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Yes Bank Ltd
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Ladies and gentlemen, good day, and welcome to Yes Bank Limited Q1 FY '23 Analyst Conference Call. On the management panel, we have with us today, Mr. Prashant Kumar, Managing Director and Chief Executive Officer of Yes Bank; Mr. Niranjan Banodkar, Group Chief Financial Officer; Ms. Anita Pai, Chief Operating Officer; Mr. Rajan Pental, Global Head, Retail Banking; Mr. Akash Suri, Country Head, Stressed Asset Management; and Mr. Ravi Thota, Country Head, Large Corporates.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Kumar from Yes Bank Limited. Thank you, and over to you, sir.
Thank you, and very good evening to all of you, and thanks for joining Yes Bank quarter 1 financial results call. With me, I have the top management of Yes bank, Rajan, Anita, Niranjan, Ravi and Akash. Let me start with a key update we live on Slide 3 of the investor presentation. The bank has successfully come out of the reconstruction scheme after the shareholders approved formation of alternate board with effect from July 15.
And presently, the board consists of 7 independent directors, 2 non-independent directors and MD and CEO. During the quarter then or I will be saying on the 15th of July, the bank has signed a binding term sheet with potential ARC partners towards sale stressed assets. Pursuant to an objective organ sources, the binding term sheet was signed with partner JC Flowers to acquire an identified pool of INR 48,000 crores of the share assets of the bank. A Swiss Challenge Auction has been launched with JC Flowers base bid of INR 11,183 crores, which is roughly 135% of carrying value on the balance sheet as of March 31.
Pursuant to successful closure, this is set to be the largest sale of stress asset in domestic markets. Coming to quarter 1 financial results, we are pleased to report consistent improvements across all our core operating metrics as well as the strategic objectives. In the quarter gone by, the bank has achieved the following: on the profit and loss front, during the quarter, the bank has reported a net profit of INR 311 crores. which is an increase of 50% value rise. The net interest income of the bank at INR 1,850 crores has increased by 32% Y-o-Y the bank NIM stands at 2.4%, which is again up by 30 basis points.
The noninterest income, excluding the treasury income is up by 35%. The core fee income driver continues to show significant traction with sustained momentum in retail banking fees, which is up 43%. Portfolio trade and cash management business and increased digital transactions have also resulted in higher interchange income on a Y-o-Y basis.
The operating profit for the quarter is stand at INR 590 crores. Excluding the treasury gains, operating profits are -- have increased by 33% Y-o-Y. The total provision cost at INR 175 crores is lower by 62% and is the lowest quarterly provision cost since the reconstruction scheme. The bank's operating expenses are at INR 2,042 crores, which is an increase of 6% quarter-on-quarter.
The increase in operating expenses is due to increase in loan sourcing fees on account of its strong business momentum, a step-up in IT investment and employee increments and increased welfare expenses, including health insurance.
On the advances front, the advances have grown by 14% of which retail have grown by 42%, medium enterprise at 33%, SME at 15%, while the corporate book has shown a decline of 9%.
Retail & MSME and corporate mix has improved by another 200 basis points now to 62% for retail and MSME and 38% for the large corporate. New sanction disbursement aggregated to roughly INR 23,000 crores during the quarter across segments. Despite decline in net advances for the corporate segment, our new business generation continues to be strong with wholesale disbursement of INR 5,237 crores during Quarter 1.
The bank is confident of meeting the 15% loan growth guidance for FY '23. On the deposit front, as on June 30, our total deposits are INR 193, 241 crores, which is showing the increase of 18%. The CASA ratio stand at 30.8% with CASA and retail term recorders together, constituting 62% of total deposits. The customer acquisition momentum continued with more than 3 lakh CASA accounts opened during the quarter.
Growth in liabilities has come despite reduction in interest rates which is a reflection of our superior customer service and stakeholder confidence. Our cost of deposits continued to reduce and is now at 8% which is down 60 basis points Y-o-Y.
Saving account balances have grown by 39% Y-o-Y, while current account balances have grown 25%. Every daily current accounts have actually grown at 50% Y-o-Y, mainly on account of our digital solutioning to the e-commerce and FinTech players.
