Yes Bank Ltd

NSE:YESBANK

Earnings Call Analysis

Digital Growth and Strategic Shifts Bolster Bank's Outlook

Amidst consistent investment in technology and digital channels over the past three years, the bank maintained a strong market share of 38% in UPI transactions, handling up to 10 billion per month. Strategic plans have been set in motion to mitigate future demands from the Rural Infrastructure Development Fund (RIDF), targeting a reduction in its balance from fiscal year (FY) '26. Simultaneously, securities receipts are already positively impacting the profit and loss (P&L) statement, with expectations of significant declines in the current fiscal, and the complete recovery enhancement of profits from the next year onwards.

Strong Focus on Digital Capabilities Fuels Growth

The company has not only maintained but strengthened its investment in technology and digital capabilities over the past three years, even amid challenges. This commitment has led to the bank processing around 3.5 billion transactions per month on the UPI platform, keeping its significant market share of 38% steady. Additionally, the bank's selection by regulators to participate in the Central Bank Digital Currency (CBDC) signals trust in its technological competence. With the launch of a new mobile application 'iris', providing over 75 customer-centric features, and their role as a preferred banker for new-age businesses, the company has seen a notable contribution to fee income and transaction banking. This technological edge is poised to continue driving growth in new business, enhancing both current accounts and the fee income stream.

Strategic Efforts to Manage and Reduce the Rural Infrastructure Development Fund

The balances in the Rural Infrastructure Development Fund (RIDF) are expected to increase from INR 32,000 crores to approximately INR 40,000 crores due to an anticipated rise in demand. However, strategic measures have been employed to avoid further demands beyond this fiscal year. These strategical initiatives include organic growth through the bank's branch network and Business Correspondent channels, lending to microfinance NBFCs, and exploring inorganic acquisitions to address RIDF financial obligations. The bank is confident that these efforts will result in decreasing RIDF balances starting from fiscal year FY '26 onwards.

Enhanced Profitability from Security Receipt Redemptions

The redemption of security receipts (SR) has favorably impacted the profit and loss (P&L) statement, contributing approximately INR 300 crores current quarter. While the bank's book on security receipts currently stands at 1.1%, a substantial reduction is anticipated by the end of the fiscal year. Notably, from the next fiscal year, the entire recovery from the security receipt pool will directly augment the bank's profits.

Sustainable Government Deposits and Anticipated Growth

Post-reconstruction efforts have strengthened the bank's government banking sector, leading to sustainable and granular deposits. Coordinated actions between government banking and branch banking have intensified depth in government business, creating an optimistic outlook for the continuous, healthy growth of government deposits in the future without the need to offer a higher rate of interest.

Net Interest Margin and Revenue Outlook

Despite an increase in the cost of deposits due to repricing in the second quarter, no further pressure on deposit costs is anticipated going forward. This stability, along with visible improvement in interest fees on loan products, bodes well for enhanced net interest margins (NIMs). Importantly, this potential growth is not factored into any inorganic microfinance business acquisition, as that venture remains in the exploratory phase.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the YES Bank Q2 FY 2024 Results Conference Call. On the management panel, we have with us today Mr. Prashant Kumar, Managing Director and Chief Executive Officer, YES Bank; Mr. Niranjan Banodkar, Chief Financial Officer, YES Bank; Mr. Manish Jain, Country Head, Wholesale Banking, YES Bank; Mr. Pankaj Sharma, Chief Strategy and Transformation Officer, YES Bank; and Mr. Sunil Parnami, Head, Investor Relations.

Mr. Prashant Kumar will now give you an overview of the results, which will be followed by a Q&A session. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Prashant Kumar. Thank you, and over to you, sir.

[Prashant Kumar, executive]

Thank you, and very good morning, and thanks to all of you for joining us today for YES Bank quarter 2 earnings calls.

Starting firstly with the overall macro. The operating environment continues to remain relatively bank with a number of high frequency indicators such as really robust manufacturing PMI ex 57.5 and services PMI at 61.

The retail auto sales number, like passenger vehicles, up 17.6% Y-o-Y. The 2-wheelers have grown by 22% Y-o-Y. Both GST and net direct collections, they are up 10% and 24%.

