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Yes Bank Ltd
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Ladies and gentlemen, good day, and welcome to the YES BANK Limited Q1 FY '19 Results Conference Call. We have with us on the call today Mr. Rajat Monga, Senior Group President, Financial Markets and Balance Sheet Management; Mr. Pralay Mondal, Senior Group President, Branch and Retail Banking; Mr. Ashish Agarwal, Senior Group President and CRO; Mr. Raj Ahuja, Group President and Group Chief Financial Officer; and other distinct leaders of the YES BANK. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajat Monga. Thank you, and over to you, sir.
Thank you, Karina. And good evening, everyone. Welcome to the First Quarter Fiscal '18/'19 Analyst Call discussing the financial performance of the bank. As you may have already received, we have issued exhaustive press release highlighting the performance of the bank and the quarter gone by as well as an appendix which contains the financial information on the bank's income and profitability trends. Since a fair amount of detail of information is there in the note, I will focus on the few highlights over the next 10 to 15 minutes, and we will be open for questions and answers after that.So we have had a reasonably satisfactory first fiscal quarter of '18/'19, and we've had a continuing momentum on our earnings. We have seen a decent income growth, resulting in a 30.5% increase in net profit after tax, which would be INR 1,260 crores (sic) [ INR 12,604 Mn ] or as compared to last year. As I mentioned, it is a 30.5% growth on a year-on-year basis. The bank is reporting net interest margins at 3.3% for the first quarter, which is a 10% -- 10 basis point sequential decline. There have been some headwinds on the net interest margins that the bank has been experiencing, but we think the impact of almost all of the headwinds has already been expressed in the current financial quarter, and the benefit of repricing of loans is yet to accrue. From hereon, we do expect on an [ aggregated ] basis, a 30 basis point improvement in the loan yields over the next 12 months, resulting in about a 20 to 25 basis points improvement in margins as well. This is largely on account of the gap in repricing timing between loans and deposits, which is resulting from the -- a predominantly NCLR basis of the bank's loan book, which has up to a 1-year repricing profile. So as the interest rates have been moving up in the Indian banking environment, especially from the third quarter of last fiscal to about -- including the first quarter of the current fiscal, the deposits have been facing faster repricing, while the loans had been delayed, according to the NCLR contract, which predominantly has a 6 months to 1 year repricing. So we are expecting a fair amount of repricing to begin to aggregate over second, third and fourth quarters. And I mentioned, it will help us reprice the loans by -- as with a 30 basis points on an aggregated basis. On the other hand, we have seen the cost of -- cost to income ratio improve. We had been trending close to about 40%, 41%. This quarter has overshot the improvement trend. And we are reporting a cost income ratio at about 37.3%. But we do believe that this might be an overachievement on our -- however -- which is otherwise reducing the cost income trend that we are experiencing.We also saw improvement in retail equity. And this quarter, we have touched an annualized retail equity of 19.4%. I will now move to the outcome on the bank's balance sheet. We have seen a sequential growth of 5.5% in our loan book, essentially contributed by all the 3 segments. Our operator book grew 50% on a year-on-year basis. Our retail book has more than doubled on a year-on-year basis, and the retail book is now standing at about 14% of the asset mix. The MSME book also has grown 30% in this interim period.So we continue to see traction on the lending businesses. On a year-on-year basis, our total loan book growth stands at 53.4%. If you just look at this, the first quarter we have also seen retail contributing to as much as 40% of the -- I'm sorry, 47% of the new book growth that we have seen. So the trend of retail to acquire a higher share on our asset base is continuing. Some factors that we saw growth in this current quarter will include iron and steel. We were involved in the financing of one of the buyouts resulting from NCLT, which was in the iron and steel space. We have seen retail growth, which is also increasing our exposure to the vehicle sector as well as the equipment sector. We had some opportunities in the telecom space, given the consolidation that is taking place, and we also had some opportunities in the travel and tourism sector in this current quarter.In the Retail business, we saw growth across the board. And I just want to specifically mention auto loans, commercial vehicle loans, loans against property, construction equipment and some property loans, which were the lead contributors to the current growth profile of the retail loan book. Deposits also grew at 36%. That is the CASA deposits that it grew at 36% on a year-on-year basis. CASA is definitely getting some industry headwinds in terms of growth. And there is some of that which is also reflected in our numbers, even though the first quarter is seasonally weaker in terms of CASA accretion, and we continue to expect a 30% to 40% year-on-year growth in CASA book going forward as well.The bank's capital adequacy position is at 17.3% on a total capital basis. We have a Tier 1 capital ratio of 12.8% and a CET1 ratio of 9.5% as at June 30, 2018. Usually, in the first quarter, there is this increased capital charge for operational risk. So that has been the main reason that the core equity Tier 1 has reduced from 9.7% as at March 31 to 9.5% as at June 30. Otherwise, the risk-weighted assets to total asset's intensity continues to reduce, while we are reporting a flat number sequentially. But if we adjust for the increase on account of operational risk, the bank's risk-weighted assets to total asset ratio, has fallen to 80.2%. And this position was 81.6% as at March 31, 2018, and it was 86.7% as at March 31, 2017.A few comments on the asset quality position of the bank as well. I think the quarter was reasonably satisfactory on asset quality outcomes. I think our book is performing respectably. We are seeing a resilience on our existing book, and we are also seeing resolutions coming out of the legacy problems that we are holding. There was a recovery of close to INR 3 billion, INR 300 crores on one account, which went through a resolution under the NCLT. And we've also recovered INR 1.7 billion or INR 1 70 crores on redemption of a security receipt that we were holding. So as such, this -- the quarter had nearly, I would say, less than INR 100 crores of net slippage, if I may say, on account of both adding the fresh NPAs as well as deducting the recoveries and redemptions of the old NPAs and the activities that we've been holding.As such, we have seen a reduction in our reported stress book, which would comprise of our net NPS, our net