account savings account, or CASA, deposits. The bank is adding about 1 lakh new liabilities customers every month, which will raise share of CASA deposits and bring down cost of funds. As of March 31, CASA deposits accounted for 31% of the bank's total deposits worth Rs 1.97 lakh crore. In March 2021, Yes Bank's CASA ratio stood at 26%.

Alongside, the bank sees loan growth pick up. Retail and small business loans rose 27% year-on-year in FY22. Wholesale lending should also pick up this year, Kumar said.

"Last year large corporates were borrowing from the bond market and repaying to the banks. This year, they are already coming back to banks. With inflation, the working capital requirements have also gone up," Kumar said.

For FY23, the bank is penciling in 10% growth in its wholesale book and a 25% increase in the retail and small business loan book.

The bank is also focusing on stepping up recoveries from its pool of bad loans. Fresh slippages during the March quarter were at Rs 802 crore, compared with Rs 978 crore in the October-December period. Loans overdue for more than 30 days, but not classified as non-performing assets, stood at Rs 5,747 crore at the end of FY22, compared with Rs 13,703 crore a year ago. This was largely driven by recoveries and upgrades worth Rs 7,290 crore during the financial year.

Yes Bank's plan to set up an asset reconstruction company will also help in recoveries. The entity should be operational by June 30, Kumar said. The lender will hold a minority stake in the ARC, while an external partner would run it.

The bank would transfer its entire gross bad loan book of Rs 27,976 crore to this ARC, once it starts operations.

The ARC would help in managing optics first and foremost, Kumar said.

"If anyone sees the bank in terms of the 14% gross NPA number and if someone were to see the bank with negligible NPA, you would look at it from a different lens," Kumar said.

Secondly, it would help the bank with conserving management bandwidth, as recoveries would be handled by the ARC.

"We are not only seeing this ARC as a resolution of our stressed assets. We are also seeing this as a business opportunity for the bank. There is a large market for stressed assets in the country and unfortunately, we do not have good entities on the resolution front," he said.

Yes Bank would like the ARC to acquire stressed assets from other financial institutions, considering the expertise the bank has developed in-house.