On the asset quality front, the gross NPA number has improved to 13.4% against 13.9% as of March '22. Similarly, net NPA ratio has also improved to 4.2% from 4.5% as of March '22. The slippage at INR 1,072 crores of which corporate slippages stand at INR 619 crores, retail at INR 368 crores and the rest is for SME and medium enterprise.
Slippage out of the restructured pool at roughly INR 126 crores, which majorly consists of 1 large exposure. The increase in the overdue loans of more than 30 days by INR 1,700 crores quarter-on-quarter predominantly on account of 1 large infrastructure group backed -- fully backed by strong and highly valued collateral.
The resolution momentum continues to be strong with total recoveries and upgrades of INR 1,532 crores and we remain on track to achieve our annual guidance of recovery and upgrade of more than INR 5,000 crores. On the capital front, the bank continue to accrete capital organically, with CET ratio at 11.9% and total capital at 17.7%. The risk weighted assets to total assets has improved to 73%.
Bank has seen a net addition of 802 employees during the quarter. During the quarter, we have launched multiple -- on the multiple front, we have taken initiative for welfare of employees and also for upgrading the skills of our employees along with taking some special measures for our women employees, including the training for both top leadership as well as for the middle and the junior management.
We continue to focus on new customer to the [ 10 propositions ] and we have launched its first of its time, floating rate fix deposits linked to the RBI repo rate. This is an intelligent fix deposit with dynamic return and we already have more than 14,000 customers on this product.
All the above points demonstrate its strong momentum in the buildup of a good quality franchise. Our slides from 20 to 41 in the investor presentation provides a detailed update on the entire franchise of the bank. As we complete the first quarter of FY '23, we are confident of achieving our strategic guidance provided to you earlier, which I would like to reiterate.
35% CASA ratio further improve the retail corporate mix advances mix by 400 basis points. To keep more than 15% advances growth, where the growth in retail, SME and medium enterprise would be more than 25% and 10% loan growth in corporate segment.
We would sustain the C/D ratio below 100%. The recoveries and upgrades to be more than INR 5,000 crores. ROA target of 0.75% and 1% to 1.5% over the medium term. With this, I want to thank you all once again for taking the time out for joining this call and wish all of you and your family a good health and prosperity. We can now open the floor for your questions. Thank you.
[Operator Instructions] First question is from the line of Mahrukh Adajania from Edelweiss.
Hello. And also I have a few questions -- so I have a few questions on earnings. But before that, I just had a question on the ARC. So basically, you did mention about the transfer, which is the gross value of assets but newspaper reports talk about this same gross value, and these are -- they say that the net value of assets is around INR 83 billion or something like that, it INR 8,300 crores or INR 8,500 crores.
So what I wanted to check is that basically, 85% of INR 8300 crores, in the worst case scenario, if there is no recovery will come at provision. Is that the correct understanding? And what will be the aging profile? What period, if at all, there are no recoveries. Of course, there will be, will these have to be provided for?
So Mahrukh, I think the first point, that [ 15 or 85 ] is not out of the INR 8300 crores. The assignment value, which is INR 11,100 crores okay? We would be getting 15% cash out of it, okay? And since the net carrying value is lower than the assignment value this cash would further bring down the value of the SR, which we are going to carry in our books, okay?
As per the current regulation, the provisioning on the SR would be in accordance with the provisioning on the NPAs, okay? So it means the SR would also continue to address the provisioning as per the aging of the NPA. But today, we are getting a net revenue of INR 8,300 crores. We would be getting a 15% of the INR 11,100 crores, which would further bring down our SR net revenue, okay? So it means, fundamentally, the impact for us would be only the aging provision for the net adding value for the SR, which will be carrying in our balance sheet.
Got it, sir. So the net carrying value will be 83 minus cash that way?
That's right.
Got it. Got it. 83 minus full 15% cash.
Yes, yes.
Got it. Sure. Got it. And sir, given the profile of these assets, they'll age over many years, over 1 year or 2 years according to RBI guidelines?
