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Yes Bank Ltd
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Very good evening, and thank you, everyone, for joining the YES Bank Quarter 1 FY '22 Earnings Call. Today, I am having with me the senior leadership of the bank: Rajan, who is our Head of Retail Banking; Anita, who is Chief Operating Officer; and Niranjan, Chief Financial Officer.Before we get started, I hope you and your families are safe and well. I'm sure all of you are aware that the past quarter has been very tough due to the second wave of COVID pandemic across the country. My prayers go out to the families of the colleagues we have lost during this pandemic. 10% of the bank's staff were infected with COVID and many had to face medical emergencies in their families. In addition, many parts were impacted with a lockdown for nearly 2/3 of the quarter. Given the utmost importance of proactively fighting the pandemic, the bank is supporting employees across multiple fronts, including free vaccination drive. Today, 80% of our employees have been vaccinated. We are also arranging webinar sessions for our employees with medical professionals, arranging RT-PCR tests, enhancement of the reimbursement limit for COVID hospitalization.I would also like to thank each of our 22,000-plus employees, who have displayed unwavering commitment and loyalty to this institution. Now despite all the challenges, the bank has also done well to achieve its strategic objective in FY '22 guidance, as mentioned in Slide 4 of our investor presentation, and we are on track to achieve them. June and July have seen an uptick in the high-frequency indicators and business momentum is picking up. Businesses are adapting to the new normal with reduced economic impact. In nutshell, the bank achieved a CASA ratio at 27.4%, which is highest since December 2019, and we are on track to achieve CASA ratio of more than 30% by the end of financial year. Retail and MSME mix has improved to 53-47, and we are on track to achieve a 60-40 ratio by FY '23. CD ratio, we are almost at 100%, 100.2% to be precise. We made a cash recovery of INR 602 crores during the quarter. And we are confident and committed to achieve a cash recovery of more than INR 5,000 crores during the current financial year. ROA at 0.3%, and we are on track to achieve the ROA trajectory of 1% to 1.5% in the medium term. This quarter also marks an important milestone in the new journey of the bank with a shift to our new corporate office at YES Bank House in Santacruz in mid-June and also launch of the new sonic identity of the bank. We call it as a musical logo, MOGO, a versatile sound signature to greet and connect with customers across platforms and geographies.This MOGO brings us alive in a positive and upbeat manner and balancing that with the empathy and caring that the bank offers its customers. I would urge you to undertake any transaction at select YES Bank ATM, YES Online and YES Mobile and share your feedback with us. You would have also heard our musical logo even after logging on to this call. I am also happy to share with you that YES Bank is ranked #2 amongst large-sized banks as Best Places to Work in India by AmbitionBox.com, which is the foremost interview preparatory platform in the country owned by Naukri.com. Let me further dive into the details of our quarter 1 results, showcasing a strong resurgence in operating metrics, liability, advances, capital and asset quality. On the operating metrics, the bank reported a profit of INR 207 crores, which is the highest since December 2018. The operating profit also at INR 922 crores is more than 4x quarter-on-quarter with continued traction in retail, transaction banking and recoveries. The provisions at INR 644 crores are lower by 88% quarter-on-quarter, and actually, they are the lowest since December 2018. NII and NIM of quarter 1 FY '22 are not comparable on Y-o-Y basis or quarter-on-quarter basis given the moratorium and the Supreme Court embargo on recognition of NPA during the previous financial year. On the liability side, we continue to have a granular growth of deposits. And our customer deposits have actually grown by 47.2% Y-o-Y and 2.2% quarter-on-quarter to INR 1.59 lakh crores. The CASA ratio improved to 27.4%, which is highest since December '19. Saving account balances have grew by 40% Y-o-Y and 8.7% quarter-on-quarter. New customer acquisition, though it was impacted during this quarter due to second wave of COVID, but still we could acquire 1.52 lakh new customers -- new CASA customers in the current quarter. Growth in liabilities has come via productivity gains versus addition of any manpower, and this is despite reducing our interest rates. On the advances front, our retail advances have crossed INR 50,000 crores mark for the first time, taking the retail wholesale mix at 53:47 as compared to 51:49 last quarter. New business formation continues across retail, SME and wholesale