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Yes Bank Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the YES BANK Limited Q3 FY '19 Results Conference Call. We have with us today from the management Mr. Rajat Monga, Senior Group President, Financial Markets and Balance Sheet Management; Mr. Pralay Mondal, Senior Group President, Branch and Retail Banking; Mr. Ashish Agarwal, Senior Group President and CRO; Mr. Raj Ahuja, Group President and Group CFO; and other distinct leaders of the YES BANK. [Operator Instructions] Please note that this conference is being recorded.I'm now glad to hand the conference over to Mr. Rajat Monga. Thank you, and over to you, sir.
Thank you very much, and I would like to welcome everyone on the call to the third quarter YES BANK earnings discussion.Before I get into the details of our financial results, I would like to share some updates upfront, which relates to the board meeting of today. Firstly, we will -- we are glad to announce that the Reserve Bank of India has approved the candidature of Mr. Ravneet Singh Gill as the next Managing Director and CEO of the bank, who will now join on or before March 1, 2019. The board has also approved the appointment of 2 additional directors. The names are Mr. Maheshwar Sahu, who is a 1980 batch of the Indian Administrative Service and last retired as the additional Chief Secretary with the government of the State of Gujarat. The second appointment is of Mr. Anil Jaggia, who is the ex CIO of HDFC Bank and has nearly 3 decades of experience and expertise in the BFSI space. Thirdly, the board has also recommended the name of Mr. Ashish Agarwal, who's our current Chief Risk Officer, to the position of Executive Director and would be recommended to Reserve Bank of India for their suitable approval.I would now move to the financial performance of the bank, where I'm glad to announce that the bank has once again delivered a satisfactory performance across various operating parameters, whether it be income or margins, profitability, capital position, in spite of having to absorb provisioning on account of exposures to infrastructure conglomerate that turned NPA in this current quarter.The last quarter can be characterized largely in -- as having delivered relatively stable earnings. It entailed a balance sheet rebalancing. It also saw very much stable funding and generally improving liquidity position of the bank. And also witnessed a reasonable recovery, resulting in the asset quality, though having some headline deterioration. But otherwise, in the bank's opinion, we feel that the asset quality performance continued to be very robust.Just to expand on the commentary, on earnings first. The bank continues to report healthy profitability. We are reporting a profit after tax of INR 10 billion, which is sequentially an increase of 4%. Like I mentioned, this is despite the somewhat accelerated provisions aggregating to about INR 5.7 billion that were required to be taken in this current quarter. The earnings of the bank were quite well supported by net interest income, which has grown 41.2% on a year-on-year basis and is -- has grown by 10.3% on a quarter-on-quarter basis as well.The net interest margins of the bank have shown an improving trend, though marginally, and we are reporting a flat sequential result on the margins at 3.3%. There has been higher growth in -- than what we are reporting at the period-end on advances, which has reflected somewhat more in the net interest income. It has overall improved the net interest margins by between 5 and 7 basis points, however, not enough to jump to the next decimal, so the NIMs remain constant at 3.3%.On the noninterest income, on the other hand, has been reported lower, which has had some accounting losses on account of the treasury lines up to as much as INR 2.8 billion, which has been reported as a loss in the top line under the financial markets treasury head has offsets -- corresponding offsets in the provisioning line in the form of write-backs or reversals. We have provided a disclosure in this regard in our commentary on our financial performance as well.We also saw some dip in our Corporate Banking fees, which essentially is reflecting both somewhat muted growth on the asset side as well as also factoring somewhat tight credit conditions that were prevalent in this quarter gone by, which also affected somewhat the churn of the bank's book in the form of syndications and sell downs. It does appear that the credit conditions are slowly normalizing, and therefore, that should beginning to -- begin to reflect more positively in the near future as well. There has been corresponding improvement also seen in the corporate trade and cash management fees, which went up by 6% on a sequential basis, even though the bank has seen some drop in its nonfunding book.I will get into some more details of the provisioning line for the bank. We have reported net provisions totaling to INR 5.5 billion for this quarter, of -- out of which INR 5.7 billion is on account of provisions made towards the exposures the bank has to infrastructure conglomerate. The bank also added to its provisions on its security receipts book by an amount of INR 1.85 billion. The bank has also taken standard asset provisions of nearly INR 1 billion, mainly on account of the exposure to this infrastructure conglomerate, which continues to be standard. The part which continues to be standard has been provided for at the rate of 15%, and has been presented under the standard asset provisioning category.On the other hand, there have been write-backs for relating to past investment provisions. There has also been a carryforward requirement of investment provisions from the first quarter, where the bank had chosen to defer the impact of the provision over 4 quarters. Net of the write-backs as well as the provision of carryforward requirement, there was a INR 2.06 billion write-back on account of investment provisions. Over and above, there was also a INR 350 million write-back on account of other provisions as well.Some more commentary on the balance sheet. The retail assets growth momentum continued well in this quarter gone by. However, the Corporate business segment went through some amount of rebalancing after having seen a 12- to 18-month period of strong growth, which was largely driven by market share gains. As such, the loan book growth ended up at 42.2% for the year. However, sequentially, the growth was a modest 1.8%. The bank's loan book now totals to INR 2.44 trillion. The last 1 year also has been witnessing increased contribution on the loan book from the retail assets business. That