Real estate sales, government CapEx till August, it was 46% Y-o-Y increase, together with softening of underlying inflationary pressures and monsoon season ending with near normal rains, all pointing to a sustained growth environment backed by active policy measures to support growth and contain the inflation going forward. System-wide credit growth continues to be robust around mid-teens levels. And deposit growth, on the other hand, remains a key focus.

Against this backdrop, we continue to remain focused on driving growth with profitability at YES Bank through a number of our ongoing initiatives. Yield calibration and NIM improvement, the rightsizing and OpEx rationalization, leveraging branch as a key fulcrum of our business, and lastly, the productivity and the turnaround time improvement.

Several green shoots of these initiatives have already started to reflect at our core franchise level, which is excluding the deposits in RIDF. And they are also evidenced through our product mix optimization within retail assets, acceleration of our SME and ELC franchise, expansion in our incremental loan [indiscernible], sustained acceleration in our core fee growth, and lastly is slowing down of the quarter-on-quarter rise in our operating expenses.

To further accelerate growth with profitability, we have set up a dedicated strategy and transformation office, which is headed by Mr. Pankaj Sharma, who has recently joined us.

Last quarter, our retail advances crossed INR 1 lakh crore mark, and its share improved further to an all-time high of 48%. Strong movement in disbursement momentum was maintained across all our asset classes. The growth in our SME and ELC businesses continue to drive our transaction banking flows and fees.

On the deposit side, despite the challenging environment, our CASA [ NTB ] acquisition run rate further [indiscernible] a [ pre-open ] 3.91 lakh CASA accounts during the last quarter and maintained our CASA ratio at 29.4%, and incremental retail CASA ratio at 34.8% in quarter 2. And this is despite a very challenging interest rate environment. We garnered incremental deposits of nearly INR 15,000 crores.

At YES Bank of today, we continued our strong emphasis on granular retail deposit franchise and strategically focused on acquiring affluent, mass affluent and MSME clients with strong traction across our YES FIRST, YES Premia and NRI segments.

93% of our savings accounts and 85% of the sole proprietorship current accounts have been opened digitally. As a future-ready bank, we made good strides in our digital banking capabilities. In August, we launched iris by YES Bank, a comprehensive mobile banking solution with more than 75 features for all banking needs of our retail customers. We also launched UPI payments through RuPay Credit Cards, enabled UPI interoperability on the RBI CBDC app, and we became the first bank in the country to issue an ONDC Network Gift Card.

Also during the last quarter, the bank launched a co-branded corporate credit card in partnership with Zaggle, collaborated with BriskPe to leverage from its capabilities in cross-border payments and offering the same to our SME clients.

I would like to highlight that while the impact of many of these initiatives is already getting reflected positively at the core franchise level, however, at bank-wide level, the same sometimes gets clouded in the net-reported outcomes due to drag such a significant RIDF balances.

To address this particular issue of large amount of deposits in the RIDF, the bank has formulated a comprehensive PSL strategy, which incorporates several organic and inorganic actions including VC partnerships, online, IBPC or TSMC purchase or acquisition. And we expect PSL [ ready ] to start reducing over the coming 3 quarters.

Moreover, we have also made a very senior hiring with Mr. Manish Jain joining us as the Head of Wholesale Banking to drive our growth in our ELC and large corporate business. Recently, our Basel III Tier 2 bonds and infrastructure bonds have been upgraded to A from CRISIL, India Ratings and CARE.

As regarding the near-term outlook, we believe that YES Bank is quite well placed to grow its loans and advances around mid-teens. [ And liabilities, it helps faster and more granular. ]

As regards margins, we believe that quarter 2 to be the end or near end of the margin compression. And going forward, we expect to see beginning of margin expansion from here.

As regards to asset quality, our annualized gross [indiscernible] are expected to be around 2% to 2.5% of our loans and advances. And our credit cost guidance is maintained at around 50 basis points on the total assets. Also, we expect that the net carrying value of security receipts will significantly reduce by the end of the financial year.

So to summarize, as a team, we remain excited about the immense opportunities around us, and at the same time, continue to work towards overcoming the challenges.

The core franchise of YES Bank of today is gaining good momentum due to past interventions. This momentum is expected to be [ further ] by our current structural interventions around PSL and business transformation, resulting in significant contribution to profitability for the bank and help us render our medium-term ROE target of 1%.