banking. And for this quarter, it stands at INR 5,006 crores in retail, INR 3,242 crores in SME and INR 3,625 crores in the wholesale banking. Our retail collection efficiency is back to pre-COVID level at 93% in quarter 1 and 87% of our retail assets are secured.Our credit card franchise has demonstrated a strong growth with book size growing by 48% Y-o-Y to INR 1,508 crores and spends up 100% Y-o-Y to INR 1,762 crores. The recent restrictions on Mastercard for fresh onboarding has no impact on the bank's existing customers and bank is already in the process to onboard RuPay and Visa for initiating the issuance. On the capital front, our CET has improved by 40 basis points, and it now stands at 11.6% with the overall capital adequacy ratio of 17.9%.One of the notable, I would be saying, the achievement during the current quarter has been on the asset quality. Our asset quality trends are improving in the corporate segment with corporate cash recoveries and upgrades at INR 1,643 crores, far outpacing the corporate slippage at INR 1,258 crores. And it almost entirely offsets the gross slippage, which has stood at INR 2,233 crores. We believe that December 2020 has seen the peak with March outcomes showing improvement and June quarter showing further improvement. During the quarter, our GNPA and net NPA was lower by INR 100 crores and INR 350 crores, respectively. Further, we have summarized our asset quality metrics on Slide 6 of our presentation with GNPA and other nonperforming exposures, which primarily consists of non-fund facilities of GNPA, GNPI and the ARC loan. It stands at INR 10,315 crores versus INR 10,425 crores in March '21. Our total gross nonperforming exposures stand at INR 38,821 crores against INR 39,034 crores in the last quarter. The total provisions are at INR 26,198 crore against INR 25,992 crore last quarter, resulting into a PCR of 77.4% vis-à-vis 76.8% last quarter.The total gross standard restructured loans has increased to INR 4,978 crores vis-à-vis INR 1,244 crores last quarter. And this pool includes erstwhile restructuring, MSME restructuring, DCCO-related restructuring and COVID-related restructuring. Of the INR 3,700 crore quarter-on-quarter increase in the total gross restructured loans, 80% is from implementation of COVID-related restructuring, where companies have passed stringent financial metrics criteria as laid down by the RBI circular and recommended by the Kamath Committee. 14% contribution in the gross restructuring loans is by way of change of management. Overdue loan of 61 to 90 days declined by INR 1,250 crores quarter-on-quarter despite the impact of second wave. On the recovery side, our specialized stressed asset management team of about 100 professionals have demonstrated significant track record of cash recovery. And during the current quarter, we were able to recover INR 602 crores. This recovery has been granular across many large and small accounts. And to sharpen the focus, the team is divided into 2 parts: core resolution and recovery team and support function. We expect to have cash recoveries of INR 5,000 crores in the current financial year. In addition to all these business metrics, the bank continues to lead in the other key areas also. Especially, I would like to share with you our continued leadership and innovation in the payment, digital and the analytics capabilities. We have maintained a strong market position across all key digital payment products. We have increased our share of UPI payment to 46% on the volume basis with INR 364 crore transaction in that quarter. On the people front, the bank has hired 446 employees during the quarter and 1,400 employees incrementally since September 2020. And this includes senior positions like Head of Operations, Chief Economist, Head of Infrastructure and the Facility Management. To provide our employees with a concessional home loan facility, the bank has recently launched a home loan program for employees at the discounted rates.As a broader policy, we have already moved towards a work-from-anywhere regime, which provides improved flexibility and support in the current time and also beyond that. Many employees are working from home on a roster basis based on their respective roles with the right set of enablers coming from HR policies, infrastructure and the data security. I wish you all good health and have a safe and prosperous FY '22. I would now like to conclude and open the floor for a Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara.
Sir, my first question is that in the upgrade section, where we have upgrades of around INR 1,450 crores, that is -- that would largely be the retail accounts that other banks have also upgraded in the quarter? Or is it spread over 3 or 4 accounts?
So like if you see our upgrade, okay, and these upgrades, our total amount is INR 1,723 crores. Almost INR 1,481 crores is coming from corporate, retail is only INR 178 crores and INR 64 crores coming from SME.