contribution from 11.8% as at December 31, 2017, has increased to 15.2% as at December 31, 2018, essentially driven by a 83% year-on-year growth in retail loans.Given the overall muted loan growth outcomes, Retail Banking also contributed heavily to the new net growth on the bank's loan book, and its share in the quarter gone by was as much as 65% of the net growth that the bank witnessed in its loan book. Given the balance of things, the bank was also able to improve its capital position, so its CET1 ratio has improved from 9% in the previous quarter to 9.1% as at December 31, 2018. This is despite having some injections of capital into the bank's subsidiaries during the last quarter. The total capital adequacy also improved to 17.4%, and the total Tier 1 ratio also improved to 12.0%.On the liability side, the deposits and the funding structure remained largely stable. The year-on-year growth of deposit book stood at 29.7%, taking it to an amount of a little more than INR 2.2 trillion. Within the deposits book, there was a balanced growth between retail and corporate term deposits. Retail term deposits grew at a 37.2% rate on a year-on-year basis, and the corporate term deposits grew at 39.9% on a year-on-year basis. There was also between 5% and 7% sequential growth witnessed in the -- both the retail and the corporate term deposits in this quarter gone by. CASA, however, grew modestly at 13.5%. CASA ratio remained stable at 33.3% on a quarter-on-quarter basis.In savings accounts, the bank has seen some one-off runoffs that have resulted in drop in balances, particularly originating from the government sector, as some of the expected flows that usually come at the quarter-end given the propensity of holidays got pushed to the subsequent month and had resulted in some underperformance in the savings account book as at December 31, 2018. On liquidity, the situation of the bank improved in the third quarter as compared to the second fiscal quarter. Our average LCR improved from 98%, 99% to more like 102%, 103%, and the quarter-ended LCR improved to 114%.Some more comments on the asset quality side of the bank as well. The bank is now reporting a gross NPA ratio of 2.1%. This represents a growth NPA book of about INR 51 billion. The bank is reporting a net NPA ratio of 1.8% -- 1.18%, that is representing INR 28 billion of net NPAs. Both these ratios have factored a INR 19 billion slippage on account of the infrastructure conglomerate, which has been provided at the rate of 25%. The aggregate provisioning coverage ratio stood at 44.2%. Excluding this infrastructure conglomerate exposure, which has -- to the extent it has turned NPA, the provisioning coverage ratio would be at 55.6% on the remainder of the NPA book.The reason I am carving out the infrastructure exposure for a bit is also to highlight that the underlying trend, if we exclude the infrastructure conglomerate, was an improving trend. Had this not been downgraded -- had the exposure not been downgraded, the bank's gross NPA ratio would have improved to 1.32% and the net NPA ratio would have improved to 0.59%, substantially driven by a INR 9.35 billion recovery and upgrade performance that the bank would invest in the quarter gone by. If we look at the total stressed assets, tallying the net NPA, net security receipts and the standard restructured exposure part of the book, the total stressed assets of the bank now stand at 1.98%, which has, including the infrastructure conglomerate exposure, worsened from the previous quarter when it was 1.79%. However, it has yet improved from the corresponding quarter of last year position when it was 2.41%.During this quarter, the bank also saw recoveries from the asset security receipts that the bank is holding to the extent of INR 1.15 billion. The bank has incurred a credit cost of 29 basis points in this current quarter, taking the total credit cost incurred for the year to 64 basis points. The infrastructure conglomerate contributed to 24 basis points of the 29 basis points of credit cost in this current quarter.The total slippages that the bank is reporting for this quarter will be INR 23 billion. As I mentioned earlier, the infrastructure conglomerate had a slippage of as much as INR 19 billion of this INR 23 billion. The bank has also taken a small write-off of INR 690 million in this quarter gone by.Just to spend a couple of minutes more on the infrastructure conglomerate, where the bank's aggregated fund exposure stands at little over INR 25 billion, of which, as I mentioned, between the roads and the energy verticals, the bank has already downgraded the exposure to the extent of INR 19 billion. About INR 6 billion remains standard, against which the bank is -- has taken a standard asset provisioning of up to 15% of the fund-based exposure. We do believe that the aggregate provisions that the bank has taken on the infrastructure conglomerate that I've been referring on account of bank's exposure to its operating companies and subsidiary companies, the provisioning would very likely be adequate given the expected realizations that might stack up over the next 3 to 6 months.Some of the other statistics on asset quality which are helping us keep a stable outlook would include that the bank has -- continues to have minimal exposures to NCLT-related accounts, only 1 basis points from the first list of NCLT accounts and only 26 basis points of advances on account of the second list of NCLT accounts as well as little -- negligible expected impact from the RBI circular released on February 12, 2018.The bank's SMA-2 position for the quarter gone by, rather at the -- as at December 31, 2018, stood at 19 basis points of its gross advances. There has been some increase in the bank's exposure to the HFC and NBFC segment given the squeeze that took place at the beginning of the quarter and also had required the bank to step up its exposure to the -- these affected sectors. While the percentage ratios are seemingly higher, however, the overall denominator of these ratios on account of some correction in the nonfunded book of the bank has shrunk. So as such, the money exposure may not have increased tremendously, so I would urge you to also compute the numbers before drawing -- coming to those conclusions.As far as the larger exposure of the bank is concerned, if I may say, the top 20 exposures, the bank continues to enjoy a rating of A or better across more than 90% of the top 20 exposure book, which has also been the same position we reported at the last quarter. The other sensitive sector disclosures, which are accounted for by electricity, iron and steel, telecom, gems and jewelry