security receipts, as well as standard restructured exposures. This position has sequentially reduced from 1.73% to 1.52%. We have also had the opportunity to beef up our provisioning coverage ratio, which has added to our credit cost as well as the coverage provisioning for this quarter. And we have increased our provisioning coverage ratio from 50% as at the end of the March quarter to 55.3% as at the end of the June quarter. As such, the quarter has seen some increase in provisioning. Our total provisioning for the quarter is at INR 6.26 billion. A main contributor here of INR 3.8 billion was on account of the NPA provisions as well as on account of increase in provisioning coverage ratio. So about INR 1.5 billion came out of the INR 3.8 billion just from the increase on account of provisioning coverage. And we also had MTM losses to recognize in this current quarter. We are recognizing INR 1.06 billion of the losses in the current quarter, and we have utilized the RBI dispensation to defer the remaining INR 2.7 billion of MTM losses to be recognized in the subsequent quarters. In the interim, the bond yields have been falling. So we already have on -- well, technically, if we have to revalue the position today, we also got back about INR 100 -- INR 80 crores to INR 100 crores of gains on the losses that we are deferring. There is a INR 569 million or INR 57 crores of general provisioning, a INR 36 crores or INR 360 million of provisioning on account of foreign exchange revaluation results resulting from our foreign branch operations. And there is a INR 21 crores or INR 21 point -- sorry, INR 21 crores or INR 213 million of provisioning on account of country risk again originating from our overseas branch operations, which is because now we have acquired some significant positions in countries like Singapore or U.K., which are now attracting country risk provisions of the -- of RBI. And there have been other provisions of INR 24 crores or about INR 240 million. So this stacks up to about INR 6.26 billion or INR 626 crores of total provisioning for this current quarter. We are reporting a gross slippage of INR 5.6 billion in the current quarter, and a good 60% of that is something that we are also expecting that there will be an imminent recovery or an imminent upgrade maybe as soon as the second fiscal quarter as well. And we continue to highlight that we are not expecting any material consequences on account of NCLT referrals as well as that laid out in the recent circular of Reserve Bank of India, which was dated the 12th of February 2018.So there are some other attendant highlights on the bank's performance, which we have also given a good bit of detail on the bank's digital presence across the ecosystem in the press release. So please do get -- take some time to go through that. The bank was also adjudged as the Best Bank in India for payments for its blockchain initiative, for its API initiative, for its financial supply chain management deal, trade finance deal and automation application and overall trade finance at the Asian Banker Transaction Banking Awards for the year 2018. We've also received a current rating upgrade from one of the rating agencies, which is CARE, and we now have a AAA label of rating for our senior debt and which is a welcome development.And very recently, we've also received approvals from the securities regulator to commence the asset management business as well as to begin acting as a custodian for the securities of our clients, and these approvals have been received in the first quarter of this fiscal. So this was the quick commentary that we wanted to present as we are discussing our first quarter financials, and we will be happy to take questions on the same. Thank you.
[Operator Instructions] The first question is from the line of [ Shishan Gupta ] from [ CRE Research ].
So what sort of advances is supporting your current quarter through banking and loan book?
When you say, type of advances...
Yes, sir.
Do you mean working capital versus term loans or...
Yes, sir. Working capital versus term loans.
So there would be typically a 30, 40 versus 60, 70 split between working capital and term loans. And the trend will be similar in the corporate loan book.
All right, sir. And sir, out of the noninterest income, how much was from the bank guarantee?
Now we give a line in our noninterest income. If you will notice, there is a line for what is called corporate rate and cash management services. That income line we've been publishing every quarter. That income line corresponds to trade-related income, which include LCs and bank guarantee commissions, and dominated more by letters of credit as opposed to -- so there would be more like 80% coming from letters of credit and a 20% income coming from bank guarantees.
Okay, sir. And so how much is your bank guarantees total on guarantee exposure?
I'm not carrying that number, but it will be, I would say, a few thousand crores.
Sorry?
Bank guarantee exposure.
What will it be about?
A few thousand crores. So I sense that it should be between INR 5,000 crores and INR 10,000 crores. But if you don't mind, I'm not carrying the number. It is available in our annual report. It will be just 3-months old, but nothing -- there will be no material movement in just 1 quarter. If we can receive the number while on the call, we'll -- I'll announce it.
The next question is from the line of [ Monica Berglund ] from Bernstein.
So my question is that we have joined the inter-creditor agreement. So can you just show some light on the rationale behind joining that agreement?
I will ask my colleague Ashish Agarwal to answer that question.
So if you look at the background to the ICA and also if you could just go back to the February 12 circular, so while I think it's a very good [ circular ] of the Reserve Bank of India very clearly laid down the principles with respect to what are the kind of companies and about circumstances would they need to with their first NCLT, it has taken away the joint lenders forum as a platform, which in our opinion was something which was probably required for at least getting a consensus amongst lenders, definitely with respect to resolution of larger cases. And I think to that extent, the ICA, which is being done in the case of IBA, is a welcome move, where -- definitely for resolving larger cases, it is something which actually have value.
Do we have such larger cases as of now?
So we -- if you look at -- if you go back 1 quarter, we had actually made -- we had said on the call, on the last earnings call, that as far as the potential systemic NCLT cases are concerned we as a bank don't have any [ mortgages ] at stake. In fact, we had quantified that number. So on the large systemic side, I don't think we have anything which is of any meaningful number where we would have a situation. But having said that, I think as a banking constituent it was something that we could [ defer ].
The next question is from the line of Kunal Shah from Edelweiss.
With respect to the margins, would it be possible to share the split between the margins on the IBU side and the domestic portfolio?