Before opening the line for questions, I would like to take this opportunity to extend my best wishes to you and your families for the festive season.

Thank you so much, and we are now open for your questions.

[Operator]

[Operator Instructions] We'll take the first question from the line of Srinivas, an individual investor.

[Unknown Attendee]

I'd like to know whether the cost-to-income ratio is likely to come down in the near future because I have observed that over the last few quarters, it has been increasing. And what is the guidance for this?

[Prashant Kumar, executive]

Mr. Srinivas, thank you so much for joining us. Our cost to income remains between 70% to 75% over the last couple of years. And the main reason was that we were investing for the future, like opening of branches, investment in our technology and the digital capabilities. Now we have started seeing in terms of getting the benefits coming out from this investment. But I think we would continue to invest in the future like we are planning to open 150 branches during the current financial year.

But as I was sharing with you that we are going through a business transformation and strategic change in our business direction as well as taking care of the PSL drag, which is almost like at 35 to 40 basis points, okay? So I think what we are going to see in the coming time, the cost-to-income ratio would start reducing.

You must have noticed that this time, our operating expenditure quarter-on-quarter growth is 0.5%. We would have a very tight control on the operating expenses, and we will continue to work towards improving our interest income. And we are expecting now going forward our cost-to-income ratio, they would have started coming down.

[Operator]

The next question is from the line of M.B. Mahesh from Kotak Securities.

[M. B. Mahesh, analyst]

A couple of questions. One on the NPL line. We continue to see the retail strategies kind of on the higher side and the recovery in the mid or the lower side. There were also some initial signs at the end. The disbursements have started to slow down. If you could just kind of broadly kind of give your views as to how are you seeing the retail portfolio?

[Prashant Kumar, executive]

So Mahesh, on the retail portfolio, we started seeing some amount of stress in the very first quarter, okay? And then we immediately took some policy steps in terms of corrections regarding the underwriting as well as the onboarding of customers. Similarly, we have strengthened our collection teams.

So I think what we are seeing, definitely, and this is also disclosing our numbers. Today, 2/3 of our gross slippage is coming from the retail portfolio, and this kind of stress we have seen in both credit cards as well as the unsecured loans, but I think all the corrective steps have already been taken, and we have started seeing the improvement on this. That is one part.

Second, since now we are focusing on the profitability, some of the prime retail asset products, like the prime holding or the new car loan, which, in the current times, would not make a great commercial trend for us to be very, very active in [ DCs. ] So we have started slowing down on some of those products where the [ fees ] are lower. But definitely, in terms of strengthening the policies around how we underwrite and onboard the retail customers [indiscernible], and we have started seeing the positive results out of it.

But I think this is a [ just-you-wait ] phenomenon, which has also been flagged off by the regulators in terms of the retail portfolio. But I think we need to be cautious. Already, our retail growth has come down to 27%. And strategically, we would like to have a very tight control on the retail side. And maybe by the year-end, as we would see the retail loan growth coming down further to around 25%.

[M. B. Mahesh, analyst]

Okay. And just to clarify this, when you say the unsecured pieces have contributed to most of the slippages? Or do you say that it's been a disproportionately large one? Because the exposure that we see in the presentation on the unsecured side is much smaller [ for the ones that we have. ]

[Prashant Kumar, executive]

No, so it is disproportionately higher on the unsecured and the credit card. It is not like the entire slippage is only coming from that.

[M. B. Mahesh, analyst]

Okay. Sir, the second question is on the cost side -- on the cost of funds. Given where we are on the cycle, if you could just kind of tell us how much more is left in terms of repricing there?

[Prashant Kumar, executive]

Niranjan, would you take this?

[Niranjan Banodkar, executive]

Yes, Mahesh, from a cost of funding perspective, Mahesh, we believe that we, at least last, last quarter, we did highlight that there was about [indiscernible] between 15, 20 basis points on TD repricing. We've actually absorbed bulk of that in this quarter.

So while -- if I were to just break the whole deposit repricing into 2 parts, there might be some tendencies of repricing in the retail deposits because these are slightly not [indiscernible], but on the wholesale, that has been observed. In fact, on the margin, we are seeing some beneficial restructure already playing out.