have seen only minor changes, mostly for the better. And as we were reporting earlier as well, the overall corporate portfolio of the bank continues to be rated A or better for as much as 75% of the exposures there. Again, very similar to our reporting for the past many quarters now. We also provided our sectoral mix chart, and we can discuss more, if required, on the same.I will spend the next couple of minutes on the bank's digital banking outcomes and initiatives. So we continue to enjoy some dominance there coming from, for example, a 35 -- a 30% market share in the UPI merchant payments, which stack up to 360 million transactions that the bank processed, totaling to about INR 0.65 trillion in the quarter gone by. The bank still enjoys the top parameter status in the IMPS category, and the bank also saw a 72% year-on-year increase in volumes in this category. The bank has also emerged as one of the leading acquirers under the AEPS, which is Aadhaar-based payments. And within the category, it processed 45 million transactions across almost 300,000 business correspondents in this quarter gone by. The bank continues to see the dominance of usage of mobile by customers increasing. The bank has seen nearly twofold increase in registrations, transactions and values transacted on the mobile banking platform.Separately, the bank is seeing a strong usage increase in its debit card base as well. On a year-on-year basis, the bank's debit card transactions grew as much as 46%, and the spend on the debit cards grew by as much as 50% in the current quarter. The bank also launched a industry-first offering on its robotic service platform, which is called YES ROBOT, wherein now customers can open term deposits or fixed deposits, including recurring deposits on a chatbot technology and which has witnessed over 1 million transactions in the quarter gone by.The bank also launched an end-to-end acceptance process for NACH debit mandates, which are more ECS debits, which are recurring and which one setups as a mandate. The customers' accounts can be debited by the -- their sort of lenders or their service providers who need recurrent payments. So the bank has for its corporate customers through its net banking created now an end-to-end acceptance of NACH debit mandates, which has come to a near real-time setup as opposed to a 15-day turnaround time that used to exist prior to this streamlining.The bank was also given a Silver Award by the IFC Washington's Global SME Finance Awards for product innovation relating to its YES SME digital banking solutions, and YES BANK was the only Indian bank to be awarded among the 100-plus international institutions across the world at this ceremony. YES BANK also continues to work strongly in the government sector to enable more G2C payments as well as digitization, starting with cashless solution that the bank has implemented for the Puducherry Smart City solutions and which is also now being expanded to include the Bharat QR implementation for the city as well. The bank has also adopted 2,000 villages to empower 100,000 lives under its YES Digi Villages program, which is also a first-of-its-kind village adoption program to leverage the Sim Se Pay technology and the IndiaStack for instant and paperless servicing for rural customers.Some statistics on the bank's expansion and knowledge areas. So the employee strength of the bank stood at 21,182 employees, which is an increase of 158 employees as compared to the previous quarter. The branch network of the bank stands at 1,115, and the ATM network, including note acceptors, stands at 1,714. The bank has also launched its first scheme under the YES Mutual Fund, which was the YES Liquid Fund that got launched earlier this month. And the bank has also received approval from the Securities and Exchange Board of India to launch the second fund, which would be in the ultra-short-term fund category. The bank signed an MoU with the Kia Motors, which is the eighth largest automaker, to enter into a strategic financing partnership, making it one of the first Indian banks to become their preferred financier.Bank also became the first Indian bank to complete a first-of-its-kind digital transaction with the bank's client called Welspun Global Brands Limited in the form of a e-presentation involving end-to-end electronic presentation of export documents creating both a seamless and a paperless outcome for the bank as well as for the customer. The bank also conducted the finale of India's first what would be a bank-led Datathon, which was aimed at augmenting the bank's embedded data analytics and machine learning capabilities. And this Datathon saw participation from over 6,000 data scientists, data engineers, developers who participated in various AI and machine learning challenges, all oriented towards deriving real outcomes which would be put into production by the bank in short course of time.The bank has also become the first Indian bank to join what is called the Natural Capital Coalition, which is a global, a multi-stakeholder collaboration. In the process, the bank would begin to integrate the national capital thinking into its strategy and operations. The bank was also awarded at the 20th edition of what would be the, The Asset Triple A Country Awards for 2018, where it received the award for the best new bond from India for launching what would be the largest debut international bond issuance and which was priced at the tightest spread over U.S. Treasuries by an Indian bank since the year 2008.The bank also won the Golden Peacock Award for sustainability for the year 2018 as well as was the runner-up at the 30th QualTech Qimpro award ceremony in the category of Continuous Improvements on Quality. The bank won this recognition for a -- for the third year in a row this time around. And this was the summary of the financial results and some operating outcomes of the bank that I wanted to present, and me and my colleagues will be glad to take questions on our financial performance. Thank you.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC.
Could you give me the size of the investment book and borrowings?
So the investment book size is INR 83,000 crores. And I'll give you the borrowing in a moment. Total borrowing base would be INR 1.07 trillion.
And also in terms of savings, what would be the growth in nongovernment savings, say, sequentially and year-on-year?
So sequentially, I know it is flattish. On year-on-year, I will -- I should be able to get you the number.
Okay. And just on the investment...
Year-on-year, it would be in the -- give or take, a 20% growth category.
The nongovernment savings, so this is...