Yes, IBU margins will be as [ little as ] 32%. And the domestic margins will be 10, 20 basis points, therefore, correspondingly higher, higher than the average.
Okay. So overall, as we see this book also growing, would that put up some kind of pressure maybe in terms of maybe its equity with the headwind to the overall margin profile?
So I think if the growth is -- so the growth is -- actually, we've had 2 very good years on the IBU book because that was a book we were lacking, and we were therefore just simply missing out on those opportunities. But I don't think IBU book will overshoot on growth anymore. So the IBU growth will fall in line with the general corporate center growth that we are experiencing. There might be some -- because IBU is not a retail book at all, so there will be some ups and downs quarter-on-quarter. But otherwise, the book will be -- now be showing in line growth in general. Therefore, I'm not factoring margin pressure coming from the IBU book as such. But please also remember that the IBU margins are tax free. They are also very low on cost because this is largely a wholesale book. So the margins are actually -- are equal to RoA.
Yes, so maybe if the RoA would be almost [indiscernible]?
RoA -- actually, it is RoA positive. For the last year or 1.5 years, we have seen that the IBU book has been RoA accretive. It is also a young book, so we will also have to see as the book matures. But it does give a mathematical [ burden ] to margins.
Okay. And with respect to this fee income of INR 4 60 odd crores, so what would be the major component of this if we look at ForEx and definitely CM? So would INR 0.30 may be a significant part of it in this particular quarter?
So if I -- there is a lot to that, so we have had to include -- so this quarter, we've had a sale of -- we were able to redeem one of our security receipts. Now the accounting for gain on sale of security receipts has to happen in the income line. So about INR 70 crores of that is coming from the single gain on account of. So we will also be deducting that quantity from our credit cost, for example. So you can reduce that because that is a one-off. After that, there was also a INR 1 billion-odd gain of -- on account of the portfolio shuffle that we can do at the beginning of the year, and the rest is largely from ForEx and derivatives. The CM income has been far and few because there haven't been more issuances in this current interest rate environment.
Okay. Okay. And in terms of this corporate book which we are growing maybe in terms of large ticket size, okay, so are we planning to sell down over a period? Or maybe this would be retained on the book and it could continue for a while? So in terms of the -- maybe the nature of these loans, would it be a relatively medium-term loan? Or we are planning to sell it off?
So that is actually an option that we retain. So if the -- as long as the loan is well earning -- see what happens is that the loan also goes through a life cycle. So when a loan is relatively young, you do end up getting a lot more cross-selling income. So let's say that it is not uncommon that the loan will start with a facility which gets drawn first in the form of a letter of credit. So letter of credit will give us commission incomes. The customer will also like to hedge his letter of credit. There used to be a buyer credit product which was very popular. So there -- so cross-sell income is usually higher at the initial cycle of lending. And as the requirements of the client mature, his -- some of the cross-selling potential, once the LC is paid off, then it is not likely that he's going to be continuously importing, let's say, if he was -- especially if he was setting up a new capacity. At that time, we can take a call that we are no longer able to swap our exposure, and therefore we can look at the options of selling down or distributing the position. There is also events around refinancing that keep happening in the market. So we can play all of that into our strategy. So it is an option which we will always keep open both for portfolio management, for exposure management, for cross-sell optimization. So there is no rule as such. This strategy will be a dynamic strategy.
The next question is from the line of Manish Karwa from Deutsche Bank.
So on the margin front, first, on your loan book, how much of the loan book on the corporate side is now NCLR linked versus being straight linked?
So 85%.
Okay. And repricing will only happen on the NCLR front, right? Base rate will still be priced down?
No, base rate is neutral right now because base rate by design was less sensitive, let's say, less sensitive to interest rates, a benchmark, just because of the formulation and regulation. So it did not go down. And let's say, before the interest rate cycle kicked in, in terms of when the interest rates began to rise, the base rate was on the verge of falling. And now the base rate is neutral to maybe positive. In terms of that the next move on the base rate will be, if at all it will be a rise. It'll not be a fall.
And you're saying -- and you're also saying the average duration of your loan book is between 6 months to a year. And consequently, as we are moving along, these...
The same duration. See if you see, this is not the majority duration. This is the repricing duration. If you go back a few months, you will notice that there was -- we grew very well in Q3 and Q4, right? So these loans have not had the opportunity of repricing. So as we -- as they come into their 6 months and anniversary sort of date, we will get the -- the contracts we'll be repricing coming through. When you do the math, we are looking at, from repricing, of 4 basis point and 11 basis point and a 16 basis point loan repricing over the next 3 quarters. I'm assuming today's NCLR prevails.
Only 4, 11 and 16, but that -- your cost will also reprice that much, right?
The cost -- no, cost repricing is relatively front loaded because cost -- I will have 1-month deposit, I'll have 2-month deposit, a 3-month deposit, so all that is -- that repricing is already bearing. So what you're saying is also right. So the NIM advantage of this -- about this 31, 32 basis point loan yield increase will translate to about 20 to 25 basis points improvement in NIMs because we will sacrifice about 10 basis points to the remaining repricing of deposits.
Okay. Okay. And also your fast growth that you have done would have meant a higher PSL requirement, which would have led to you buying out some PSL, which would also have a reasonably negative impact on NIM. And typically in 1Q that impact is large. Has that also played out this quarter?
So we are at 40% PSL requirement as at June 30. So it is, let's say, unless we overshoot that -- so what's also happening in our lives, Manish, is that our PSL is also becoming more and more naturalized. We're not -- they're not bank portfolios at all.
Okay. So -- now the 100% on retail growth that you're showing is largely organic growth. There is no bought-out portfolio there?
Incrementally, no. They may have been, actually, may have been rundowns of the legacy portfolios, legacy purchases. So as far as I remember, in the last 15 months we bought no portfolio.