So on the whole, we believe that deposits have been fully repriced. And while we've not spoken about it, but we are also now seeing good momentum also picking up in our current account and savings account. So there's a mix on the margin we should do incremental impact from here on. So if you combine all these factors, we do believe our cost of funding has played out [indiscernible].

[M. B. Mahesh, analyst]

Okay. So your argument is that cost of funds has breakthrough. News can potentially improve as you're moving out of the super prime segment, allowing you for the margin [indiscernible]. Is that, Niranjan, the argument that you're making?

[Niranjan Banodkar, executive]

That's right, Mahesh, absolutely. We do see -- in fact, there's a significant [indiscernible] already that has played out between incremental disbursement in [indiscernible] portfolio. That's been happening for some time. It's just that , like Prashant mentioned right at the start, a lot of our reported numbers get clouded by some other factors, RIDF being one of the most main ones, to be honest. So on the margin, we keep seeing marginal improvement, but underlying incremental business is really focused on improving the margin and cost-to-income ratio.

Mahesh, I just also wanted to clarify, wanted to add a couple of points on the retail delinquency. We actually looked at -- this quarter, there was one change that also happened in our NPA recognition policy. So when we look at the retail portfolio, the financial overview were not actually getting accrued, again, due to we've changed that policy where the financial overdues are also getting approved and getting the recon for NPA recognition [ to the class PSL interest. ] And that has also contributed to some increase in the [ little ] delinquency. I'm not taking away the point that we are cautious and we have made the necessary intervention, but this is also one of the reasons why the delinquency has been slightly higher.

[M. B. Mahesh, analyst]

Okay. You're saying that even interest part of it is now getting added to the slippages line?

[Niranjan Banodkar, executive]

So what happens, Mahesh, is, so let's say there's a financial overview, the interest on that was not getting factored as an accrual and therefore not getting factored as a day past due for the NPA classification earlier. We've actually changed that policy from 1st of July, which means that if there are remaining [ NPMIs ] on the retail portfolio, you are also accruing the interest on those delays, and that is also triggering a 30 past -- a 90-day past overdue recognition.

[M. B. Mahesh, analyst]

Okay. I'm just saying this offline, but earlier the concept was that it will be an interest deal recognition item, right? It's not a slippage item.

[Niranjan Banodkar, executive]

No, no. So Mahesh, let me clarify again. So let's say, you have, you have a loan at 11% accrual coupon. And let's say there is a default in that particular loan, there is still an interest that needs to get [indiscernible] on that overdue amount. That [ given interest ] earlier was not getting accrued as income because it was recognized on cash recovery, right.

So there are cases where that premium interest could have been maybe even 60 days overdue, could have been 1 or 3 days overdue, but will not get adapted into the NPA. But with effect from 1st July, we changed that policy where the financial overdue interest actually gets now becomes -- it goes through the overdue counter of 1-day, 2-day overdue. And get -- if it is not paid for 90 days, actually, we will have an NPA classification for that particular account. So that has also added to the [indiscernible].

[Operator]

[Operator Instructions] We'll take the next question from the line of Chintan Shah from ICICI Securities.

[Chintan Shah, analyst]

Sir, firstly, so my question is on the corporate. So corporate growth has been kind of slow. It has been degrowing. So any -- I mean what would be our strategy on the corporate growth going as NPA is also slowing. Normally, it's kind of slowing down a bit on the retail? And also are we getting cost share or getting -- or slowing on the corporate? Or what is the plan there?

[Prashant Kumar, executive]

Chintan, before I would ask Manish to give you color in terms of our strategy for the corporate side. Currently, if you see our mix, it's 48% retained, okay? And then the 15% on the MSME. And ELC, which is the emerging last quarter, it is 14%. And the large corporate has come down.

I think overall balance sheet construct, we would like to maintain this ratio where retail will be around 50%, retail and MSME not going beyond 65%, and the ELC and the large corporate would be contributing to the remaining 25%.

But it's not like we are not disbursing. We have made disbursement in the past also when there have been some large repayments where we were not willing to match on the pricing side. And at the same time, there was certain exposure, where strategically we wanted to bring down those exposures. So that has happened. And that is also one of the reasons why the overall book on the large corporate has come down. But Manish, would you please like to share what is our strategy?