The nongovernment.
Pure retail, retail savings.
That's correct.
Okay. And just in terms of the treasury losses that you've booked in other income, that would be on what category of investment, corporate bonds, G-Secs?
So it is mostly on account of swaps, the hedges that run counter to the investment positions, because the interest rates fell in the quarter gone by. So there were reversals of provisioning on account of corporate bonds that we took in the previous quarter. However, in this quarter, the hedges were mark-to-market lower, so which had resulted -- which has resulted in the -- mainly in the loss on the treasury line. We also sold, let's say, a proportion of our corporate bond book in the last quarter, which had already been provided in the previous quarter. However, the accounting writes the provision back, but we have to take a sale on loss from the book value into the top line.
Okay. So a part of write-back of investment, the depreciation is also because of this?
Well, they are concurrent in the sense that, let's say, if I'm holding a bond and I have a hedge against it, so if rates go up, my bond will throw provisions and my swap will create MTM gains in the top line. Unfortunately, the accounting is such that I have to report the MTM performance of the swaps in the top line. However, since they are hedging the corporate bonds, I will report provisioning in the provisioning line, which was the last quarter. This quarter was the reverse. So provisioning -- provisions got written back. However, the mark-to-market gains became losses. There's also translation loss that we also have to provide now that we have a overseas book. And the profit of that overseas book is also subject to dollar-rupee movement. So as the rupee depreciated in the second quarter, we had to recognize a small gain. And as the rupee appreciated in the third quarter, we had to correspondingly recognize a loss. So all of this adds up to -- there is a disclosure actually in our notes, there is -- rather there is a note in our notes, which is also giving out the breakdown of this loss.
Sure. Okay. And just one last question, that -- what drove the huge growth in Retail Banking?
So the Retail Banking growth on a year-on-year basis was at 82%. I think we have been growing in this ballpark for few quarters now. I remember the March 2018 number also was close to 100%. So this has been the rate at which we have been growing for some time now. So it is nothing particularly, let's say, in addition. But within the retail and in the last quarter, I think the highest growth came from the auto loan product.
Okay. And that was nothing to do with buyouts, right? This is your own growth?
No, we are not including buyouts in this. Buyouts have been mostly in the form of investments, so they would be in the investment category. So it's not been included in the loan category. So that is over and above.
The next question is from the line of Kunal Shah from Edelweiss.
Yes. Rajat. Firstly, in terms of this interest income reversal on IL&FS exposure, so it would be only with respect to the exposure, which is NPL or even on the standard since we have provided 15-odd percent, the entire exposure we are not accruing interest now?
No, the reversal would be only on the NPL account.
Okay, okay. And if we look at sequentially in terms of interest on advances, is there any kind of a one-off in it? Maybe it is, so definitely, in terms of the reported it -- that's still almost flattish kind of a number. But on a calculated, that seems to be slightly on a higher side. So does it contain any element of one-off despite...
There are a few one-offs, Kunal, because of the NPA ins and outs. So wherever there have been recoveries, there have been -- we have recognized interest on those accounts. Wherever there have been downgrades, we have also, let's say, reversed interest, which has been accrued. So there have been a few in and offs because there have been a fair amount of movement on the NPA upgrade, downgrade as well. I think the only other, I would say, fact that I can relate here is that our -- during the quarter, loan book has been a bit higher than the end of the quarter loan book, because our efforts of sell downs and all usually culminate towards the end of the quarter only. So we were carrying a larger loan book through the quarter.
Okay. But besides that, otherwise, maybe on maybe the period-end and the average balance, otherwise there would not be any significant amount of one-offs? Or in this recovery, was there we recovered something extra which has got into say -- and maybe that was a booking of interest which was...
Yes, there would be. So when you recover a loan, there is a portion. Depending upon your outcome of recovery, there would be some credits which will go into interest line as well provided you have recovered the overdue interest.
Yes. And that would be a higher sum, maybe more than INR 200 crores?
I think, give or take, all of this will net to between INR 300 million, INR 400 million. So INR 30 crores to INR 40 crores would be the...
INR 30 crores to INR 40 crores...
Yes, would be the -- if -- I mean, these runoffs will also come again. So if I have to isolate, let's say, the net, it would be tantamount to about that amount.
Okay. And secondly, in terms of divergence. So obviously, you have highlighted you have not received the report. But -- so what is the status? Maybe inspection is definitely done. And is that something which has come from RBI and there are representations or we have not heard at all from RBI in terms of what the divergencies are?
So let me say, we have been keenly following up with them to issue the report, but we have been unsuccessful.
Okay. And no change in credit cost guidance as such, I don't know if you have highlighted that?
No, so like we had discussed in the last earnings call that the credit cost guidance may be a little variable subject to how the infrastructure conglomerate outcome comes through. So we were at -- the last time when we were talking, we were discussing whether or not the exposures will survive on their own. But it was then learned that the servicing will be stopped across the group. Then there was an attempt to see if -- because there is a legal stay on the bank's proceeding against these companies, can there be a dispensation on recognition. So those were the variables, but they have mostly been sorted. There is no dispensation, there is no weight, so we have to recognize the entire exposure as NPA. And therefore, like we were -- we discussed at that time, that if that happens, the worst happens, then we have to look at the credit cost going up to 80 basis points. And I think that is the -- continues to be our current position.