Okay. Okay. On the asset quality, especially the slippage, and you -- what the one account that you say you will be able to recover in the second quarter, which sector is that account? And why do you think you'll be able to recover it? Is it that you'll be able to sell down the security or...
Actually, we could have -- yes, so there is a security which is nearing sale. The alternative we had in first quarter, which we could have exercised but we didn't, is to effect the process of security and earning and [ forward ] the loan. We have not done that but -- because the security is nearing its natural sale. So we have, therefore, taken the, let's say, the path of it first becoming nonperforming and then it's sort of getting repaid from the sale of the underlying security. I mean, we could have taken a presentation, let's say, shortcut, but that was not the conclusion that we came to.
Okay. And which sector is this?
It is sector agnostic actually.
The next question is from the line of Anusha R. from LKP Securities Limited.
One question with respect to advances. If I just look at the sequential growth in the corporate advances, close to around 5%, and if I just correlate this with your -- if I just look at the telecom exposure that has increased from 2.2% to 3.6% now on sequential basis, so is it right to assume that a large part of growth has come from this sector itself? And the sector is already [ losing ] in the sector exposure. So how comfortable are you growing closer to another segment?
So on the -- so the telecom sector has contributed. Like I was mentioning in my earlier commentary, that there is consolidation which is taking place in this sector, and it is growing opportunities. So if you are following the -- some of the consolidation stories, there are requirements for some of them to also, let's say, pay for the approvals to -- for some of their pending, let's say, definitely on such as repayments. So it is resulting in a banking opportunity. And these are being done with most -- these -- so our exposure has gone up with very reputed companies. Their ratings are AA and better. That's also reducing our risk rate. So our view on the telecom sector is that it's -- that the consolidation will be very good for the sector. And as the consolidation is taking place and it is throwing up banking opportunities, so we are openly looking at those to participating in them. And the other example I also gave was there was also an opportunity for us to participate in the NCLT resolution, which happened in the [ ILNC ] sector. So there also with another bank, we were the joint colleagues of sort of that sort of financing of that NCLT purchase opportunity. So [ ILNC ] sector also has been somewhat sensitive, but these sectors are reviving. And we have to look at those opportunities which we think are good to bank with. And again, even that opportunity was a AA+ rated sort of opportunity. So these are -- there would be a situation where banks will have to look at what the incremental growth windows are and take a choice of whether or not we want to participate in that growth. Like about 7 or 8 years ago, there was the -- incremental growth opportunity was coming from the thermal power sector. At that time, our decision was to not participate in that because the structure of that participation for us was not conducive. We didn't have a good view. However, in these cases, our review on these sectors are constructed going forward. They might have their own issues in the past. But the current view, with solid promoters and with the improvements which we are expecting in the sector, it was -- that was stacking up behind our decisioning.
How do you see the growth panning out for -- in terms of -- as part of the system in terms of advances?
So what we are looking at, let's say, give or take, 30% growth in the loan book. That may not translate to a corresponding growth in risk-weighted assets because the incremental opportunities that we are seeing also in the banking industry are generally lesser on risk rate. So if we have to partake in that opportunity, we will also express somewhat lower risk rates.
Okay. And if I just look at your presentation, on Page 10 of the retail -- and in the pie chart, the retail advances are shown as a 9.8% share. And also there is segmental exposure of advances, which shows the retail advances share of around 14%. So what's the difference there?
The pie chart -- yes, ma'am, sorry, the pie chart is on bank's exposure. So that includes our off-balance sheet.
No, I didn't get it.
If I have an LC, which I've opened for a borrower, that does not come on my advances. Like a question earlier was also on bank guarantees. Bank guarantees don't get added up with advances. They are presented separately. They are off-balance sheet items. But they do entail exposures. They entail risk. So advances cut is where retail appears at 14%, and the exposure cut, which will include the off-balance sheet exposures as well, in that it'll include investments like bonds. So in that cut, retail is 9%. If you look at loan-for-loan, advances-for-advances, that is, retail is 14%. But we don't open as is for retail, so they will not appear in the LC category.
Got that. And just one last thing on the margin side. I know on your earlier phone calls you had mentioned that there is limited value for you if you were to drop the saving deposit rates. So do you think that, that could be a possibility considering that we are headed for the rising interest rate scenario?
Absolutely, ma'am. That possibility is very much available. I think we have -- our trade-off in exercising that choice is to weigh the incremental growth of CASA. So if my balance sheet growth continues to be strong and I have to deliver a high growth from CASA, I will need the help of higher interest rates because the rate plays predominantly a role in helping us bring customers. They don't play a role in helping us keep customers. In a savings account, INR 50,000, INR 1 lakh is not going to stay back because it is earning 1% or 2% more. That amounts are trivial. They stay back and grow because the customers are enjoying the banking services. But to bring the customers over and make them experience the banking services, the rate helps. So the moment we bear in our mind and our strategy that the incremental growth is not that much of a challenge because, currently, the market opportunity has turned in the last 1 year, right? The market share is shifting. We grew 55% in 1 year. So to be able to support that kind of growth, we will need to keep the CASA product pricing appropriate. If the growth was 20%, we would have -- let's say, if we expected the growth from hereon will be 15%, 20%, we would have dropped the rates already.
So when you think that there could possibly be for you to drop the rates, is that...