So this is a mix. This is a mix between 1 to 3 years kind of thing.
Got it, sir. Got it. Sir, my next question is that you did give growth guidance, which looks strong retail, operate. Sir, what are the risks to this growth given that in general, investors remain concerned about a global slowdown? Any risk to the growth? Or do you think the base is low enough to generate this time?
I think as of now, we are not seeing any impact on the demand side okay? Either on the corporate side or also on the retail and SME. But we need to be absolutely cautious in terms of how things would move because things are really uncertain. Although interest rate would move not only in India but globally and how it would impact the Indian economy. So I think everybody is very cautious about this. But currently, we are not seeing any impact on the demand side.
Got it. And sir, you think deposit gathering will not be an issue, not only because of rising rates, but also possibly because of the HDFC Bank?
No, I think the issue is more in terms of, yes, liquidity has come down as compared to past, but is still getting deposits to support the loan growth, currently it is not a saving. The only thing is the pricing for all the banks would go up, in line with the movement in the rate of interest.
Got it, sir. Got it. And sir, any outlook on margin?
So currently, our NIMs are at 2.4%, and we are expecting NIMs for around 2.75% for the full year.
In my -- so was there any mark-to-market loss in the quarter?
That's about INR 37 crores.
Yes. just INR 37 crores.
[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities.
Yes, sir. Good evening, and thanks for the opportunity, and thanks for the detailed presentation also. Sir, firstly, on this alternate board so the proposal was there would be 2 SBI directors and 2 RBI directors. So as of now, there are 2 SBI nominated directors, which are these 2 non-independent director and there is no RBI director. Is the understanding right?
Absolutely.
Right. And sir, now that you have an alternate Board, I mean, what is the significance of this? How does this change? I mean, of course, it's a good milestone that we have achieved and you have completely -- have come out of this restructuring scheme. But does this sort of changes anything in terms of business or in terms of your ability to do business?
No. I think the formation of alternate board would not be impacting any of these things which you are mentioning. I think it was more like a large financial institution was put up under a reconstruction scheme, okay, which was brought in by Government of India under consultation with RBI. I think we are at least -- we are not aware.
We have not seen any parallel that a large financial institution is successfully able to come out from the reconstruction scheme. So I think that is something which is very important and that is a performance that delivery in the last 2 years where the bank has been successfully come out of the reconstruction scheme. New board has been formed -- and now it's a growth path for the bank.
Understood. Understood, sir. And second thing, sir, on this ARC deal, I mean I just want to understand the mechanism. So let us say, the base value, let us say, this finalized hypothetically at INR 12,000 crores, just to keep the numbers calculation easy. You get 15% of that as cash, which is INR 1,800 crores. The rest you get all in security receipts, right? So you have a carrying value of, let's say, INR 8,000 crores, which reduces by INR 1,800 crores. The rest -- so the net NPA only declines by INR 1,800 crores in the first tranche, in the first leg, the second leg would only be as and when you redeem the security receipts. Is that understanding correct?
So I think just 1 clarification, which I call, then we would be carrying the SR to the extent of INR 15,500 crores.
Sorry, what is that 50, 500?
This is Niranjan. So I think in your example, you took a INR 8,000 crores carrying values. Is that correct? And you said INR 1,800 crores is the cash. So INR 6,200 crores is the post transaction net carrying value. The only minor, I would say, from a classification standpoint, the change would be the NPA will actually move into -- from the INR 8,000 crores it would move into a security receipt of INR 6,200 crores, investment in securities.
Got it. And sir, if you have -- and so let us say your security receipts in -- not in aggregate basis, but for a particular exposure is 0, right, let us say, and you have got security receipts of INR 10. Hypothetically you are in the money on security receipts, right? But you cannot book that notional profit anywhere, right?
That is right.
Right. Okay, sure. And the third thing is, sir, on cost to -- sorry, just on this recovery of INR 5,000 crores, the target that you have. And I think we have done fairly well in this quarter also. You have already included this ARC transaction, right, which will let us say, give you roughly around INR 2,000-odd crores as cash, right? So this INR 5,000 crores includes that already, right? I mean.