Okay. So the guidance continues, including that -- look, I sense it's now almost done and we have provided for it, guidance would still be like 80-odd basis points?
That's correct. And the last time also we had factored RBI divergence in this guidance and we continue to do so even now.
The next question is from the line of Amit Premchandani from UTI Mutual Fund.
Congrats for the appointment of Mr. Gill. Just a question on what is the status of the 2 ED proposed earlier with RBI?
Yes, the status is still pending, and thank you for your congratulations. The status continues to be pending, and we are now hoping that it should -- since the CEO matter is -- has been dealt with, which was very likely would have taken up on priority, now the second priority items also should logically follow.
And just on the treasury part, I heard what you said. But generally, in a quarter where treasury or G-Sec yields have fallen significantly, on a net -- even on a net basis you are reporting a loss, why it's so? What are we missing?
So no, no, you're not missing, very -- not very complicated. Our, let's say, position from the -- starting the previous quarter was corporate bonds and loan and OIS paid. So as I was -- as we were wrapping up the previous quarter, we had provisions that we were taking on account of corporate bonds. And we had gains that we were writing on account of OIS, overnight index swap. This quarter has been bad for that rate because corporate bonds have not rallied as much as OIS has fallen. So while we have write-backs of about INR 3 billion on corporate bond provisioning, but we also have a INR 1.5 billion of loss on the OIS position.
And on the corporate fee income front, is this the new run rate we should expect?
Well, I would say, I think the quarter gone by had various peculiarities. So one peculiarity I was discussing earlier was that there was a credit squeeze. The second peculiarity was that we had our own change of management to be dealing with. And therefore, we did have to, among others, also slow down our net growth. So if net growth remains at the same slower rate, I would say that, yes, the corporate fee income possibly -- I mean, I don't really would want to comment that it will go higher or lower. But there would be, I would say, a step down from the previous quarters when everything was normal. But this is something we can also revise. Let's say, if we boost our capital resources, if our management structure and board structure, which is already merely, let's say, fully reestablished and we give it some time to just settle in, I think we should also be able to potentially get back to what we were delivering earlier.
And finally, on the ILFS exposure, the downgrades have been in the holding company of the different businesses or in the SPVs also of power and road?
Both. So both in the holding and subsidiaries in both 3 verticals. So I must mention, we are not in the ultimate holding company. So we are not in the ultimate holding company, but the SPV exposures have been downgraded, so have been the asset holdcos as we call them.
So the SPVs are actually not paid? Or is it because you think that because of the escrow getting moratorium, you are kind of proactively downgrading it?
So it's -- well, let's say, it might vary from situation to situation, but everything leads back to NCLT.
And do you think 25% is the loss given default or the loss given default could be much higher?
Well, our assessment is that we may be more than covered across the exposure as at 31st December. So there would be parts where while we may have taken a -- let's say, a uniform 25% or a 15% provisioning, but there could be parts where we would have less LGD, and there could be parts where we will have more LGD. But on aggregate, we think it is adequate.
And finally, on the upgrades. Does the upgrade include the last quarter's large downgrade of INR 650 crores?
Yes, it includes the remaining part of the loan, which was, let's say, part of the loan has been repaid, and the remainder of the loan has been upgraded. That's correct.
And what would be the amount, if you can quantify?
So I don't have the amount, but it would be -- there would have been a 20%, 30% repayment, give or take.
The next question is from the line of Suresh Ganapathy from Macquarie.
I have some questions on the board composition. So right now, Ashish Agarwal has been appointed as the ED?
Not appointed, it -- we have proposed his name additionally also for a whole time director. That's correct.
Okay. So there will be 3 EDs is what you're proposing to Reserve Bank of India, right? 2 pending and 1 Ashish Agarwal?
That's correct.
So Pralay Mondal still exists, because there was speculation about him leaving the firm and stuff?
Well, there continues to be speculation, but he is sitting in front of me.
Okay, fine. Cool. Now between January 31 to March, right, obviously, is the board thinking about appointing an interim CEO? Who takes the transition? What exactly is the thought process of the board?
So Suresh, this exact matter is actually due for a discussion where the board is meeting again on the 29th of this month.
Okay, fine. So a month of hand spreading might be required, okay. The other aspect I wanted to know is that Rana Kapoor has a nonretiring board seat. So on 31st January, when he ceases to be the CEO of the firm, will he be on the board? And if he's on the board, does he require an RBI approval to be on the board? And does he want to be on the board?
So I'm afraid Suresh, again a 29th January subject matter.
So this -- the issue of Rana Kapoor, whether he is going to be on the board or not, again, going to be discussed by the board on January 29?
I'm -- see, provided that becomes a priority. So if you look at the time lines, after the board meets on the 29 January, when Rana continues to be the MD and CEO, the next board meeting very likely might only be in April.
So then what will happen after 31st of Jan, the 29th? Is it an agenda of the board to discuss Rana Kapoor's board seat due on 31st of Jan?
I don't -- haven't seen the agenda, Suresh, but it is quite likely to be on the agenda. And I was saying is that if it is not on the agenda, the -- let's look at the -- just the circumstances. One is that the articles do allow a nonretiring seat for Rana Kapoor on the bank's board, which means that he can have a Non-Executive Director position. The Non-Executive Director position does not require RBI's approvals.
Though he might be a dependent director, still it doesn't require an RBI approval, is that the case?