[Manish Jain, executive]

Thanks, Prashant. So clearly, if you see a lot of reshaping has happened over the last 2 years. Our focus is to build a very granular book, and that is what we will keep doing in the future as well. Our strategy will be to keep reshaping to improve returns, build scale and positioning in the corporate banking segment, where we will the grow client base and also cross-sell to our existing clients. There will be a high focus on returns as well as risk management. So with robust risk management, adding new clients and cross-selling to existing clients, we will start increasing the income while we continue [indiscernible].

[Chintan Shah, analyst]

Sure, sir. [indiscernible] And sir, one more thing. So sir, in terms of the [ pre-approved. ] So are [ pre-approved ] currently like kind of static around INR 800 crores odd? So I mean, what are the potential use? I think you also spoke on the margin, we are likely to improve somewhat from year-end cost, in some case, it's subject to decline. So any guidance you would like to give us on what could be the [ pre-approved ] to assess in the medium term?

[Manish Jain, executive]

So in terms of [ pre-approved ] classes, I think we've kind of stayed at about 90 basis points at 1% is the range in which we have been moving. And just to quickly recap, while at a core level, we continue to work on improving the margins predominantly on account of our [ IDS ], there is a drag of almost 40 basis points on our net interest margin.

So there are three things and -- sorry, before I -- what we've also faced in the last 3 quarters is the fact that deposit repricing has also played out, coupled with pressure on the overall platform mix, right? So you combine all these factors, cost of funding has been under [indiscernible], and that has meant that the [ P2P ] asset has been under pressure.

If I can break this down now, if you look at these 2 assets, we've been actually doing quite well in improving our Stage 2 assets to about 1.3% from 0.9%, about 18 months back. And again, within that, the split is quite strong coming across various retail fee lines. We're also seeing good momentum coming on our fee line item from corporate to trade assets. Cross-sell is also playing out quite nicely. So fee is looking quite strong. I think for us, we do believe that we will continue to see expansion in the middle line item.

Cost to assets, we are currently at about 2.6%. We've said that there might be some increase in the near term in the cost to assets only to accommodate [ CLP ] purchases. We've done some this quarter, but we've been quite efficient to manage that reducing some of our other costs or being optimal at other costs. But I think 2.6 [ EPS ] has been kind of played out. We might get into a 2.65, 2.7 range on the outside if the PSLC come in earlier than some of our cash initiatives that taken.

But really, the work and where we see the maximum expansion in net interest margin, so we're currently operating at about 2.3%. We are already at the bottom. Over the medium term, again, it's 2 to 3 years at a minimum place that we're kind of looking at. We do believe that we should operate at 3% plus, and we listed out our reasons and drivers for that.

We don't see a reason why [ PPOP ] assets should not start working in the range of 2% plus in the medium term. So that's really our medium-term outlook.

And net interest margins on the incremental basis is already visible. But as I said, if the RIDF and come out of degrowth in the corporate businesses has resulted that we are not able to expect that on the balance sheet in that way.

We've also set up -- Prashant mentioned it at the start. He mentioned the transformation office to make sure that all the execution initiatives that we're talking about are looked at in priority and we're able to deliver the outcomes in a timely manner.

[Chintan Shah, analyst]

Sure. This is very helpful. Just one last question for now. And just one thing on the current quarter, for the credit cost, it seems they're a little elevated. I don't know if I've missed any comments if you had any comments on why the trade costs have been a bit higher. If you could just throw some light on that, yes.

[Manish Jain, executive]

So simply to see our trade cost, I mean there is a continuous endeavor in corporate bank to -- and we've said this earlier as well. We were a bank that was sitting on almost 60% [ LMP ] security seats as an overall pool. Actually, that was not too long ago, it was almost in March 2021, we were almost at [ 86% ] and then it went up.

Our continuous endeavor has been to make sure that, that pool actually comes below 1%, right? And it is a function of two things. One, the continuous momentum that we've seen in our resolutions and recoveries. So every quarter, we see the coverage revolution coming through. What we do as a combination, whenever we see the resolution and recovery, is to make sure that our provisioning coverage on the residual book is increasing such that the residual carrying value of this pool is reducing.