Sir, but in the corporate, is it one retail or -- most banks seem to have upgraded one retail account in the corporate segment. So how should...
We don't do that. We don't do that. Our corporate is only the corporate and across a large number of accounts.
Okay. So it's across a large number of accounts, it's not just one big corporate?
No, no, no.
Okay, because one big corporate has been upgraded upon restructuring this quarter by other banks. That's why I'm asking. Okay, sir.Sir, and the other question is on restructuring. So do you have any pipeline? Because what you've shown is implemented. So what is the restructuring pipeline? Like last quarter, you had said it's INR 25 billion. So what would be the total implemented plus pipeline be this quarter?
So now we don't have any significant pipeline. So maybe some applications from the customer here and there, they will be coming. But otherwise, we don't have any pipeline -- significant pipeline.
Okay. Got it. And sir, just in terms of slippages, the run rate that we saw this quarter, do you think that's the peak? How does it move on from here?
So I think our slippage, if you see continuously on the downward trend. If you see in the March quarter, the slippage was much higher. It has come down. And what we are going to -- so we are expecting that slippage would continue to come down on the corporate side.
And sir, most of the corporate slippage in the quarter would again be from real estate only?
So this is -- I will not be saying everything from real estate but this is like multiple things. But definitely predominantly on the real estate and the hospitality sector.
[Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities.
Sir, this is on retail slippages. So if we look at it INR 760-odd crores, so the run rate is quite high. And overall, the pace of growth in retail for us in last 1 year has been quite significant. It's been almost like more than 30%.So how are we looking at it? Do we see it like it's more kind of a COVID-related impact and it should stabilize? Or there could be more flow-through coming in the retail because we always say it's more towards the secured segment? So how should we read at this slippage number of more than 6-odd percent on the retail side?
So today on the retail, our 87% portfolio is a secured portfolio, okay? And the impact which we are seeing, especially in the current quarter, is more because of the COVID and which is quite understandable in terms of the impact across the country, which not only resulted into lockdown but also there was serious health-related issue and where not only like the people who are not able to do their normal work, but also they have to spend a lot of money on their medical treatment. So I think this is something which is understandable and mostly related to COVID. And after like the things have started improving in June, we have also seen an improvement in our collection efficiency. So I think this is just like one aberration. And we are hopeful that going forward, not only we would be able to recover from this slippage, but even we will be able to regularize retail accounts which are falling between the 30 to 90 days.
Sure. So broadly in terms of this 3.3% on retail, we would be comfortable and we should not see it further going up from this level as the recoveries and collections are coming in?
Absolutely. And I would just like to take you back to like if you go back to September '20, I think September '20 also or -- basically December because September, we were not recognizing. December was almost 3.4%. It came down to 2.9% in -- on 31st of March. And again, it has gone to 3.3% because of the COVID. So keeping fingers crossed, if there is no further impact of COVID, I think we would continue to see a downward trend on the retail NPA.
Sure. And in terms of the provisioning, actually maybe in terms of the net labeled exposure, no doubt our overall provisioning coverage is high. But still, when we look at it in terms of the net labeled exposure, that is still like 7-odd percent. There is another 3% in restructuring. And the SMA-2 is also like 5-odd percent. So would it have -- are we more confident in terms of the behavior or the pool of the recoveries that in there has been very minimal provisioning in this particular quarter? Because I think overall, still in terms of the stressed pool, that is remaining steady and there was not too much of a provisioning against it? Yes.
So while we are confident on this side because if you see last year, we have made a cash recovery of INR 5,000 crores. And the recoveries were much more than the provisions we have made, okay? So basically -- and if you see that currently, we are having almost 80% provision on the NPAs and 92% on the NPI and we are able to recover much more than that. And the kind of effort and the engagement with those NPA customers which we have made during the last year and which continued, I think, would give us much better recoveries during the current financial year. And definitely, our recovery would also result into significant gain on the P&L, and there would not be any need to make any additional provision for this.
Sure. And last time, we highlighted in 61 to 90 days, there were INR 2,200-odd crores of accounts which were in advanced stage of restructuring. So has that got entirely restructured and now it is getting reflected in COVID-related restructuring? So maybe what we highlighted, that's entirely true?