That's correct. RBI approvals are required for MD CEO, whole time directors and chairpersons. So any...
He will be what a dependent director, but not a whole time director?
So we call that a Non-Executive Director, who is nonindependent.
And that doesn't require an RBI approval?
Well, on paper, it does not. The appointments of nonexecutive, whether independent or not, has been delegated to the board of the banks. So therefore, it is also premature for me to be able to comment on what the board will decide on this matter. So therefore, the 29th board meeting. Now, whether the board will decide or, let's say, maybe think it over for more time because this does not come for reckoning till April, because the board does not function in the interim.
Okay. But then you are saying that RBI's approval is not required so he can be on the board, that's the interpretation that we should take?
Not necessarily. Like I said, that is the -- just the fact pattern. But what will Rana want to do, what will the board want to get is not...
The other aspect is on the deposit -- just last question. So your deposit growth is Q-o-Q flat. I understand there has been some savings deposits, government savings deposits which has gone up. But have you seen, because of all these issues, any -- I'll not say bank run, that's a strong term to use, but any general withdrawal of large deposits which explains why you have a Q-o-Q flat growth? Or as such, you're not seeing any abnormal outflow or incident, whatsoever?
So let me just tell you what has been the change in terms of drop in the form of deposits. The largest drop that we have seen is in our certificate of deposit book. So let me just give the big picture in terms of numbers. So deposits are flat at about INR 2.2 trillion, but we have reduced our CD issuance from INR 130 billion to INR 6 billion. Certificates of deposits get reported as deposits in the total INR 2.2 trillion. So we have reduced about INR 70 billion of certificates of deposits, and we have replenished them with both retail and corporate deposits so that the net deposit book is flattish. If you look at the corporate deposit, corporate term deposit, let me keep CASA aside for a minute. Corporate term deposits have grown 8% sequentially, and retail term deposits have grown 5% sequentially.
The next question is from the line of Nilanjan Karfa from Jefferies.
And 2 more -- 2 questions. Specifically on this retail, if Pralay could comment on the development, on the accounts, how corporate deposits -- I'm sorry, the salary deposits are performing in terms of both accounts and value. That would be the first one. Second one is to understand, of the total loan book, which is, say, about 32% is probably the granular one, 8% is the offshore book and the balance is corporate. How would the contribution on the NII line would look for this quarter or for the 9 month, whichever you all prefer? I'm sorry, and the third question is, would you have a guidance on RoA for FY '20?
Okay. So you want me to tell you our profits for next year?
If you can.
Right. I wish I knew. So no -- so RoA, I think we'll have to wait possibly when we ourselves ballpark our next year. And maybe we will be able to at least lay that out for you, maybe not tell you how our profits will work, but at least what will ride them up or down. I will also try and take the second question, which is on account of NII and contribution of retail versus the contribution of others. So I think if you allow, let's say, an error of 25 basis points, for the bank, the earning yields on corporate, retail and SME are, give or take, similar. So contribution, therefore, on NII will be determined more by the liabilities than by the loans, because retail also contributes into the low-cost deposits. So when we look at the Retail business banking profitability, we give them a charge for -- a cost for booking assets and a return for booking liabilities. So as such, if I have to allocate all of that to retail, retail will be the highest NIM business already because there is value and liabilities as well. But if you are looking at purely from the asset side, I would say, give or take, 25 basis points, we are little bit indifferent currently between corporate, SME and retail. Over time, as we build more sophistication in retail, my expectation is that retail income will increase because our share of, for example, unsecured lending is very low, for example. We will also -- we don't do entry-level vehicles in auto. We don't do secondhand vehicles, which also are high yielding. We are also very low key on microfinance. So the high-yielding businesses, we have not yet, let's say, taken up the sophistication, but that will progressively be developed as we get more comfortable and more confident and more established in the various supply chains. I don't know if I've answered your NIM-related question before I hand over to Pralay.
Yes. Pralay, please.
Yes. Thank you, Rajat. So in addition to what Rajat said on the NIM-related, I'll just add one more point here, which is not only we are building the retail assets franchise pretty fast, we have been focusing primarily on the good quality assets there. And hence, our loss ratios, NPA, whichever you look at it, 30-plus, 90-plus, whichever, early mortality, whichever way you look at it, it is not only the best in the industry via margin. We had recent meetings with some of the credit bureaus. They've actually confirmed. Because what they give you is you versus the rest of the industry versus -- and also informally figured out we versus the best, and that's the -- as a strategy. Because I've always said that till 2020, we need to be very carefully building because we want to see if there is a return cycle or not, and then we'll build it up. So some of the businesses which Rajat was talking about used vehicles, used commercial vehicles and some of the unsecured businesses, credit cards, et cetera, those are the businesses which we will take the next level of risk only after 2020. And hence -- because right now, the return on riskier assets is very poor in the industry, and hence, the reward on that is extremely poor. So we will take that call after 2020. Given the prospective, we are focusing more on quality of portfolio rather than the NIMs at this stage. Having said that, incrementally things are getting better on the retail asset side as well. Especially in the last quarter, we have seen that. Coming specifically on the deposit side of the business, while last quarter -- Rajat has already shared the deposit growth both in retail and wholesale and everything, but let me give you a color to the trending of it. Trending of it is much better in the last month of last quarter, which is December. And what I've seen in the first month of this year, things have only improved better, which is basically the confidence of people on the ground and the kind of excitement and things like that. We had a little bit of a slowdown in October and mid of November. But mid of November onwards, things have picked up reasonably well. And I think if all goes well, both on the retail fees and on the retail liability, this Q4 should be a reasonably good month for us, definitely much better than the Q3. So -- because retail is about execution, excitement and customer engagement, that part is going on pretty well. So I'm very happy the way things are happening right now. But yes, we had a little bit of a slowdown that happened in the -- and I think it was industry-wide phenomena, but we also had our share in that. And that's where we are right now on the retail side. SME side of the business, I think it has not grown as much as we have grown in the retails of the business because the book is also between the 2 businesses. Now it is all -- I mean, larger than the retail, first of all, and it's more vintage book. And also given the commentary which other players are giving, we have turned even more cautious in that business. And we are focusing on that business also which gives us the PSL part of the business pretty well. So overall, I think the flavor is quality. Next comes NIM and growth. Obviously, we are doing what builds a long-term franchise right now.
