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| Rana Kapoor, MD & CEO of Yes Bank Ltd. |
Rana
Kapoor, managing director and chief executive officer of Yes Bank Ltd, comments
on the bank's first quarter earning in an interview.
Let me come
first of all to the growth, asset quality is not a problem with Yes Bank but
33% loan growth is a very impressive number at time when growth is scarce. Is
this repeatable?
If you see last year, which was a very tough year, FY15-16, we grew the
loan book at 30%. The fact is that our overall denominator is still like a
medium-sized bank which is now leaning towards a small large bank.
So, our growth last year was 30% and we
have reason to believe that with the sectoral and fairly well fine-tuned
segmented, geographic as well as sectoral strategies we can address the credit
demand in some sectors which is resurfacing.
So,
this 33% is manageable?
Thirty-three percent is not
sustainable beyond a point but we have reason to believe that next four years,
which is the third phase of Yes Bank’s lifecycle of growth from a small large
bank into a medium large bank till 2020, we have reason to believe that we can
sustain between 27-30% credit growth and because of these sectoral strategies
we have, there is reason to believe that with good credit filters, relationship
management, intensified product penetration that this can be done.
Where did this 33% growth come from?
Fundamentally the growth is coming in from the sectors we
focused on literally from inception. Some of them continue to be sunrise
sectors like agri-business. We have reason to believe that in renewable energy
we have a fairly significant market share apart from substantial market and
mind share in that particular business.
Broadly
is it corporate, retail, small and medium enterprises, midcap?
The engines are all moving, the interesting thing is that the
corporate businesses, because of our proven track record and relative
resilience in asset quality, give us an opportunity with that proven track
record to build market share and mind share. At the same time all the growth
engines and what we like to believe in our SME businesses which is not small
anymore -- it is 23% of our total advances -and if you look at even the
consumer and commercial retail, which is clubbed as retail banking, is almost
inching up to double digits, it is about 11%.
So, with the overall branch banking
driven growth and strong growth in retail liabilities and with credit cards,
which is the last mile product launch, we are going to be a very comprehensive
retail bank this year.
Other
income has contributed substantially to your profit, it straightaway goes to
the bottomline. The notes to accounts gave us very broad ideas that it comes
from guarantees, letters of credit, financial advisory, selling of products,
can you give me a breakup, did a substantial amount come from sale of
securities, investments?
Overall if you look at the composition of
our earnings in this quarter, we were approximately 60% driven by net interest
income and just around 40% by non-interest income. This was a very good quarter
because what we are seeing is increased market share on corporate banking and
in corporate finance, the reason is that our branch that we set up in
Gandhinagar—the international banking unit—that is giving us new breakthroughs
in clients like pharmaceutical sector which was difficult to compete with when
we did not have an offshore loan book.
How
much of equity dilution will come because of the qualified institutional
placement? What are you prepared for as an upper limit?
When we discussed this three months ago,
I had shared with you that we expect overall dilution of around 12-13.5%. So, I
will pretty much stick to that number, may be 12-13%. The fact of the matter is
that the continued resilience of the asset quality of the bank, the sustained
profitability of the bank, increased market share of the bank, the outreach of
retail and branch banking is in a way helping to rerate the bank. We have had a
soft landing on asset quality.
If it is 12-13% equity dilution, your return on equity (RoE) at
the moment is about 21%, how many months will it take or how many quarters will
it take to come back to 21%?
When we meet investors this
question comes up invariably in every meeting. Equity capital raising for a
bank like ours is value and earnings accretive from day one. So, we have
reawatch son to believe that give or take 6-8 quarters we can restore RoE back
to 20% and at the same time because our RoE is a 20% and our dividend payout
policy is about 80% retention and 20% dividend payout, that in itself gets us
about 20% of organic growth through retention of profits.
So, the incremental capital that comes in
is going to help us to grow at 30% and with that we can become RoE competitive
in less than 6-8 quarters.
We have done it in the past, if you see
our 2010 capital raise, $225 million, within 4-5 quarters we were back to 20%.
If you look at our $0.5 billion capital raise in May 2014, which was a very big
success, it has doubled in value since then; that also enabled us to get back
to 20%t RoE in less than 8 quarters. So, it is value and earning accretive.
Will you be wanting to take
over a microfinance or a small bank?. We just saw IDFC do that. Small bank
business is fairly lucrative, look at the way Equitas and Ujjivan are doing.
Will inorganic be a thought?
I must confess that the DNA of Yes Bank,
which has been in a way personifying in itself over the last almost 12 years,
is driven by hardcore entrepreneurship, what we call professional
entrepreneurship. So, the ability to create building blocks within the bank, to
make them profitable within reasonable timeframes is the real entrepreneurial
joy of our top management.
So, we will look at acquisitions as and
when they come through but there is a fair amount of organic capacity,
bandwidth, bench strength, the bank has to be able to build businesses
organically.
We are building a securities business as
a subsidiary which is going to be more in retail, broking and asset management
in course of time; we have got a licence. So, our ability as a bank with a
professional DNA, as the professionals bank of India, is really organic. What
happens is HR in India needs to be very homogenous and sometimes when you
address it and put a shock in the system it can take a couple of years to
recuperate. The systems have to synergise, IT has to be very friendly on the
interfaces involved. So, a bank like ours which is still like a brand new bank
even though we are 12 years old has the ability to engineer new businesses
organically.
So, your preference is organic?
Prefer that, more weightage on that but
if there is a very sweetheart deal, why not?
There will always be one or two sceptics out there who would
feel that if you are growing 33% at a time when the economy is still difficult,
have you become a little more, shall I say, courageous in lending? What are
yourself given targets on non-performing loans (NPLs)? Do you think you will go
maximum to 0.8-0.9%, how might the subsequent quarters look like?
The guidance on gross (NPLs) is
that we should not exceed 1%. We have a minimum provisioning policy literally
of 60% and right now our overall provisioning coverage is 64.2%. Which means net-net
we should not fall or increase net NPAs beyond 40%.
At the same time there is a lot of focus
and visibility on recovery of losses, recovery of NPAs, reducing
restructurings; as you will see in our numbers, we have made significant
progress in reducing restructurings overall. In sale of assets to asset
reconstruction companies (ARCs), security receipts, when you look at the
totality of the asset quality, I can promise you today, we are outperforming
the perceived retail banks in the country.
We are AA+ rated but we want to be AAA
but I am sure you are talking in equity context.