Yes. Absolutely, barring, I think, 1 or 2 accounts where the restructuring was not possible. Otherwise, all other cases, it has been done.
Okay. And one last question in terms of this credit card on -- so how much time would it take maybe to get to Visa or RuPay also onboard? Because I think credit card, again, when we look at it, it was quite a significant jump from INR 1,000 crores to INR 1,500 crores of the portfolio. So maybe how to minimize the disruption and how long would it take to onboard them?
So we have already entered into an agreement with RuPay. And on Visa also, we will be able to conclude agreement within next week. And we will be able to start issuing the new cards within 90 days.
[Operator Instructions] The next question is from Sri Karthik from Investec.
I have 3 questions. Our margins for the quarter are significantly below the medium-term guidance of 2.8%, 2.9%. Any update on why that is the case for this quarter?
So one of the main reasons for the lower NIMs are because of the surplus liquidity. And because of the COVID, because of the external environment, loan growth, which we were expecting on the corporate side actually has not happened. Though on the retail, we have achieved a 23% growth on the retail asset. But corporate, there has been a degrowth, which normally happens during the first quarter. And I think that has been further compounded because of the COVID, and this has impacted the NIM.
And any trajectory as to when you could get to that normalized level, sir?
I think we would exit our FY '22 with that kind of mix around, say, 2.75% to 2.8%.
Got it. My second question is on the movement of overdue book. So we've roughly had about INR 6,000 crores of -- between restructuring and slippages, despite which, the overdue book has come down only marginally. That means the flow into the overdue book continues to remain high. Any sense on that?
So I would be saying, Sri Karthik, if you see our overall book of the overdue between 30 to 90 days in the March, overall, it remains within the same. So there is no further addition. So some of the accounts have been upgraded. Some of the accounts have left. Some of the accounts have been in restructuring, okay? But in the overall pool, there is no addition. Overall pool remains the same.
So of the roughly INR 5,000 crores restructuring, would that be part of the overdue book, sir, then?
The INR 4,976 crore is not part of the overdue book. There might be very minor overlap, but it's outside of that.
Okay. So that essentially means that despite the INR 5, 000 crore, INR 6,000 crore addition to stressed levels during the quarters, the overdue book has remained broadly flat? Because I was -- at least the expectation was that this number would decline in line with the slippages and restructuring, which doesn't seem to be the case? That is the question I had in mind.
So you have to look at it in 2 blocks. I think you should also break this into a corporate and a retail behavior. The retail, if you -- and that's something we've disclosed on Slide 6. If you look at the retail overdue pool, that's about INR 1,200 cumulative for 31 to 90 has gone up to about INR 2,400, INR 2,500, right? So if you adjust for that, there is a reduction in the corporate overdue pool that we are seeing. And as we've discussed early on, I think some of the behavior that we are seeing on retail was expected given the wave 2 that hit us.
And because it still looks like of the INR 12,000-odd crores of overdue book, majority is still corporate in nature, any sense in terms of how these would be resolving themselves? We've seen some activity on the airport sector happen over the last few weeks or so. Any idea as to how are these large corporate overdue positions will be regularized?
So if you see, there is a significant reduction in the overdue position on the corporate side, okay? Though there is an increase on the retail side, but the corporate has come down. And I think on case-to-case basis, we are seeing an improvement in the overall situation. And hopefully, we will be able to also regularize most of those cases.
My last question is with respect to our taxation, sir, and if you could help us understand. We do -- we are sitting on a large DTA, despite which, our tax rate for the -- tax rate continues to be in the positive territory, in fact, exactly 25%. So how will the DTA unwind into our CET1 ratio as we make PBT level profit, if you could explain that, that will be useful?
So Karthik, the way this will play out is the adjustment that we do today for computing our CET is that from the network, we actually deduct about INR 6,400 crores, which is the excess DTA that we are carrying in the balance sheet. And then that is what we use for CET. Now the way the clawback will happen is as our -- as we start getting taxable profits, we will have the ability to write-off our past, let's say, legacy stress book. And with write-off, that's an allowable tax expense. The moment we are -- we get a larger proportion of allowable tax expense, the DTA that we had accumulated earlier start reducing. So therefore, the adjustment that you do, which is, let's say, INR 6,400 crores today in your net worth, that pool will start shrinking. So that is how effectively the clawback will happen. From an accounting standpoint, you will continue to see a 25% tax rate in the accounting P&L. But the way CET1 gets computed is where you will see the benefit come over time.