That is -- it's a difficult sort of call to take right now. At the moment, the banking sector opportunities are just tremendous for us. You have been witnessing that there are many banks, which are curtailed in their expansions. There are technology changes that are taking place, and I think we will do well on that front. So if we see opportunities for us to capitalize on, we will have to reflect that in our strategy. When will these opportunities go away? I was reading one ICRA report and they are saying that by FY '21 is when the banks which are under PCA will begin to fully revise, for example. So they will bring competition, which is currently not as pronounced as it can be. Maybe at that time, we should be able to say that, okay, 3.5% is also good enough. And naturally, we will not drop it in one shot. We will have to take it gradually. We would have done that back already had this opportunity not been there. But the question is do we take the opportunity of market share gains that are available? Or we say that, no, we don't want those gains, let us drop our pricing? So the question -- another question is when do I maximize my potential on the scale which is currently 2% of market share or on a scale which can be 4% of market share in the next 3 to 4 years? So that is a trade-off we will have to run. And at the moment, the trade-off is comfortable saying that we will keep the rates where they are with a negative bias, which is the bias is still to lower them.
[Operator Instructions] We move to the next question from the line of Adarsh Parasrampuria from Nomura.
A question on the funding side. When I try and look at the CASA mix and retail TD as a percentage of the balance sheet, which is the total borrowing plus this, that ratio is now down to like 40%, 41%, 42%, right, which means borrowings plus wholesale TD is like more than 50% of the balance sheet. So I just wanted to understand getting into the current liquidity environment and we are trying to do a lot of well-rated corporate and the kind of liquidity situation where we are, is that not a risk on the margin side? It can be very volatile because you've become more wholesale funded than where you were, say, 6 to 9 months back.
So Adarsh, you have to interpret it slightly differently. So one, I would recommend you don't put borrowing in the mix because borrowings are more a compulsion than a design. Because IBU, I don't have deposit funding. I have to take only borrowings. So if I'm raising more borrowings in IBU -- actually, these are different balance sheet only. Management have its own share of management issues. Thankfully, the IBU book is fully matched. It is matched for currency. It is matched for LIBOR. It is matched for tenor. But it is borrowing funded. You should also see that the borrowings are very long term. So borrowings, if you include the denominator, we have -- we were not able to take deposits because borrowings were a compulsion of sorts. I'm not saying it is like we were -- we didn't have to definitely take the borrowings, but they were coming from a different tactical strategy. So we had to reduce the intake of deposits because what will I do with the extra deposits because there is only so much deployment opportunity that is available. The second thing was that our growth came very quickly. So the growth was Q3 and Q4. Both CASA and retail deposits do not respond that quickly. So they will, I mean, they will catch up because the averaging will be happening every quarter. Let's say, this quarter, they will have moved up somewhat. Next quarter, they will move more. Pralay is telling me that Q3 and Q4 will be very good for his business, for example. So it is not a concern is what I was suggesting because you have to look at that in the box that it fits. So don't please averages with the -- some of the other noises.
No, so even in the borrowing if I like exclude, say, the book is fully overseas funded on the IBU side, even if I exclude that IBO loan book from the borrowing, it's still a pretty large growth. So what's the compulsion to the borrowing [indiscernible]?
So we had 81 in Tier 2 raises last year. So that, again, is a more capital strategy. It is not a funding strategy. But it interferes with the funding strategy because it brings its own share of -- or own right to have a place on the funding book. And again, these are long term. So if you look at -- the nature of borrowings is mindless. It is very good in terms of tenors though some of them are expensive. And that is showing in our margins.
So if you can just walk me through INR 38,000 crores of borrowing is now 79. Out of this INR 40,000 crores, if you can just walk me through the breakup of incrementally what -- how that's moved?
Of course. So about INR 12,000 crores is capital. About INR 15,000 crores is IBU. INR 15,000 crores might be INR 20,000 crores actually. I hadn't mentioned there is another type of borrowing we take, which is refinancing. [indiscernible] be the all-run concessional refinancing scheme. Some of them actually come at 4% cost to us, and they are 3-, 5-, 7-year tenor. Since I'm on record, I can't mention some other things. But they also come with some compulsions. So if you have to take that concessional financing, I have to show that as a [ borrow ]. On a good day, I can say net it up against my loan because it's like a refinancing structure.
Okay. What -- how large is that book, which is low cost and almost...
The total size of the book will be about INR 7,000 crores to INR 8,000 crores.
So the way I'm looking at this, [ 3/4 ] of this refinancing may have increased. There is capital, which obviously comes at a higher cost and then you have [ 50 ].
There is nothing more. This is the increase in borrowings.
Understood. So large part of these...
There is no money market but -- I mean, there might be some number here and there. It's largely 0. But there is -- we don't borrow money from call. We don't -- some customers who are old-standing banking -- smaller banks which have been a long-standing customers, we do offer them liquidity facilities. And some of them will result in us taking their liquidity as our borrowing. I mean, that is like, put together, INR 500,000 crores.
And the INR 12,000 crores of capital, right, this is on -- obviously, it costs money. So in terms of the compulsion of why not INR 6,000 crores instead of INR 12,000 crores, right, because your CET1 and the overall capital levels are very, very divergent, so I just wanted to understand why take that cost?
Sure. So that cost is coming from the assumption that RBI will follow through on its proposed guidelines of reducing exposure limit from total capital to Tier 1 capital. So there is a proposed RBI guideline which will be effect from '19, '20, where how much exposure a bank can take on any single entity will be, and many other such limits, will start being driven by total capital. They'll start being driven by Tier 1 capital. Hence, the need for us to keep our business enabler intact. And actually, it has -- a lot of this happened before the opportunity of growth sort of materialized, but it has held us -- I mean, we can construct larger deals if we can sell them down. It improves my ability to do business with the larger Indian companies. And you will see -- I mean, I wish I could share that. Our exposures have in the last 12, 15 months with the larger companies have increased dramatically. Again, my capital is a -- it's a constraint. And I want to unlock that constraint. It comes at a cost. And it also takes the quota -- its share of borrowings. It also interferes with funding. And it also reduces margins. But it helps me generate far larger earning outcomes.