No, Jai, this INR 5,000 crores is separate from ARC Standards.
Okay. Understood. Understood. And sir, there was a media mention of 1 film exhibitor having gone into NPA. Has that been -- there was some sizable amount. Has that been already NPA in first quarter or that could come in the second quarter?
It was an NPA in the last financial year.
Okay. That was already an NPA I mean in the last financial year. Sure. And the last question is, sir, you have given a detailed guidance. And of course, you have given milestone, and we are on track on most of them, or maybe almost all of them.
On cost to income, right? So this looks clearly bloated at 71% -- 75% plus so in your guidance of over 75 basis point ROA, how should one look at the cost to income for the full year?
No. Even for the full year, our guidance on the cost to income is around 70%, 71%, okay? And the reason for this is also since we have started on the growth phase and since there is a higher focus on the retail and MSME. I think at this point of time, it is important to have those kind of investments, which would start giving you the revenues over a period of time.
Similarly, I think not only for us, for any bank, it is important to keep on investing in the IT infrastructure. And since we are very strong, we also have a responsibility of supporting the digital transaction of the country, I think we will continue to make investments in our IT infrastructure. We would continue to expand our business. And in the initial year, the cost-to-income would be definitely higher. But as the revenues would increase, it would start coming down.
The next question is from the line of Soumya Jain from Emkay Global.
Congratulations sir on the results. Sir, I was going through the presentation, I wanted to know what is the breakup -- what is the breakup of SME1 and SME2 that if you could give the numbers for the same?
I think in the presentation, we have given the number of the.....
You can go to Page 17 of the presentation that we have take up between 31 to 60 days at 6 to 90 days quarterly.
Okay. And 1 last question, sir. As -- initially, you had mentioned the guidance that you have given has 31% CASA advanced -- 15% advanced group. So I missed on the breakup in the segments advances, what is the target of advances growth in the retail and corporate? If you could just we that would be very helpful.
So on the retail and SME, we are targeting it more than 25% growth. And on the large corporate, it's 10%.
[Operator Instructions] Next question is from the line of Saurabh Kumar from JPMorgan.
Sir, 2 questions. One is essentially on this NIM that's critical for meeting your ROA expectation. So the rise that you would be forecasting is that mix led? Or would you be modeling some kind of cost of funds improvement once you raise capital?
Saurabh, can you please repeat this. We are not able to hear. I want to hear you.
I would request Mr. Saurabh to increase the volume of your headset, please?
Is this better, sir?
Yes. Yes.
You're audible, please proceed.
Sir, just on this -- on the driver for NIM adjusted margin. Sir, would you -- are you just forecasting an increased basis, the improvement in mix? Or would you also be looking at some kind of funding cost reduction once you raise capital?
So Saurabh on the NIM -- to begin with, when you look at this quarter, we have -- I mean we should have basically already seen some increase in the loan yield. We have not seen the commensurate increase because a lot of the repricing, which was linked to either the EBLR or the MCLR is actually yet to kind of fully play out.
So assuming on an annual basis, I mean, there is already a 7 to 8 basis points of margin, which will come through in the next quarter or 2. So I think that's one element. The second is in terms of how we look at deploying our excess liquidity, I think C/D ratio, we are already at about 96%. So I think we will continue to improve on our loan spread. I think that's really the focus.
And that is a function of how we get our cost of funding lower. So we are using every event to kind of continue to compress the strength that we offer on our deposits to competition.
And that's still a very historical journey for us post March 2020. So whenever we are seeing interest rates or, let's say, cost of deposits actually go up in the industry today. We have also increased, but we've not increased with the same intensity as the market.
So I think we will use that opportunity to also expand. The third, clearly, is the mix in our cost of funding, which is on the CASA -- within CASA, the proportion of how that kind of also plays out. So it's a combination of these, which will play into the net interest margin.
The last element is also on the recoveries and resolutions because that also plays in terms of the drag that I have on the net interest margin. So it's a combination of these for broad events.
Understand. But in the 0.75% ROA guidance, the NIM assumption will be around 2.9 odd percent. Will that be fair?
Say that again please?
