Expect slippages to rise to 9% post lockdown: YES Bank's Prashant Kumar

The slippage ratio may increase to 8-9 per cent from our earlier guidance of 5 per cent, said Prashant Kumar, MD, YES Bank
YES Bank approached markets regulator Sebi to fast-track approval for raising capital by June, given it had less-than-mandated equity capital. Prashant Kumar, managing director and chief executive, said in an interview to Hamsini Karthik and Abhijit Lele that the days following the lifting of the lockdown will push delinquencies to 8-9 per cent. Edited excerpts:

Breaching of capital adequacy has come as a surprise…

We could have opted for two things — not to make a provision to conserve capital, and make the provisions on another day. Or, we could have raised capital, and then made the provisioning. In both cases, however, one needs to come out clearly to investors. My policy is to be transparent.

Does that mean that the RBI will once again initiate action like a moratorium or prompt corrective action?

Moratorium will be imposed if we breach capital below 5.5 per cent. As regards the prompt corrective action, the regulator hasn’t indicated anything yet.

Is the bank in a comfortable position to redeem the tier-2 bonds due in June?

We have honoured the tier-2 bond repayment due on April 30, and will honour the next one too.

Where does the bank’s capital raising plan stand?

The plan to raise up to Rs 15,000 crore is very much on. We have identified six merchant bankers for the process and are waiting for the Q4 results to be out. Now, we will have active engagement with merchant bankers to decide on the mode of capital raise. It could be a follow-on public offer, rights issues, or qualified institutional placement. If fast-track approval comes from Sebi, capital raising will happen in June.

With capital remaining an issue, have you changed strategy?

Capital is an issue that limits your business generating capacity. We are trying to work more on the recovery side and build our retail franchise, which will bring in interest income. Guidance for recovery is on a granular basis. It (recovery) could be a delayed by a quarter, but it will happen. I am talking about some big large loans. Our calculations on recovery remain intact, but instead of September it may go up to December.

Auditors have flagged concerns over regulatory breaches and raised doubt on the bank’s ability to continue as a going concern. What is going to be its impact on business?

We had had a clear-cut conversation with them. They have to mention these points as accounts standard requirements. If there are certain triggers, the auditors have to give their comments on “going concern status”.

The reconstruction scheme for bank takes into account these points. Earlier, we were not able to maintain cash reserve ratio and statutory liquidity ratio. We managed to continuously comply with these two after the moratorium was lifted.

The bank has not been able to maintain liquidity coverage ratio (LCR) and has breached Common Equity Tier-I ratio requirement. If you look at numbers since December 2019, there has been improvement. The management aims to improve capital adequacy and LCR.

What gives you the confidence to grow your retail and SME book, when others say it will be difficult?

If we go with this thinking, then everything is in stress. What makes MSMEs and retail safer than corporates is the distribution of risk. When we give loans to MSMEs, there could be two approaches — one based on security and another on cash flow. Adopting the security model could be tough. So we need to take a call based on cash flow, based on which financing will be done.

Are you on track for 1 per cent return on assets in 1-3 years?

It would be tough in a year but likely in the third.

You had guided for 5 per cent slippages last quarter. With the moratorium and economic condition, will this number rise in FY21?

The slippage ratio may increase to 8-9 per cent from our earlier guidance of 5 per cent.

What feedback are you getting from talks with potential investors?

Everyone was awaiting the results, for a fair valuation. At the current market price, we are seeing lot of inquiries and institutional interest. I’m not talking of interest from any existing stakeholder; it’s a more diversified investor interest, from both foreign and domestic investors. We have appointed merchant bankers to advise us on the price and market mood.

Your provision coverage ratio is 74 per cent. Is this level sustainable?

This is both on the loan and investment side. I don’t think any other bank has provided so much for its investment book. 74 per cent is a little higher than the loan, given defaults. Now we need to make a provision for future slippage.

If slippages rise, can it alter the provision coverage?

Yes, absolutely. All strategies are dependent on how strong or weak we are.

The run on deposits wasn’t arrested in Q4, does that bother you?

Q4 was when everybody was expecting a huge run on deposits once the moratorium is lifted. If you impose a moratorium, there will be panic and to that extent, I think the deposit flow was normal. After March 31, the position has stabilised.

Corporates are in need of money and they are taking money out, which is being compensated by retail money flowing in.
Another thing is that we are talking to a large number of retail depositors. Customers are satisfied with the service and this is the feedback across branches. Even people who have moved on the cash management business like PhonePe and Reliance Jio are returning.

Will raising certificate of deposits (CD) be a continuous process for the bank?

This should be a continuous process. How much we plan to raise is a function of pricing. We need to take care of the cost of funds. So, a sustainable way would to be garner retail deposits. Maybe short-term needs could be met by the CD route.


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