Yes Bank Ltd

NSE:YESBANK

Earnings Call Analysis

Company Progressing Towards PSL Compliance and Higher RoA

The company is actively working towards achieving compliance with priority sector lending (PSL) norms and expects only nominal noncompliance by fiscal '24. Focus on organic channels and alternative acquisitions will assist in meeting PSL requirements. The targeted benchmark of a 1% return on assets (RoA) is anticipated to be reached by fiscal '26, as current infrastructure investments, including 11% of assets in RIDF, are addressed. Additionally, RoA-accretive products are undergoing enhancements, aiming for a 5-10% mix improvement in 6-9 months, potentially boosting RoA by 60-70 basis points over time, although translating these gains to the books could take 2-3 years.

Strategic Focus and Key Performance Drivers

YES Bank's core strategy aims to bolster profitability by addressing five key areas: reducing the Priority Sector Lending (PSL) shortfall, improving the Current Account Savings Account (CASA) mix, calibrating asset yield, increasing non-interest income, and cutting the cost-to-income ratio. Their Q3 highlights show progress, despite environmental challenges, with notable growth in branch banking CASA at 18.2% Y-o-Y, and retail advances seeing a shift towards higher ROA-accretive products by 8% since March '23. The net interest margin expanded quarter-on-quarter to 2.4%, and the strategic focus on SME and mid-market segments, which grew at over 25%, contributed to fee income and low-cost liabilities.

Asset Quality Improvement and Positive Earnings Growth

The bank has strengthened its asset quality with a quarter-on-quarter reduction in net Non-Performing Assets (NPA) and security receipts as a percentage of advances. There has been strong momentum in recoveries and increased provision coverage ratios, demonstrating a robust approach to risk management. Continued improvement points to a healthier balance sheet, exemplifying an all-around enhancement in asset quality.

Tackling Slippages and Noncompliance Issues

The bank is actively resolving challenges in the retail segment, specifically unsecured loans, by tightening underwriting processes and revamping credit scoring systems. This proactivity indicates management's commitment to mitigating risks and stabilizing slippage rates. Furthermore, efforts to comply with the subcategories of small and marginal farmers, noncorporate farmers, and weaker sections under PSL have seen improvements quarter-on-quarter.

Digital and ESG Initiatives

YES Bank has integrated innovative features such as interoperable cardless cash withdrawals via UPI and collaborated with brokerage firms to offer ASBA services, reflecting its digital adaptability. Recognition as a great workplace and high ESG score by S&P Global emphasizes its commitment to sustainable and responsible banking practices.

Forward-looking Statements and Operational Goals

The bank is realistic about its goal to achieve a 1% Return on Assets (RoA), anticipating this milestone by FY '26 but underscoring the importance of core operations in attaining it. The intentional focus on reducing drag from security receipts and enhancing operating profits illustrates a conscious strategy aimed at sustainable profitability.

Addressing Market Expectations

Despite profits being below market expectations, YES Bank stresses the significance of strategy adherence and external environmental factors influencing earnings. The management's emphasis on reducing non-performing assets and pursuing conservative provision coverage ratios over short-term profit inflation suggests a prudent financial approach aimed to safeguard long-term interests.

Investor Concerns

Management validates concerns regarding loan disbursements and provisions, outlining the dynamic nature of repayments impacting net loan growth, and ensures correct identification and rectification of issues leading to defaults in the personal loan segment. Their transparency addresses worries while portraying a picture of control and strategic handling of portfolio management.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the YES Bank's Q3 FY '24 Earnings Conference Call. On the management panel, we have with us today, Mr. Prashant Kumar, MD and CEO; Mr. Rajan Pental, Executive Director; Mr. Niranjan Banodkar, Chief Financial Officer; Mr. Manish Jain, Country Head, Wholesale Banking; Mr. Pankaj Sharma, Chief Strategy and Transformation Officer; and Mr. Sunil Parnami, Head of Investor Relations. Mr. Prashant Kumar will give an overview of the results, which will be followed by a question-and-answer 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]

Very good morning, and thank you for joining us so early in the day for our quarter 3 earnings call. On this call, I am joined by the senior team members of the bank. Before I share the key highlights of the previous quarter, I would like to start with the big picture and take you through our core strategy, its underlying drivers and the critical business levers of our profitability improvement roadmap.

On Page 5 of our investor presentation, we have tabulated the balance sheet mix and ROA increase of fiscal '23 of YES Bank, side-by-side with the average of our mid- and large-sized peers. And from there, you would see that fundamentally, there are 5 underlying drivers or anchors, which in our assessment, have the maximum bearing in our net income improvement. Reduction in our PSL shortfall, number one; improvement in our CASA mix, number two; improvement -- improving our asset yield through this calibrated mix change, number three; increasing our noninterest income; and lastly, reducing our cost-to-income ratio. Our focused strategy to address the above issues has already started to reflect in numbers for the current financial year.