So for the ROA guidance of 0.75%, the NIM on that, I mean, to achieve that should be around 2.9 odd percent.
So we should be exiting at about 2.9%. For the full year, we should get about 2.7% to 2.75%.
But the Q4 exit should be around 2.9%.
That's right, upwards of that.
Okay. And what will be the average cost of savings right now?
We should be in the 5% handle sort of that.
And just one last question, sir. Just on this large infrastructure account, which is in your SMA2 book, what's your expectation that this could potentially slip into forward quarters?
And where are you exposed? Are you at the group company or in the SCVs?
No, I think we don't see any possibility of this account slipping into NPA category. And if account remains under a SMA1 or SMA2 for a very, very long time. And the issue was more in terms of mismatch between the revenues and the obligations for this, but it's a strong company, backed by strong security, and we don't see any possibility of slippage at all.
The next question is from the line of Kunal Shah from ICICI Securities.
Yes. So first question, in terms of the impact on of ARC sales on GNPA and net NPAs. So the way to look at it is in terms of the carrying value, which is -- that will directly go out of the NPAs corporate, the NPAs of INR 25-odd crores, which are there. So maybe minus INR 8,800 crores. And then the net NPA level, how would be the impact?
No. So Kunal, I think if we try to see in a slightly different way. The INR 48,000 crores of stress pool asset, which we propose to transfer to ARC is excluding of the slippage happens in the bank after 1st of October. Right?
And similarly, some of the category of loans like foreign currency loans, which regulatory cannot be transferred to ARC would remain within the bank, okay?
So it means when you will be exiting FY '23, we would be having the slippage after first -- after 2nd September 2021 and some of those category of loans. But we would also be seeing a recovery and upgradation from that pool also. And since our slippage guidance for the current financial year is 2%.
So we would be expecting a GNPA number of between 1.5% to 2% by the end of FY '23. And the net NPA of something around 0.5% to 0.6%.
Okay. So GNPA would be 1.5% to 2% and net NPA of 0.5 odd percent.
Yes.
Okay. Off peak the overall. So this is broadly in terms of we are talking at the bank level.
Correct.
Okay. So the entire corporate banking piece there that would move out. So I just wanted to understand from the corporate banking GNPA, which are there, okay, [ 25,000. ] So how would that be have post the sale end up towards the end of the fiscal year?
So most of the corporates would be out Okay.
So it has nothing to do with the carrying value on the balance sheet, so it will directly be the larger part of this pie.
[indiscernible]
Okay. Okay. So that could be out in the same way you're talking about the net NPA. Okay. And in terms of this restructure. So again, when we look at the COVID-related restructuring, I think decline was almost INR 210-odd crores, and I think that's the number you highlighted in terms of slipping into NPA as well.
So to direct, I trying to assume that maybe there has been no recoveries which are coming in from the restructured pool, and if we really look at it, when do we expect this pool to move out? And what are -- maybe what would be our estimate of the further slippage going forward on this INR 3,700 crores of COVID related restructuring?
I think the behavior has -- behavior of the COVID restructured pool has given us a positive surprise. The retail and SME COVID restructuring pool is behaving very well. The customers are repaying as per the restructured plan and the collections have been achieving. We have seen only one reduction on the corporate side from this COVID restructuring.
Otherwise, the pool is behaving very well. But definitely, we can't expect the similar quality trend in the restructured pool also as compared to the remaining part of the on loan book. There will definitely some incremental delinquencies out of the restructured pools, but that will not be meaningful or significant.
Okay. And when does this actually move out? So when should we see the reflective gaps, maybe it will be September or it will be till March?
No, actually, because as per the COVID restructuring, they have been even a time line for, I think -- Ravi, any 2 years or what? So I think it would take some time, some time because as per the restructuring, they need to continue to serve and completely repay the FIT, right? Once they would make the FIT as 0, then they will be considered out of the restructure -- COVID restructure..
And in terms of the overall expenses, I think maybe when it was under this entire restructuring scheme. I think that was the place that would have been the cost cut or some ROA management to the operating efficiency. But in fact, the debt is growing, it seems to be pretty much into the investment phase.
