By Malini Bhupta
Barely nine months following the moratorium was imposed on Yes Bank, the private sector lender is on the road to recovery. Prashant Kumar, MD and CEO, in an interview with Malini Bhupta, says operating income and recoveries would be enough to provide for credit charges and it would not will need to consume capital. Excerpts:
Nine months following the moratorium was imposed, can you say the Yes Bank turnaround story is comprehensive?
The moratorium was imposed on March 5 and I joined the subsequent day. At that point, the expectation was that the bank would be merged with SBI. Customers lacked self-assurance and it reflected in deposit outflows. In September 2019, deposits stood at Rs 2.1 lakh crore and these came down to Rs 1.05 lakh crore in March 2020. The bank’s CD ratio was at 166% at the time, as it was not in a position to raise substantial capital throughout FY20. And inside a week of this, the nationwide lockdown due to the COVID-19 circumstance was imposed. At SBI, we often believed that we are capable of dealing with any circumstance. With SBI getting a 49% stake in the bank, we embarked on the bank’s journey of transformation, and failure was not an alternative. The bank had raised Rs 1,930 crore by way of QIP in August 2019.
To rebuild the self-assurance of the stakeholders, it was not only crucial to recognise the troubles, but also be transparent about them. If you do not recognise the issue, there can be no answer.
What was vital for the turnaround of the bank?
After 12 days, the bank came out of the moratorium and I was clear that communicating with prospects and workers would be the important. Every day, I was speaking to prospects and our workers. The bank announced the December 2019 final results on March 14 and we supplied 73% on our GNPAs.
Three points had been really vital for the turnaround. First, the good quality of our human sources. Second, the client engagement and service, and third the digital and technologies capabilities of the bank. The whole payment method of the nation was paralysed throughout the moratorium and some players did move on to other banks. However, when the moratorium was lifted, most of the prospects came back to us with the feedback that other banks could not deal with the site visitors.
What about the bank’s capacity to cover credit charges?
The most vital aspect for any bank is its machinery to create the operating profit. Despite the COVID-19 circumstance, the bank could create operating income, which was applied to provide for credit charges, displaying a profit each in Q1 and Q2 of FY21. We currently had 75% provisions for NPAs, but COVID-19 has a separate effect on the loan book. Operating income and recoveries would be enough to provide for credit charges and we would not will need to consume capital.
How are you arranging to chase recoveries and that also in occasions like these?
We made a separate vertical inside the bank for stressed assets. This team’s duty is recovery and resolution of stressed assets. We have a fantastic group of 75 folks and we are engaging with prospects each and every week. The board testimonials it each and every month. While this is against no one, but because it is public income, I will need to recover it. We have recovered Rs 1,000 crore in the 1st two quarters, and for this year, our target is to recover Rs 5,000 crore. Each account requires a various technique and genuine prospects will need to be supported. We think we can recover 50% of Rs 40,000 crore of poor loans.
What about the bank’s financials following taking the hit upfront following you took more than?
If you see, our operating profit is back to final year’s levels and we are firmly on track to develop the small business and create profit. Today, whilst we can’t recognise NPAs due to COVID-19, we are generating provisions. We have created provisions of ~Rs 2000 crore but more will be needed, which will be met from operating profit (earned) in Q3 and Q4. Hopefully this, plus recoveries will be sufficient to meet our requires.
What about your capital ratios?
At present, our CET ratio is 13.4% and general capital is at 20%. In a worst case situation, 1-1.5% of capital may well be required to take care of the strain. Even then our capital will be at 12%. For any bank, it is crucial to create operating profit which can take care of any surprise on the loan book.
What is Yes Bank’s technique going to be when it puts its troubles behind?
The bank will concentrate on retail. When we say more concentrate on retail, it does not imply that we will not concentrate on corporate. Earlier, corporate was 56% and retail/MSME was 44%. Our technique is to improve the mix of retail/MSME to 60% more than the medium term.
This is also simply because the corporate sector is not developing for a couple of motives. No investments are coming from the private sector. On the working capital side also, the requirement from very good corporates wasn’t there as they could raise income from the income markets. Good corporations can raise income from income markets at 3.5%. So, if corporate demand is not there, you park your income in government securities or lend to retail. If you park income in government securities, then you are not a banker.
On the retail side, there is a enormous demand. All banks have their personal credit danger frameworks and simply because of your personal constraints you can cater to a restricted section of the society. Today, when NBFCs are missing from the marketplace, it is a enormous chance for banks.