So if you look at last quarter, we were at 2.4% of securities to NPL. That ratio has now come down by 40 basis points, both as a function of recovery resolution we've seen as well as some of the provisioning that we've taken.

And the bulk of that provision is also a reflection of our intent to continue to work towards improving our NPA and PCR. So this quarter, reducing 48% actually has been increased to 56%, right? So both are -- I mean, these are objectives at which we continue to play. And you would appreciate that given that we were dealing with a stock of 2.4% as far as certain NPA, many a times, aging-related provisioning, the timing mismatch between aging-related provisioning requirement and the recovery is not always a very smooth or a linear curve, right.

So I think it's always prudent from our standpoint to do this to keep reducing the drag. And Prashant said it right at the start, our expectation is, by the end of this fiscal year of, a bulk of the securities carrying value should be off our balance sheet. I'm not saying to 0. But clearly, as a full of NNPA and SR are our endeavor is to see how it can be as close to 1% as possible.

[Chintan Shah, analyst]

Sure, sir. And sir, just one last thing, you are kind to follow up on this. So your fee are now currently is around 15%, 20%. So like are we seeing comfortable with this? Or would you like to further in [indiscernible] already, we plan to take it further from here on, then that could also put some pressure on the credit cost?

[Prashant Kumar, executive]

No, I think by the year-end, we would like to definitely improve the PCR. And I think around 70% to 75% is something which we would like need to have.

[Unknown Analyst]

So as long as the credit cost guidance remains intact, that's what you'll do?

[Prashant Kumar, executive]

Yes. Yes.

[Operator]

We'll take the next question from the line of Srinivas, an individual investor.

[Unknown Attendee]

JC Flowers segment of debt happened almost some 10 months ago. So having recurring track record for the last 10 months, is it better off as compared to what YES Bank was doing earlier? YES Bank itself was recovering more than INR 5,000 crores earlier on its own for the last 2 years or 3 years. So just [indiscernible] has it contributed its part? And have we seen any bigger resolutions, I mean big-ticket resolutions under the JC Flowers regime?

[Prashant Kumar, executive]

As of now, if you see last 3 years, our bank was able to recover more than INR 5,000 crores, okay. During the current year, also, we are in the same line. I think if you see every quarter, we are able to make the recoveries of more than INR 1,200 crores, including the recovery made by the [ JCS ].

So I think now we are seeing the kind of recovery which we were expecting from the pool of the NPAs, almost similar recoveries are coming from the DCF. Some of the resolutions which they are doing, I think the value out of those resolution would start flowing from the next financial year.

[Operator]

The next question is from the line of Namit Arora from [ Incruit ] Capital.

[Unknown Analyst]

My question to Prashant is that historically, the bank was an earn over in terms of technology and related initiatives. If you could please give us an update on what will be the continued progress on the front? And how you are giving it into your strategy because this could be a competitive differentiator for the bank?

[Prashant Kumar, executive]

Namit, like what you rightly said that bank was always the frontrunner in terms of both technology on the digital side. And last 3 years, despite the challenges, we have not stopped investing on both technology and the digital capabilities. And today, we are in a situation where like if you see 3 years back the UPI transactions which was just like 2 billion to 3 billion transactions a month has already reached 10 billion transactions. And we continue to retain our market share of around 38% on the UPI side. So it means currently, we are handling almost 3.5 billion transaction per month, and this market share will continue to remain intact. That is only one part.

Second, in terms of, if you see, we were the first group of banks which were identified by the regulator for participation in the CBDC. So that also demonstrate in terms of the confidence in the bank about the digital capabilities. And we started with the wholesale CBDC and then subsequently on the retail CBDC also.

In the month of August, we also launched our new mobile app, iris, which is having successfully for customers more than 75 features. So I think this is something which continue to remain very strong for us. And only because of these capabilities, today, we are a preferred banker for the new-age businesses. And that is also giving us a very good -- the float fund, which is contributing to a current account to our total liability. So today, we see the digital and the IT capabilities is helping us in getting new businesses, contributing to current account, contributing to the fee income.