Sure. Pralay, just a question on SME. Are we focused more on the manufacturing side or the services side of the SME piece?
The manufacturing side, we don't do much. But on the supply chain on manufacturing, we do a lot. Because manufacturing can be divided into 2 parts. Supply chain is extremely good business because that's where quality is extremely good and you have better controls, and you exactly know what is coming from where. Of course, services side -- and it also depends on which part of SME. When you look at the entry-level SME, which is within up to INR 15 crores of turnover on the MI -- I mean, on that segment, that is more on the trading and servicing side. As we go into sort of medium to large SME, there we'll go gradually more towards the manufacturing and supply chain and things like that.
Sure, sure. And Rajat -- and on this ROAC, for example, in 9 months, we are roughly averaging about 1.3%. Even if I kind of, let's say, gross it up with the additional provision we had to take this quarter, maybe we'll be at 1.4% or probably a little higher than that. I still want to get some sense, will we be at similar levels? Or do you see a potential of this number coming down by at least 10, 15 basis points?
Levels from?
The RoA levels, RoA levels next year.
Both these last quarters have had some, let's say, externalities. Last quarter, we had a fairly high provisioning also half driven by interest rates. This quarter, there has been some relief, but has been more than taken up by the infrastructure conglomerate downgrade. So I think there have been -- I would say, these last 2 quarters have been -- I would say, we have been somewhat depressed by the externalities. And then we've had our own change management to sort of be dealing with. So I would expect that we should be able to do better than what we have been doing in the last couple of quarters. And to do that, we also have to resurrect, like I mentioned earlier, we have to get back to our management frameworks that we have been operating with and start focusing back on business and not necessarily on one-off changes that we have been doing. So I think I would reckon that we are not at our best right now.
Sorry to prolong this. But would you expect a complete turnaround in the way we do business today or...
See, I'm also little -- somewhat reluctant to answer that question if you'll appreciate, because this is something which ideally our next CEO should answer in terms of how he would want to take the business forward. So I don't want to speak for him in the sense that if he says that, no, I have a particular bias in which I want to, let's say, take this bank forward, then he has to express it, advise it, and we will be able to suggest to you whether that increases or decreases our financial performance outcomes. If you can just give us a couple of months, we should be able to -- like I was saying earlier that maybe the full year financials when we discuss, it will be a good platform for us to be able to discuss if there is any change in strategy, though the bank is the same, whether there is a change in direction, though our execution continues to be what it is and through thick and thin we have tried to deliver. So it is somewhat of a -- I would say, a reasonable unknown, so -- even for me. So therefore, my, somewhat of a, let's say, reluctance in terms of being able to take a firm position because that might change as soon as in 3 months.
The next question is from the line of Jai Mundhra from B&K Securities.
Sir, first on this infrastructure conglomerate thing, so I believe you mentioned you have downgraded part of the subsidiary. But is it safe to assume that the subsidiaries which have been downgraded, they were 90 days overdue? And which one -- which are not downgraded, they are still, let us say, not past that threshold, so necessarily, I mean...
That's a correct assumption.
Sure. And the one which have been downgraded, they were past 90 day, it was not done on -- let's say, on potential basis?
No, so we have followed the RBI rule exactly as far as asset qualification is concerned, which is predominantly the 90-day rule. You could be looking at more accelerated downgrades in situations which are extreme, which could be there are interest rate frauds that have been evidenced, but that is not the case that we are dealing with here. Otherwise, we just follow those rules as far as NPA classification is concerned as well as minimum provisioning.
Sure. And sir, secondly, on SA growth and SA part, balance part of it that you have already answered that there was a one-off rundown in the government savings balance. But if you can sort of provide how is the retail or granular part moving, just because they could be, let's say, one part could be government, one could be nonretail...
No, so we -- I mentioned that the retail part, if you cut over from previous quarter, it was nearly flat. If you compare it with a year ago, it would be, give or take, 20% up.
Sure. Sure, sir. And the last question is sir, you mentioned a bit about corporate fee being lower because of the 1 related to the bank and 1 related to the systemic credit. So can you elaborate the second part, sir? I mean, how was the system -- systemic credit was not conducive for the fee growth?