And given the growth guidance, which is there, how should we really look at this number, in fact, when we look at it, maybe 33% still seems to be low, and we will be investing at much higher getting forward into the next 18 to 24 months or it should stabilize, yes.
I am not able to get you very clearly on this question. Can you please repeat?
No. So I'm just saying that 1, 2 years have been the year of consolidation, okay, and maybe not so much of an investment, definitely, we have been building up the retail and the SME and disbursements are going up. But to what extent we are done, okay, if we have to look at it our objectives target, how much of that investment is already done in the franchise, and we should now see more of a stabilization of the OpEx or maybe we have just started off maybe Q4, whatever numbers we are seeing 33% price, 6% quarter-on-quarter rise okay.
That's just the start, and we should see the buildup over here in terms of the overall operating expense other than the employee.
So Kunal most of the investment would happen during the current financial year, okay? And that's why we would be seeing an expense ratio of around 70%, 71% for the year FY '23. And next year onwards, this expense ratio would start including. Though there would be continuous investment, which we would require.
But I think the kind of investment which we are doing would also give us a proportionate increase in the revenue and we are also bringing the overall efficiency into the entire system, which would also bring a lot of improvement on the excess decision.
Kunal I think, one more point I also wanted to add is if you look at the cost-to-income thought process for the retail business, is clearly higher than corporate, right, just the cost income, and over the last 2 years, what you have also seen very substantially is that a mix on the balance sheet or the asset is actually also more in favor of the retail.
So while in isolation, if you look at retail, you would have seen them on an improving trajectory from a cost efficiency standpoint, but just the sheer mix moving into retail has also meant that some of the cost-to-income ratios have been at 77%, 78% for this quarter.
But largely, so 71%, right. But I think just coming to the point. This year, if you look at our cost to assets, we were at about 2.4%. I think that we have that we have allowed to expand to 2.6% in June and possibly for this particular financial year. And that is coming on the back of multiple things, right, that Prashant just mentioned for this year. But we will see that offset coming in from the revenue to assets as compared to fiscal '22.
We will see margins which were -- which expanded from 2.1% to 2.5% in fiscal '21. We should see the 2.4% that we are right now to expanding -- to exiting to 2.9%. So you will see margins to NII assets actually offset that cost, one.
Number two, there will also be because June was in some ways coming off the back of a very good March quarter. Also, it was not a very comparable 1 from some of the retail business standpoint. I think we should see a good momentum sequentially also pick up.
So the fees to assets should also do better. And if this coincides with also the contribution from corporate growth because on a Y-o-Y basis, corporate growth has been lower. So that also will start supporting the cost to income quite constructively.
So understand it from the income perspective, but purely on the cost side, would we allow this 2.6% to further expand or it should stabilize yes? Maybe income, I think, yes, there would be levers. But broadly in terms of the cost, is there the investment more which is to and we'll further allow it to expand beyond that as well, yes.
So Kunal, as I said, we will not allow the cost to assets now to go beyond 2.6%.
The next question is from the line of Sri Kartik from Investec. Mr. Kartik, I have unmuted you. Please proceed with your question.
Yes. What would be the capital implication for the ARC transaction.
What is the possible sorry?
What will be the impact on our capital ratios because of the ARC transaction?
For the effect on it would be capital neutral but due to some accounting entities, it would be having an impact on that capital. Otherwise, it's capital neutral for us.
Understood. Okay. I'll come back to the queue.
The next question is from the line of Anand Dama from Emkay Global.
Sir, if I'm correct basically what is carrying the earlier query is that all of these INR 48,000 crores of entries, which will move out to ARC is part of this current GNPA pool, right? Nothing is already written off?
No, it also includes almost INR 15,000 crores, which has been returned.
Okay. So INR 48,000 crores, minus INR 15,000 crores is the gross value, which is move out of the GNPA and how much will move out of the NNPA in that case?
How much of the?
So what is the net carrying value which is sitting into the NNPA pool at this point of time?
INR 8,300 crores.
INR 10,300 crores.
INR 8,000, 8,000 INR 300 crores.