And if you see like on the large corporate, the transaction banking, transaction banking continues to remain very strong. So even the corporates, where we are not the large participant on their asset side, there -- flows, transaction flows are happening through the bank. So I think we continue to remain focused on the technology and the digital capability, and that would be our key driver.

[Operator]

[Operator Instructions] We'll take the next question from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

Sir, first, on your PSLC stock, right, so as per annual report, we had around INR 300 billion of the [ cash ] deposits. How is that moving? And what is the way out? I mean as long as this remains a significant proportion of the balance sheet, your margin will remain under pressure. So what is the way out of this? And what is the stock right now, and just to understand how are we moving correctly?

[Prashant Kumar, executive]

So on the balances in our RIDF. So currently, we have INR 32,000 crores, okay. There is a possibility that there will be some more demand coming in the second half year of today. And the INR 32,000 crores would inch towards around INR 40,000 crores or INR 41,000 crores. But like I was sharing in the beginning, we have taken certain strategic calls in terms of how, going forward, there should not be any further demand from the RIDF side.

So I think we are working on the multiple strategies. One of the strategy as of now in our strategy is more in terms of what we can do organically through our branch network, through the BC channels, okay? Also, on lending to the microfinance NBFC and also to the NBFCs who deal with setting these kind of products.

But simultaneously, we are also looking like I shared last quarter also. We are also looking for some inorganic acquisitions, which can take care of the RIDF financial. So I think with these kind of initiatives, we are quite confident, but next year onwards, we will not see any further demand coming because every year, it is always for the past year. And we would start seeing the reduction in our balances in RIDF from the FY '26 onwards.

So currently, our RIDF balance is at 9%. And to our total assets, I think we would like to take it to around 60%, but it will take some time, okay? It was always there is a maturity of our RIDF. But fundamentally, what we are looking at that we don't add anything to the RIDF from FY '26.

[Jai Prakash Mundhra, analyst]

Right. So just to understand just correct. So maybe in the second half, the balances may go up. But from FY '25 onwards, at least the percentage share should start declining or the decline will start from FY '26?

[Prashant Kumar, executive]

Decline would start from FY '26. FY '25, we would be -- because it's always the average balances for the fourth quarter. So I think the average for FY '25 and FY '24 will be almost [ at the same ].

[Jai Prakash Mundhra, analyst]

And lastly, sir, on securities received, right, so we are doing INR 500 crores, INR 600 crores per quarter for redemption. When do we see that the redemption start accreting to P&L? I mean would you believe that -- I mean what is the time line for all these SRs to get liquidated and the recovery starts adding to P&L? When would be that time? What would be the timing for that?

[Prashant Kumar, executive]

So there are two things around this. If you see even in the current quarter, the redemption of the SR has resulted into a P&L contribution, something around, say, INR 300 crores. Niranjan, can you give the exact figure?

So even in the first quarter and the second quarter, whatever redemption has happened in the security receipt and there has been accretion on the P&L side also. But still, if you see the current book on the security receipt, it's 1.1%. We are expecting if it is not 0, but I think it would come down very, very meaningfully by the end of the current financial year.

And next year onwards, the entire recovery would add to our profit. So the current recovery would be used in terms of making some more provisions. It will start coming down, but I think in the next quarter also, there will be a contribution on the P&L. But next year onwards, the entire recovery from this pool would add back to our profit.

[Jai Prakash Mundhra, analyst]

Right. And just a technical question, sir. So sir, I think I found the -- our philosophy for the requirement was that all the proceeds from security received would be utilized toward increasing the provisioning coverage on the other pool. So how is it impacting P&L of, whatever, INR 300 crores this quarter?

[Niranjan Banodkar, executive]

So if you look at -- Jai, if you look at our P&L and [indiscernible] of the investor presentation as well. If you look at our provision for investment, actually you would have seen a release of about [ INR 290 crores ], right? That's predominantly coming from, like Prashant mentioned, the securities [ redemptions ] which have resulted into a [indiscernible] write-back. And what that has been used effectively for through P&L flow is for -- in the provision for nonperforming advances. And you see the consequence of that, which is the PCR has improved from 48% to 56%.

