Key highlights from Yes Bank Limited (YESBANK) Q4 FY23 Earnings Concall
Q&A Highlights:
- [00:17:21] Mahrukh Adajania with Nuvama asked when does YESBANK anticipate the recovery to begin, given that it doesn’t expect significant ageing provisions on SRs. Prashant Kumar MD replied that YESBANK recovered INR1,100 crores from security receipts in 4Q and estimate that 80-100 basis points of provisioning will be needed for both security receipts and net NPAs in the next two fiscal years. YESBANK believes its recoveries and redemption from security receipts will cover the provisioning costs.
- [00:19:04] Mahrukh Adajania with Nuvama queried that for FY24 what kind of credit costs should be a good assumption. Prashant Kumar MD said sub 50 basis points of credit cost is a reasonable assumption.
- [00:19:20] Mahrukh Adajania with Nuvama enquired about the growth outlook for YESBANK in FY24 and where the growth margin will settle for the bank amidst mixed views on whether growth will slowdown or not. Prashant Kumar MD replied that the margin will be affected by higher rate of interest in NU and increased cost of deposits, but average CASA and current account deposit growth is still strong at 26% and 30%, respectively. YESBANK is focusing on CASA deposits to build liquidity and reduce overall costs.
- [00:22:06] Jai Mundhra from ICICI Securities asked about the standard timeline for warrant conversion and when the received 25% of the money, which is not part of CET1, will get into CET1. Prashant Kumar MD answered that the warrant money should flow into the 15 or 18 month period and may happen either just before the close of FY24 or in 1Q25.
- [00:23:53] Jai Mundhra at ICICI Securities asked about the status of AT1 bond. Prashant Kumar MD clarified that since the matter is pending before the Supreme Court, YESBANK would not like to add anything about the write-down of AT1 which was done in accordance with regulation and for which the bank has a strong legal opinion.
- [00:24:48] Jai Mundhra at ICICI Securities enquired about PPoP margin of the bank and how it will be affected by elevated costs and the building of ESG into the franchise, even if credit costs remain benign for the next 12 months. Prashant Kumar MD replied that the bank’s strategy of granularizing the balance sheet and going into retail brings additional costs related to business and IT. This investment in IT is for preparing the bank for the future and increasing efficiency through digitization and internal improvements.
- [00:36:37] Pratap Makwana asked if provisions are related to the asset quality improvement or expansion part. Prashant Kumar MD said that the provisions are only related to asset quality and reducing net NPAs. The 83 branches that were opened will take 18-24 months to become profitable, but they have already started contributing to the business.
- [00:37:30] Saurabh Kumar from JPMorgan asked about the bank’s future plans for its CD ratio of 93% and whether it would reduce loan growth to bring the ratio below 90%. Prashant Kumar MD said the bank will be comfortable with a CD ratio of around 90%, at least for FY24. YESBANK is targeting a loan growth between 15-20%, and deposit growth of around 20%.
- [00:37:48] Saurabh Kumar from JPMorgan also asked about the bank’s elevated other assets to total asset ratio and its impact on overall profitability, and what the view is on reducing it. Prashant Kumar MD answered that the bank is trying to address its large investment in RIDF, which has a drag of 30-40 bps, both organically and inorganically.
- [00:40:08] S. Srinivas asked if ROA is in line with earlier guidance for the current asset and what the expected return on asset is for FY24, as well as the mix between advances and investments for the current FY. Prashant Kumar MD said the company’s ROA guidance changed from 0.4-0.5% to 0.2%, but YESBANK is confident it will reach its goal of 0.4-0.5% by FY24.
- [00:42:42] S. Srinivas enquired about the reduction in net profit from FY22 to FY23 and whether it is due to high cost-to-income ratios, and when the cost-to-income ratios will come down in line with best-in-class banks like ICICI or HDFC. Prashant Kumar MD clarified that provisioning has been reduced due to the reduction of net NPAs and security receipts, while the cost-to-income ratio will take some time to reach best-in-class standards. It is a journey that will take 3-4 years.
- [00:44:24] Piyush Chawla asked when will the operating leverage kick in and positively impact profit based on the balance sheet size. Prashant Kumar MD said the bank’s retail asset size is INR 90,000 crores and its profitability will improve over the next 2-3 years due to a shift from corporate to retail and a decrease in the cost of acquisition.