And my last question is PSL, you said, you complied with the 40% PSL. There are a lot of sublimits in PSL, right? So I guess, with still the larger growth, how do you stack up there? And what was -- like if you bought [ over ] or you had PSL certificates that you need to buy changing the quantum of that?
Yes. So we would have engaged in priority sector with lending certificates purchase. There is -- I don't think we have any in Q1.
There is. There is [indiscernible].
So any quantity estimate? So there is about INR 3,800 crores worth of PSLC in Q1. And that -- I'm just saying that -- and that stacks up to us able to meet our PSL requirements.
So this INR 3,800 crores will be the -- is this the static pool? Or you have some carryforward or it doesn't carryforward into March? The INR 3,800 crores will be the only PSL certificate you [ carry on ]?
Carryforwards stops at March 31.
Okay. March 31. I see.
Everything expires end of day March 31. But you can take the credit from March 31.
And on March 31 last year, how much of PSL would you have had because again, you need to comply by the end of the year? So was that quantum much higher or?
I -- you will have to -- I didn't understand the question, actually.
So I was saying the PSL certificates on 31st March, was that a much larger quantum that you were carrying?
Maybe INR 5,000 crores, INR 6000 crores in volume.
The next question is from the line of Rahul Jain from Goldman Sachs.
Rajat, a couple of questions. So first one is on fee income. So clearly, the growth here is very strong. And just wanted to understand what really is the key driver to the corporate fee income growth overall per se because it's still pretty strong. And given that we've been reducing our RWA intensity, just wanted to understand what are the key drivers for this fee income on the corporate side?
It continues to be loans.
When you say loan, you mean loan processing charges, et cetera?
So there could be -- in terms of the life cycle of a loan, there would be facility fees, which will dominate this number. We could also be working in some bespoke design with some clients where we are less so -- actually, more so earlier on structuring the exposures. There could be syndication-related income, which is now increasing because a year or 2 ago the banking sector was more frozen from syndication standpoint, which is a lot more open right now. There are nonbank lenders also which are actively participating in the syndication market. So it is -- this -- the corporate banking fee will be almost entirely related to loans in some nomenclature or the other.
So is it fair to say that while in a spate to have engagements with the larger corporates, while we've seen, on one hand, somewhat of a moderation in margin or spread, so to say, that has been recouped by maybe more volumes and more activity or more connection with those guys in one form or the other? Because when I look at the corporate fee to total corporate book, it is still like around 180, 200 basis points, corporate banking fee plus the corporate trade and cash management. So is it kind of fair to say that a bit of [ fees ] are getting compensated by higher fee income opportunity from these corporates?
So if I can, in this argument, exclude the corporate rate and cash management because that does not interfere with loans that much. So the -- because I could be doing that business with a client who is not my borrower or [indiscernible] like -- I mean, AAA companies don't take money from banks. But they have requirements of opening LCs, moving their money. So there would be a good part of -- I would say a substantial part of our business there, which will be including from nonborrower. So my exposures on risk weight are lower on my corporate trade related sort of exposures also for that reason. So the corporate banking fees will also have to be looked at, not by the net loan book growth but the gross loan book growth; and gross of not just repayment but gross of churn, gross of sell-down. And not all loans will be drawn fully on the first day. But the fee will be payable on underwriting or syndication.
And what will be the commission rates on those just for...
0.5%, 1%, could be a syndication fee. But when -- I have syndicated the loan, which means that I have got other banks to come in, sign up on the dotted line. My half is over. I can earn my fee. But the -- so the facility agreement has been signed, but the roll into loan book can happen over months. So that is not necessary. So there will be -- there would be a situation where there is no rollout because the client says, I need -- first need an LC because I am going to import my underlying equipment. So the life starts with the -- when the facility agreement has been signed, it has been syndicated, fee has been earned, then the LC will get opened. It will not even translate on the loan book for months. The loan book will come with a lag. It is a natural progression.
Okay. And do you think this can be sustained because you feel the completion is still in disarray? So at least for the foreseeable future, this is a predictable source of fee income for us?
Very much.
Okay. The other question it was on the strategy around deposits and branches, of course, in that context. So -- and of course, if I were to add one more variable, that is cost-to-income ratio. Do you think it is too early for us to kind of start thinking about cost-to-income ratio given that branch footprint is still like 1,100? I know we're focusing more on digital. But deposits, the branches still play a critical role, unless you guys think otherwise. I would love to hear your view on that.
I can't comment on the cost income part, by the way. I don't know what is better. I'm answering questions by design and it is [indiscernible] I'm answering questions why it is low. And it's not as low as we are showing it in this quarter because this quarter has had some seasonality, which is more than usual. So the trend is not 37. It will be more like 39, in my opinion. And on the branches side, I do believe -- we do believe we have a fairly, I would say, decently optimal size of a branch network. So our burst of branch growth is behind us. It's not that we will not advance it, but we don't have to add branches rampantly. So in my -- in our opinion, our branch additions will fall back to maybe a 10% to 15% annual growth for the foreseeable future again. So our cost intensity is reducing in the physical branch infrastructure, no doubt. And the gains are coming more from productivity. Productivity will express itself in deposits, in both CASA and non-CASA deposits, in services, in cross-sell, in new customer additions, in the quality of customer relations. Just quantity does not help our business. We need quality of the right origination as well. So that part is, I think, it is -- I mean, it'll only get better.
The next question is from the line of Nitin Aggarwal from Motilal Oswal.
I have 2 small questions. First is what sort of growth are we looking at in retail assets? And is it then [indiscernible] sustainable? And secondly, you have reported a 5% growth in [indiscernible]. So are we seeing any signs of strength in this segment? And where is the growth [indiscernible]?
So I'll ask Pralay to take the question on growth on retail assets. As well as the second question was, I'm sorry, on?