And sir, secondly, the cash which you will receive from the ARC, certainly, after the Swiss Auction happened, now will that not really even partly flow into the P&L?
Sorry, is the question that will the cash flow in your P&L? Was that the question?
Yes.
No. The cash will not flow into the P&L. The cash will actually go down to reduce the carrying value of the security receipts.
Okay. So there will be no P&L impact because of this ARC transaction at all. All that it will do is basically optically reduce the NPA ratio, it will move out of the balance sheet. It will go to the ARC and secondly, there will be no capital impact as well. I mean there is no capital release at that.
Right.
So in that case, the CET ratio being slightly lower than the peers, what is our capital raising plan?
So currently, we are taking a CET of 11.9%. We would definitely like to increase it to at least 14% kind of thing. So during the current financial year, we would see when this kind of opportunity would come, but we would like to have capital in the current financial.
Okay. Sir, any quantum?
Around $1 billion.
The next question is from the line of Ankit Behani from JM Financial.
I just had one question. I wanted to know what proportion of your loan book has floating rate. And after floating rate, how much would be linked to [indiscernible]
So we have approximately 36% which will be at MCLR and we'll have about 25%, which will be EBLR.
The next question is from the line of Sagar Rungta from Anand Rathi.
Just one data keeping question. What was the slippages from restructures that you mentioned?
We had about INR 130 crores that has slipped from the restructured book into NPA.
The next question is from the line of Rakesh Kumar from Systematix Shares.
Sir, just coming back to this stress asset sell to ARC transaction. So please correct me if I am wrong, of the total transaction of INR 48,000 crores. We have got the bid of INR 11,100 crores. So basically, there is a write-down of around 77%, right? And we approximately have provision coverage of 83%.
So we are going to get -- we cannot write back of the provisions of around INR 2,900, which you said just now that it will be -- it will go towards reduction in the SR value in instead of provision write-back in the P&L. Correct?
Absolutely.
This INR 1,600 crores -- like INR 1,600 crores and INR 2,900 crores number, Which is part of the cash, this will come into the P&L? Or like what is that like against the sale of the stressed asset?
Yes, this would reduce the carrying value on SR.
But this INR 2,900, which is the difference between the PCR, what we carry and what is the write-down that JC Flower is giving, so this INR 2,900 crores should be routed into the provision line, right?
Sorry, Rakesh, can we just very quickly start with the numbers again. 2,900 reflects what?
Yes. So according to the bid of INR 11,100 crores. So there is a write-down of 77%. We are carrying the provision of 83%.
Understood. Okay. Let me just explain. So the first rule in the ARC transaction is that you have to record the security receipts at the lower of the e-security receipts consideration or the current book value, whichever is lower. So as a thumb rule, if I'm selling fees at 11,000, let's say, 11,100 ballpark. The carrying value is 8,300. I cannot have a balance sheet carrying value, which is more than 8,300. That's a first step, number one.
The second is that I can recognize anything into P&L only if I receive cash. However, because I had a principal outstanding, the P&L will be used to further create and reduce the value of that security receipt, which means on the 11,000, when I get the 15% cash the 8,300 will be further reduced to get the carrying value to about, let's say, 6,700.
Okay. Okay. And secondly, on this slippage ratio number guidance, which we have provided at around 2%. So 3,700 slippage, we are expecting on a gross basis in the remaining 9 months. And we have a slippage of INR 1,000 crores in the first quarter and INR 1,500 crores of recovery upgrade. So we have actually net slippage, a negative number. So what is the credit cost that we are estimating of slippage that we have?
So Rakesh, actually slippage is the way we are looking at the full year slippages from a gross slippage standpoint. We've always said that this year our are provisioning write-back or the recovery that will have some bad debt should be quite sufficient to offset any provisioning requirement that we will have on our existing book either through slippages that we will have or the aging-related provision that we have.
So that, let's say, last year, the provisioning to assets was about 55 basis points, we should actually see a lower trending in fiscal '23 as a consequence of the recoveries that we will have possibly in the 25 to 30 basis points.
And just coming back to -- because of this ARC transaction because this net NPA number would fall because we are -- so we would have positive impact on the margin, correct?