Yes. So basically, the -- if I have to summarize, the credit conditions have worsened in the third quarter which can relate to available liquidity, even though there have been lots of OMOs, but OMOs take away government bonds from banks. If I am holding government bonds, I can get financing against that anytime. So it does not give me lendable resources. As a banking sector, we are -- banking sector has been crunched for lendable resources which are also being freed up through SLR cuts, for example. But the SLR cuts are coming over the next 18 months. So there -- then there were, let's say, externalities which were coming also from the funding crunch faced by certain nonbanking sectors, right. So the housing finance companies, mutual funds, nonbanking finance companies also created a semblance of a credit crunch is what I was referring to so that the decisioning in that time across the banking sector including -- which has affected our sell downs, for example. So REC and PFC are consolidating, okay. They also, for example, would slow down. There are 3 banks that are consolidating. Those will also slow down. So there has been a general, I would say, adverse credit sentiment that got started during the end of the second quarter. It sort of was at its worst in the middle of this quarter, but it has become better since then which is what I was referring to being the credit crunch.
The next question is from the line of Manish Shukla from Citigroup.
When we discuss SA, sequentially, there's a bump up in current account. Is there any one-off there?
Yes. There would be one-off, yes, Manish. Even last quarter, there would be one-off, this quarter, there will be one-off. So current accounts always has a -- I would say, a quarter-end one-off bumps here and there.
Okay. So if we were to look at average CASA this quarter versus the previous quarter, could you give a rough retail and wholesale mix?
We would be marginally higher. Average CASA this quarter, mix, mix.
Marginally higher in favor of retail?
Relatively, definitely. Because there was, let's say, we have been impacted a little bit on government SA. So on the averages, I would say, we would be higher on aggregate. And in that, we should have a bias for retail doing better than the nonretail.
Okay. Next is on growth. Is it fair to assume that till such time that we raise equity capital, sequential growth run rate might be in this 1.5% to 2% region?
So before you judge the run rate, I will -- let me also tell you that we, in this quarter, have booked -- we would have booked INR 20,000 crores of new business, which is basically -- what I'm showing you is only INR 3,000 to INR 4,000 crores net growth, but the gross growth would have been close to INR 20,000 crores. Because the -- there are rundowns of loans, there are sell downs of loans, there are premature payments on loans, and therefore, the business of the bank runs on, let's say, the implications on fee, the implications on cross-sell also come from the front book that we have built in the quarter. So there is plenty to still work with the churn thrown in into the bank's, I would say, overall balance sheet strategy. But that will, yes, keep the net growth under check or let me -- let's say, not just loan growth, but the risk weighted assets growth under check. We might also, let's say, do more business in lending, but we may want to do less business in investments or less business in off-balance sheet or vice versa. So depending upon the sensitivity of capital resources, there would be -- let's say, the outcomes will be appropriate. But yes, there would be sensitivity in terms of not overreaching on the capital resource currently till we have, firstly, stability at the top; and also, let's say, some more time that the top has been able to spend with the bank, including the changes that are happening at the board. And then subsequently, we -- there will also be a question on raising capital if and when.
Sure. Lastly, the way you split the MTM corporate bond and the swap impact this quarter, could you do the same for the previous quarter in the sense that what was it the impact on the swap book and what was the impact on the corporate bond book in the previous quarter?
Yes, so we have given the numbers. If you look -- if you read the note, which is relating to the fact that there has been a INR 2.8 billion top line sort of a reduction, which corresponds with a provisioning write-back. We have also given the position of each of those for the last quarter.
Due to time constraints, we will take the last question from the line of Parameswaran S from JM Financial.
This is Sameer here. If I look at the slippage, excluding the infrastructure conglomerate, it's probably lowest in a reasonably long period of time. So how do you look at this going forward?
So I think if I also leave aside the pendency of the infrastructure conglomerate, there may be the remainder of the exposure also that might downgrade, I think we should be looking even at possibly a similar number in the near term, give or take. It's too early to say, because there are still 3 months of -- all 3 month ends have to be tested, so it is quite early to be able to come to that conclusion, but the visibility doesn't look too difficult.
Yes. So that's one. And secondly, if I just look at the real estate book, you said that none of it is SMA-2, but it's now comprising almost 10% of the exposure, 6.5% and then there is LRD/non-CRE, which is another few percentage points, so how do you see this composition moving?
So the composition, I don't think is moving higher from here, in my opinion. Though sometimes it is relative. For example, this time around, while the growth on absolute rupee terms has not been that much, but the overall base of exposure has shrunk given that we've also been working on optimizing capital. So the -- if you look at the absolute numbers, the numbers might have gone up by a couple of thousand crores, but the base has not really -- because of the base having shrunk the proportion of...
Proportions look higher, yes.
Higher, that's right. But the absolute exposure has not really done much. So because of that, let's say, for me to forecast a proportion is not that easy because the denominator is also a little bit -- let's say, a variable right now. But as such, I don't think there is a -- so there is a flip side to it. There are also exciting opportunities in that space because not all lenders are looking at that sector, let's say, equally. There are -- there's a class of lenders who are particularly, let's say, holding back because they may have their own funding, let's say, compulsions. So it is still mixed. I think -- I would say that we will continue to remain opportunistic in this sector, because we might get some very good transactions to see also.
Thank you very much. That was the last question. I now hand the conference over to the management for their closing comments.
Now thank you very much, everyone, for patiently listening to us on this call, and we look forward to speaking to you again or maybe reporting to you at the next quarter now. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of YES BANK Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.