Medium enterprises.
So part of the medium enterprises, I think we generally have seen over the years that second half of the year is -- another growth comes. The first half is a little slow. Relatively, this year, I think on a sequential basis at best we are flattish, which generally doesn't happen. We actually start negative and then start picking up during the last 6 months. So from that perspective, I think we are looking at a slightly better traction this year across the entire small, medium, all of that part of the business. Coming to the second question on retail assets. The advantage we have now is that we are growing across all the 13, 14 products almost equally. And there are opportunities also there to -- and of growing in spite of the fact that our -- we take very little risk in that business because, as I said, until 2020 we will take extremely low risk in this business. But still -- and we had -- I know which you didn't ask, but let me answer that. We had a recent review with [indiscernible] to understand what's happening in the market, the leverage, et cetera. And one thing they told us that our quality of the book is by far one of the best in the industry both in terms of the trade and trading standards as well as in terms of the performance. And that is true for SME as well, okay? So from that perspective, I think the growth will continue to happen over the years. And you'll see the trajectory similar. The only thing that you'll be factoring is the base is becoming slightly larger. So if you say it's 100%, 120%, 130%, maybe it will come down to 70%, 80%, but it will continue to happen. I will also take this opportunity to answer briefly what Rajat had answered before this on the [indiscernible] decide on branch banking, if I may. On that -- one thing which is -- one has to understand 2 things here. One is that the balance sheet growth is very fast. And hence, please look at the deposit growth of the whole bank last year instead of this financial year because you have to -- we have to look at 3 or 4 numbers jointly. Number 2 is that this is -- for the first time in the last 5, 6 years I've been here, I'm seeing that the growth is so fast and there is incremental interest rate, which means the differential between the [ SAVIT ] and the [ interest ] rates are actually going up. And which means that the balance sheet is growing and [ able it ] and some, even retail customers at times, we will look at [ AP ] also as an option. And that's not necessarily bad because the same customer will come back and [indiscernible] in the next cycle. But to that extent, if you -- and I was looking at my goal from the retail side, I was seeing that our growth -- granular growth in [ FB ] has actually improved significantly and in spite of the fact that CASA growth also has been reasonably [ growth ]. So when I combine them both together -- because we cannot change the customer behavior in a -- [indiscernible] interest rate cycle, and this has been over the last 15 years in banking. That is playing out, and not only now, the hedging is pretty much playing out in all the banks right now. So I would request to combine the overall growth in balance sheet, overall growth in deposit and then look at the CASA ratio. And hence what Raj was telling that third quarter and fourth quarter he was answering in one of the questions before, that third quarter, fourth quarter -- because our growth really is sequentially while there is a growth. But the year-on-year growth is primarily also because of the third and fourth quarter significant growth. So when you go to the third and fourth quarter this year, I'm hoping that our CASA ratio will start normalizing a lot more. So -- and coming through CASA income and -- I'll not answer the financial question on CASA income, but I'll answer the business question, which is I can tell you that our leverage on the branches and our operating leverage on the branches is significantly higher. The branches have the -- at least [ majority ] of our branches has started turning mostly profitable. We are selling multiple products through the branches, the digitalization, which is happening, through which we are taking all the products to the customer. Because only when they have all the products, we can take it to the customer. And today, we have all the products in retail. So from that perspective, the operating leverage is significantly higher. And the focus for us in retail is how to get better quality customers. So we are still not focusing on the numbers. So I can tell you that in terms of value, the quality of customers who are coming is even better than what we had last year. And that is done because we have all the products now, credit products. How to ensure that you get a better quality customers so that we can penetrate those customers more, and it's important to have a better customer day 1. So this is broadly I thought that I will combine all the questions and answer at one go in terms of where the retail is going.
The next question is from the line of Nilanjan Karfa from Jefferies.
Rajat, thank you so much for the question that you took on the borrowing. That was one of the question I had. I had a question, kind of a follow-up to Pralay's. When we look at a few other of your peers, at least on the savings account, I mean, they have been growing quite robustly. I understand you mentioned that in the third and fourth quarter we might see an uptick in that number. But do you believe that we are yet to catch up on maybe on scale or penetration of products and which is probably a few years of it, quite a few years of it, to reach that kind of growth level?
So when you talk about peers, I don't know. We consider them [indiscernible] peers. But coming back to this, in case there's a -- I probably understand what you're talking about. All I can answer is that our savings account interest rate is same whether -- and all -- it's all published, okay? And what it means is that the big tickets are really -- even the big tickets are very granular in nature. So that's the first one. But the way -- you have to interpret it whichever way you want to. The second answer to that is that -- I mean, I still don't know the signs that when the book is growing at 20% and when the book is growing at 50% how do you have the same CASA ratio? If you have the same CASA ratio, you have to actually question that whether we -- either we are not performing before or we are doing something so different right now. None of this is happening, right? So we are pretty consistent what we are doing on our savings. I cannot answer for the competitors. But what I can tell you is what is happening now I think is more normal. And our thing is absolutely completely published rates. Our CASA is becoming more granular, okay? And for us, the CASA is just not a ratio. CASA is the ability to return [indiscernible] on which we sell and cross-sell our other products. That's our objective. Our objective is not only to show a CASA ratio. So to that extent, I can tell you that another vector one must see is how our profitability by customer, productivity by the employee, productivity -- CASA for our branch, how these things are going up. And let me tell you, each of the vectors are looking a lot more positive than 1 year back. And that's the reason the net scorecard of these fees are profitable in the branches a lot more than what it was before. So I think -- I can't answer everything what you asked for. Maybe on a one-on-one basis I can explain a little better.