[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities.
So first question on your restructuring slide that is a residual return that we were expecting over the next 1 quarter, I mean in the restructuring 2.0. Apologies, sir, if you've already answered because I joined a little bit late.
How much impact in the restructuring...
So pipeline, Jai, if you see the pipeline, I think I was sharing earlier also, we don't have any significant pipeline now. So only thing is going forward, if there would be some customer requests, which would be coming, that is the only thing which we need to examine on a case-to-case basis. Otherwise, we don't have a pending pipeline.
Sure, sir. And on recovery, sir, if you can just share your thoughts on the recovery for the rest of the financial year '22 in terms of recovery upgrade and maybe the recovery from TWO accounts?
So when we are talking about cash recovery, it would be around INR 5,000 crores during the current financial year. And how much it would result into upgradation, I think that guess I would not like to make at this point because that will depend on case to case.
Right. Okay. And the second question is, sir, on credit card, right? So I just thought if you have some clarity there. So from Mastercard, we have switched to Visa, right? So this is what we could have done. But this is just a small doubt. Are you -- I mean is Visa on the right side of the regulation? Or that is not known as yet? I mean so while Mastercard has clearly, let us say, flouted the norms, but is there a reasonable certainty that Visa -- I mean they have complied with the formality? Or that is not known? Or -- I mean that is the question, sir.
So I would not like to make any guess on this. I think we leave it to the wisdom of regulators.
Right. But when you have made up the tie-up, you would have checked, right, that they are -- so far, they have been -- of course, so far, they have been compliant, but they would remain compliant, right? I mean is that a reasonable certainty?
So I think there are certain things which we need to take on face value, okay, unless we get something adverse to it.
Right. Sure, sir. And last thing, sir, on your UPI market share, right? So this number is huge, right? I mean if I look at the presentation, it has been consistently strong. And at 46%, this number is very strong. Just out of curiosity, I mean on MDR -- I mean on UPI, your MDR is almost 0, right? So while you have a strong scale and everything, but is this an earning engine as of now? Or how -- or that is a thing of the future? As and when you start MDR, then it will start earning? Or as of now, it is not earning?
I think like you are well aware, earlier, people were talking about the data is the new oil. And today, people are saying data is the new air, okay? So we would like to monetize this oil and air going forward in terms of using this data for the customer acquisition, where the cost of acquiring the customer would come down drastically.So already very strong teams on the analytics has been set up in the bank, and they have already started getting the business leads out of this. So I think our plan is in terms of using this data both for customer acquisition and also for the cross-sell.
The next question is from Manish Shukla from Citigroup.
Mr. Kumar, you said that you would expect exit margins to be about 2.75%, 2.80%. The journey from 2.1% to 2.8% will largely be yield-driven? Or you still think there is some use left on the funding cost side also?
So basically, some contribution would be coming from reducing the funding cost, which we are on the trajectory of reducing our rate of interest and some part will be coming with the loan growth.
Because assuming we get into a better loan growth trajectory for the rest of the year, I believe you would need to garner a higher share of deposits. And seeing that with a lower cost of funds seems difficult. So...
No, it will not be difficult because if you see the -- even during the last year immediately after the bank coming out from the moratorium and even during the worst of the pandemic times, we have reduced our rate of interest on the deposit by almost 100 basis points and still getting their deposits, okay? So I think this journey would continue and we don't see in terms of getting deposits only by keeping a higher rate of interest. So I think our strategy is working very well in terms of giving that convenience to customers, providing them the best of the services, providing them the digital channels and getting their regular retail deposits.
Okay. The next question is on the restructured book. The provision is just about 10%. When you had a INR 1,200 crore restructured book, that was less of an issue. But at a INR 5,000 crore restructured book, you're getting only 10% provision. So what are your thoughts around the advocacy of those provisions?