So again, when we look at the security receipt, there are 2 kinds of redemptions we see: Redemptions which resulted into a P&L write-back; and redemptions will also mean that there is a reduction in the carrying value. So we've had about INR 580 crores of redemption, of which about INR 315 crores has been P&L write-back. And there is some incremental provision that we have to take on the remaining stock, which is about INR 30-odd crores, resulting into about INR 280-odd crores of net price back. And the balance, which is a [ 5 80 ], which was assumption [indiscernible] of about [ 308 ] , the balance is that we've seen a reduction in the carrying value of the [indiscernible]. That's how the flows happen.

[Operator]

The next question is from the line of Saurabh Kumar from JPMorgan.

[Saurabh Kumar, analyst]

Just on Page 11 of your presentation. Sir, this government banking deposits, is it like -- is there a one-off there? Or would you roll off? Or this is as you would expect this to sustain that INR 20-odd crores, which you have?

[Prashant Kumar, executive]

This is quite sustainable, and this is quite granular. So if you see after reconstruction of the bank, the bank was not able to [ garner ] what we deposit. But what we have done, the entire government banking is working very closely with the branch banking, and we are going very deep into the government business. And the deposits which are coming to us, they are very, very granular. So not only these are sustainable, but I think in the coming times, we will see a good growth on the government deposits, but the focus would be continuously on the granular and without offering a higher rate of interest.

[Saurabh Kumar, analyst]

Got it, sir. And sir, on this INR 2,34,000 crores, how much will be the branch deposit? I know retail is [ INR 1,20,000, ] But just branch-oriented, how much will be the branch contribution? Or shall I just take out this [ 90-day ]?

[Niranjan Banodkar, executive]

Saurabh, all of that, because the way our model works is we do render all the deposits through the branches.

[Saurabh Kumar, analyst]

Okay. The entire thing is branches.

[Niranjan Banodkar, executive]

Yes.

[Saurabh Kumar, analyst]

Okay. Got it. Got it. And just one final question, sir. Just I know you addressed this on the slippage piece. But the -- just the retail slippage, is this BAU? We should think about this next [ list ] as a BAU? Or how should we think about the retail to trade and vis-a-vis?

[Prashant Kumar, executive]

No, I think the question is in terms of going forward. I think going forward on the net slippage side, okay, we'll restructuring improvement. But I think we are still one quarter away I will be seeing. I think because whatever corrective actions we have taken, it would start giving results in the December quarter. But I think after 31 December, we would start seeing the reduction of net slippage in the retail side also.

[Operator]

The next question is from the line of Srinivas, an individual investor.

[Unknown Attendee]

Sir, the decrease in the net interest margin. What are the various factors to which we can attribute this phenomenon? Is it because YES Bank is still in the process of requiring some micro finance business which can contribute in terms of margin, higher margins? Or it has already been done? Apart from the other factors like the higher cost of deposits and lower [indiscernible] interest rate on the retail side and all?

[Prashant Kumar, executive]

So Mr. Srinivas, fundamentally, I think we also like Niranjan was explaining. There was a repricing of the existing deposits, okay, which has now been -- it has taken place in the quarter 2. So our cost of deposits because of the repricing has gone up. That was one thing.

Second, there was no further improvement on the yield side, okay, where one of factors is definitely the RIDF and other is also in terms of the market pricing. But the repricing on the deposit has already been completed now. And going forward, we are going to see the improvements on the NIMs because there would not be any further core pressure on the cost of deposits. And we have also started already seeing the improvement in our interest fees on the loan products, which we are offering in the market. It has no connection with any inorganic acquisition of the MFI guidance because it has not happened so far.

[Unknown Attendee]

So how far are we from that line? I mean when the last quarter's con call, as I understood, the bank was in the process of acquiring some microfinance business. So how far are we from that?

[Prashant Kumar, executive]

So we are still exploring that, okay? Once like anything which would be certified, I think we will disclose to the market, but we are still in the process.

[Operator]

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Prashant Kumar for closing comments. Over to you, sir.

[Prashant Kumar, executive]

Yes. Thank you so much for joining us so early in the morning and showing interest for our performance in the quarter 2. Again, wish you and your family a very happy festive season. Thank you.

[Operator]

Thank you, members of the management. This brings the conference call to an end. On behalf of YES Bank, we thank you all for joining us, and you may now disconnect your lines. Thank you.

[Niranjan Banodkar, executive]

Thank you.