I mean that -- I mean, look, from an NII to assets, we should see, I would say, a marginal improvement. That's because to the extent of cash that we receive will go to improve the NII to asset. But from a NIM perspective, it's actually cosmetic. So I would say, just from an NII standpoint, the cash that we receive is a real contributor to the NII of the bank.
The next question is from the line of Anusha Raheja from [indiscernible].
Yes, sir, with respect to again this ARC deal, you said that reduction in the gross NPAs would be to the tune of INR 15,000-odd crores, right? Am I right there?
Sorry, again?
With respect to this ARC deal, out of this INR 48,000 crores reduction of the gross NPAs would be there of INR 15,000-odd crores.
No, we were saying INR 48,000 crores includes INR 15,000 crores, which has been technically written off and sitting out...
Sitting outside the bank. So this 33 is the current carrying and pace because if I just look at it as on Q1, the current carrying NPA gross NPA is INR 27,000 crores. So 15 is technical return of assets.
That is also includes nonperforming investments.
So can you just give us the breakup like what would be the current carrying value of NPA and technical written-off and what could be the restructured assets in this 48?
The carrying value in the balance sheet as of 31st March, which we've explained, is INR 8,300 crores across the NPA, NPI.
Which is going to be transferred to this year and the gross is the INR 48,000 crores, including INR 15,000 crores of technical write-offs.
Okay. So again on this -- so what would be the reduction in the gross NPAs, INR 8,300 crores would be the reduction in the net NPAs, what was the reduction in the gross NPA?
Gross NPA would be lower by about INR 26,000 crores. Sorry, about INR 26,000 crores.
Okay. And when is the deal likely to go through, when it's expected to complete?
We have already launch it to [indiscernible]. It would take like around 75 days kind of thing. So I think it would -- the whole assignment would happen in the third quarter.
Okay. And what are the estimates of flows expected post sales -- sale of these assets to ARC like it will have a pool of INR 48,000 crores. Usually, you will be having a 20% take, so it is pari-passu or how is it?
So on this structure, the security in that the bank will go will be on a pari-passu basis. Like we said, that gross value being INR 11,183 crores. So that is, in some sense, a reflection of the prognosis that a third party has made and say, recoveries on the same will happen over a due course of time.
So I mean, the estimate that you have given the NPA of 1.5% to 2%, any -- I mean, anything that is built into these numbers, the flows of ARC, anything built into these numbers?
No, I think whatever like what I would share.
That reduce some star siding.
Yes, yes.
But I did not actually understood why it will not have a P&L impact because whether it will be received in cash or how the transition is likely to happen? I mean if we just can because usually, if you get in cash, that's usually in pari-passu, right?
So the P&L impact will not be there because of the regulatory guidance. The regulatory guidelines only allow a right that if in case the cash for the specific assets will be more than the net carrying value.
So because of that, the P&L impact will not be there, and this will largely have a impact on the net book value of the security receipts, but important point is that from a economic perspective, you have to see that the book which has net carrying value of INR 8,300 crores. That has been submitted at [ 11,000 plus ] whatever is the data would come back to bank as and when the companies would happen.
Okay. So anything recovered beyond the selling price would add to the P&L. Is that correct?
Sorry?
Anything that you received from the ARC beyond the selling price, that could add to the P&L.
As and when the recoveries come -- not beyond the selling price point that Akash mentioned. So let's say, we keep getting the recoveries would mean that we basically keep writing rather reducing the carrying value in our balance sheet when the carrying value is effectively, let's say, below any recoveries over and above that, that becomes into P&L.
So it's like in this particular structure, the P&L benefit of effectively 3,000 -- let's say, INR 3,000 crores or INR 2,800 crores that we are talking about, is kind of rear ended from a P&L benefit standpoint. But it is there and it has been basically validated through the bidding process that has come through.
Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Prashant Kumar for closing comments.
So thank you so much for attending this call. We hope like we have been able to clarify your query. But still, if there is anything where you require more clarification, you are most welcome to reach out to us. Thank you so much.
On behalf of Yes Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.