So on the restructured book, it is not 10%. Minimum is 15%, okay? But in some of the cases, even provision in more than that.
I'm referring to Slide 14, which says that the restructured is INR 4,976 crores and provisions of INR 476 crores.
Okay. Okay. We are talking about the COVID restriction here, right?
I'm talking about total provision and total restructured loans outstanding, INR 5,000 crores of total loans outstanding, against that, you have shown a provision of INR 476 crores?
So I think when the restructuring has been done, the restructuring has been done after taking into account the business strategy and also in terms of passing through the test where the ratios have been prescribed by the regulator and the Kamath Committee also. So I think we have taken a very strong credit cost. And we don't -- we are not worried about the credit quality of these assets.
Okay. And the last question, what's your assessment on capital requirements? I mean Niranjan mentioned about the unwind that will happen of DTA reduction through CET1, but that might take time. Do you see you need to raise equity capital in the interim?
So as of now, we don't see any requirement. We're at 11.6%, okay? But if the business growth or the credit growth would be more than our expectation and if there is a significant improvement in the economic environment, I think we would evaluate that option at that point of time.
[Operator Instructions] The next question is from Swarn Agarwal from Max Life Insurance.
Based on the last Basel disclosure, exposure in telecom sector was INR 7,246 crores, of which, funded was INR 6,200 and nonfunded was INR 1,046 crores. So how much is Vodafone out of this? Second is how much of Vodafone exposure is unsecured? And my third question, have you provided anything for the Vodafone exposure?
So Swarn, to be very frank with you, we don't make any comment on any individual, let's say, customer.
The next question is from the line of Suraj Das from B&K Securities.
So it's just a follow-up question. I mean I wanted to get a little bit more clarity on the slippages and the upgradation side. So first question is, sir, on the retail slippages of INR 760 crores, if you can give some more color on the product-wise? I mean so what are the key segments? How much slippage has happened? And the second thing is that on the corporate upgradation, which is roughly around INR 1,500 crores. So is it one big account on the large retail group? Or is it, I mean, granular multiple accounts?
So responding to your second question first, it's granular, okay? And the first question will be responded by our Retail Head, Mr. Rajan.
So if you see, first of all, at an industry level during the pandemic time, there is a 20% to 25% increase in the check bouncing across segments, both self-employed as well as household. That is the first thing. Second thing also is like in line with the last first wave, the second wave also has seen a V-shaped recovery almost in all segments. But having said that, as rightfully pointed out by you, some of the segments will see a slower growth, and that would be a combination of pandemic plus the other factors. So commercial vehicles as a segment probably would take a little longer. Personal loans and auto loans seem to be having a little faster recovery on a comparative scale. So it would actually vary to -- vary from segment to segment. But largely, we have seen the improvement both in resolution as well as the customers coming back and putting in their own money a little more quicker as compared to the first wave. So we see that around 90% of the segments would see a recent recovery. And maybe 1 or 2 segments on a comparative scale will take a little more time. But as the economic activity comes back to normal levels, you would see a fast recovery into those segments as well. Fortunately, our exposure in commercial vehicles also is very less in either used cars or the first-time users. So these are largely the fleet operators who have a potential to bounce back much faster as compared to a pure individual retail customer.
[Operator Instructions] The next question is from Mahrukh Adajania from Elara.
Sir, just one clarification that in the SME pool, when you show retail, that's just pure retail, right? It does not include SME and others, correct?
So you are talking of SME?
Yes, SME pool. 30 to 60 and 60 to 90 days overdue?
So SME is not retail. So if you see like we have given separately for retail and separately for the SME.
Yes. So SME, you have given how much is retail. So that is pure retail? Or it includes SME as well?
Yes, it's pure retail, Mahrukh. It's pure retail, not SME.
Pure retail. So SME and everything else is included in corporate, right?
It is -- I mean it's in that total overdue. It's part of a total overdue, of which we've given a carve-out from the retail segment.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Prashant Kumar for closing comments.
So thank you much for attending this call and remain safe. Take care of health and your families. Thank you so much. Thank you.
Thank you very much. On behalf of YES Bank Limited, that concludes this conference. Thank you for joining us. Ladies and Gentlemen, you may now disconnect your lines.