Sure. Sure. Two short questions. Could you specify in terms of the incremental corporate versus retail? I mean, Rajat, you talked -- spoke about the margins on IBU versus domestic. But equally, my guess is when I look at the incremental retail or consumer book to the corporate book, it looks like the consumer is growing slightly faster. How are we doing on the yield at least?
So we are currently neutral on yields between the 2 segments.
So strategy, I can tell you that consumers will go up post 2020. Right now, we are building a robust book where we want the lowest risk on the book. Because through my experience in retail has seen that if we build a good quality book, then taking the incremental risk on that, we think [indiscernible] is a much more prudent strategy than starting to take those risks. So to give you that example. We don't do -- use CD. A few segment. Even in [indiscernible] we're more careful and on the CD, et cetera. So -- and it's much more prudent to start doing those when the market has gone through a cycle. So let me put it this way. We'll not play the yield game until the industry goes through a cycle. And that's why we are doing all these presentations with TransUnion, [ Seville ] and we have another presentation from Experian on this after 2 weeks. We are doing all this to figure out when to time the yield-oriented strategy. Right now, I'm against yield-oriented strategy on retail at this point of time.
Excellent. The third question was on contingent provision. Other than standard asset provision, are we still carrying contingent provision and then on, please?
No, we're not carrying any contingent other than -- there are other forms of provision. So it could be on account of country risk, like I was mentioning earlier. It could be on account of unhedged fund currency. Because RBI has also been adding to the variety of provisioning other than standard provisioning. So we are not carrying any discretionary provisioning, if I may say then.
Sorry. Last question. Do you have the write-off number for this quarter? And that will be all.
Write-off number is INR 131 crores, which was part of the NCLT settlement.
[Operator Instructions] We'll take the last question from the line of Abhishek Murarka from IIFL.
So my question is just on this divergence number. Last quarter, we got an update on that INR 63.5 billion in terms of sale to ARC retail and upgraded to standard. Can you give us the updated number there?
Are you looking for any particular number?
Yes, That breakup basically, the sale to ARC, they paid in full -- they paid partly or in full. And what is still upgraded to standard. So that number was -- you're assuming that breakup, INR 24.3 billion, which was repaid until FY '18; and INR 26.3 billion, which was upgraded to standard. So has there been any movement in that?
So there has been no movement in NPA. No movement in [indiscernible] ARC. There has been a INR 100-odd crores movement from upgraded to recovery.
So the amount has come down from 26.32 to, let's say, 25.3?
That's correct. So no change in the stress portion of that book. The not-stress portion of the book has reduced by another INR 100 crores.
And since this is a recovery, your repaid would have gone up from 24.3 to 25.3?
That's correct. I mean, I might be wrong by INR 10 crores, but yes. That's correct. That's what I know.
Sure. Okay. So your -- whatever you have recovered is now around 33.3, and the rest is...
The high number is 40.
It's 40? No, 63.5?
Yes. That's right.
So just to get this right. ARC sale was around INR 8 billion. That's still as it is?
You're talking about percentage? Or you're talking absolute?
No, absolute.
Okay. Sorry, I went to percentage in the middle. Go ahead, please.
Sorry. So sale to ARC was INR 8 billion. That remains as it is. Repaid was INR 24.34 billion. That goes to INR 25.34 billion.
Yes.
So the total that you have recovered through sale or repayment will be 33.37, is that correct?
33.37 is what? Sale of?
[indiscernible] just adding...
Yes. Sure. Sure. Sure. Yes. Yes. Yes.
And then, from 26.3, you've recovered INR 100 crores. So that's 25.3. That's stands upgraded to standard. And slip to NPL is still 4.85, right?
That's right. That's correct.
Okay. And any outlook? I think you had shared that you would be able to recover a reasonable portion out of this 26.3 in the next 6 months or 9 months? So any outlook of what recoverability you'll see in this part?
I think we should be in a position to recover another 20% to 25% of this over the next 6 months. Of the upgraded portion.
Upgraded portion.
That's right.
Okay. So that's around INR 500-odd crores.
That's correct.
Okay. And just a second question very quickly on CASA. So we had a lot of discussion. I just wanted some metrics on SA, average ticket size and maybe greater than 1 lakh, less than 1 lakh towards the distribution. So just something on SA and how it has moved, let's say, between -- in the last 12 months?
So our average SA is about 1.6 lakh to 1.7 lakh. So it may have been slightly favorable in the sense that it may have been last year same time 1.5 to 1.6. It's now 1.6 to 1.7. That kind of movement is there.
Okay. Despite the spread between SA and FB rates going up?
That -- see -- I don't think it matters at a micro level, in my opinion. Because people who are leaving money in the savings account is they are leaving it for convenience because that money will be used to pay bills, to do the month's shopping and all of that. It is usually not there because it is earning a higher rate. Maybe you ask that [indiscernible]. But it is not the predominant reason. It never has been. I can promise you, if customer doesn't like our service, he will -- the balance will be 0. Not 50,000, not 20,000. It will be 0. Because he does -- who wants to keep an account open, file the recent income tax and then there is no benefit of running a bank account. So the balances are there only because -- and in fact, this is the average, right? Still, many at 0. So the ones who are engaged are the ones who even have 4 lakh, 5 lakh of balances in the accounts.
Yes. Yes. Because if the average is 1.7, they will be higher.
Of course, they'll be a spread around it. And we also are not necessarily trying to change numbers. We also read out accounts very, very quickly. Because if you have too many dormant accounts, that also becomes a risk on a bad day.
Ladies and gentlemen, at this time, I'll hand the conference over to Mr. Rajat Monga for his closing comments. Over to you, sir.
I just want to thank the participants. And it's been a long 1.5 hours call. So thank you for your patience, and we look forward to speaking with you again at the end of the next quarter. Thanks very much.
Thank you very much, sir. Ladies and gentlemen, on behalf of YES BANK Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.