Our organic accretion in PSL's buckets of small and marginal farmers, noncorporate farmer and weaker section is already up by 1.6x, 1.4x and 1.2x from March '23 levels. Together with the other inorganic interventions, bank has seen a meaningful reduction in the above subcategory shortfalls. We have also made our branches becoming the key fulcrums of our entire business strategy. By Q3, the share of our branch banking deposits in our total bank deposits has increased to 55% from 52% in beginning of the year. Despite a challenging environment in 12 months, our branch banking CASA has grown 18.2% compared to 12.2% at YES Bank and 7.2% for peers.

In retail advances, the share of internal sources has improved to 43% from 37% at the beginning of the year. Since March '23, the share of higher ROA accretive products has improved by 8%. In all 3 quarters of current fiscal, the Y-o-Y core fee income growth has been between 23% to 35%, as a result of which core fee as a percentage of total assets has increase from 1.1% in March to 1.2% in December '23 quarter.

The strong focus on SME and mid-market segment which are growing at 25% plus, both are high quality book with significantly low LPA levels across business cycles. Both the businesses are good source of fee income and low-cost liabilities. Our strategy to build an agile organization through review of org structure, process improvement and cost optimization have already started yielding results. Quarter 3 is successive quarter of less than 1% quarter-on-quarter growth in operating expenses.

Now let me quickly take you through the highlights of the third quarter. Our Y-o-Y deposit growth, excluding certificate of deposits, is at 15% and which is higher than our Y-o-Y advances growth of 13.6% after excluding the Interbank reverse repo, which was there in the third quarter of the last financial date. Within deposits in quarter 3, our CASA ratio sequentially improved to 29.7% from 29.4%, led by a 7% sequential growth in saving accounts and marginal improvement in the current account. We added nearly 4 lakh new retail CASA accounts during the quarter, and 80% of individual and sole proprietor current accounts and 96% of eligible saving accounts were opened digitally.

Despite a persistently challenging environment in trailing 12 months, we have continued to see an outperformance in total branch banking deposits, which have grown by 22% Y-o-Y. The outperformance was even good in case of branch banking CASA deposit and the incremental bank banking CASA ratio is coming at 30% plus over the same period.

Within advances, we saw sustained momentum in our SME and mid-market segment, both are up 24% and 26.4% Y-o-Y, respectively. Our CD ratio at December quarter end was 89.9%, nearly flattish on Y-o-Y and quarter-on-quarter basis. Average liquidity coverage ratio for the quarter was healthy at 118.4%. CET ratio for the quarter was at 12.6%, which was 13% in quarter 3 and 13.1% in quarter 2 of the financial year -- current financial year. The impact of regulatory mandated increase in risk weights was 40 basis points, which was fully offset by organic CET accretion, including profits of 50 basis points. As communicated earlier, we expect another 100 to 110 basis point of accretion in CET ratio post the conversion of outstanding warrants.

Moving over to margins, operating expenses and asset quality and the profitability. Despite headwinds on deposits and funding cost, our net interest margin expanded by 10 basis point quarter-on-quarter and came in at 2.4% against 2.3% last quarter, which is largely driven by efficient balance sheet management, even as the advances yield and the cost of funds remain largely flattish. In quarter 3, our noninterest income was at INR 1,195 crore. And adjusting for realized/unrealized gains from the investment, the core noninterest income has grown by 23.4% Y-o-Y. As I was sharing earlier, December quarter was second successive quarter of less than 1% quarter-on-quarter increase in the OpEx. Operating expenses were at INR 2,347 crores, up 10.6% Y-o-Y and only 0.6% quarter-on-quarter.

Adjusting for the PSLC cost, operating expenses are up only by 7.2% Y-o-Y and have actually declined by 0.8% quarter-on-quarter. Provision costs came in at 0.6%, which is flattish quarter-on-quarter despite a 0.5% aging-related provisions on the security receipts during the quarter. AIF-related provisions have been fully absorbed at INR 12.5 crores. There was an all round improvement in asset quality with 30 basis point quarter-on-quarter reduction in net NPA and net gearing value of security receipts as a percentage of advances, which improved to 1.7% in quarter 3 against 2.5% in the corresponding quarter last year and 2% in the previous quarter.

Strong resolution momentum continued with recoveries and resolution at INR 1,316 crores in current quarter. Since ARC transaction in December '22, there has been cumulative redemption of INR 2,836 crores in the security receipts.

Slippages, GNPA, NNPA ratios have been flattish quarter-on-quarter. The provision coverage ratio marginally improved to 56.6%. And including technical write-offs, the provision coverage ratio is 71.9%. Our quarter 3 net profit at INR 231 crores is up by 349% Y-o-Y and 2.8% quarter-on-quarter.

The other key highlights. Last quarter, we went live on interoperable cardless cash withdrawal framework, which allows withdrawal of cash from ATMs via UPI without using any card. We also integrated with a leading discount stock brokerage firm to offer secondary ASBA services to our customers. We also made new strides in responsible banking, and our bank has topped amongst all Indian banks with highest S&P Global ESG score in 2023. We have been included in BSE Next 50 and BSE 100 indices. In January '24, we achieved yet another feat of being certified as a great place to work, second year in a row. During the quarter, we were also joined by Mr. Tushar Patankar as the Chief Risk Officer; and Mr. Rajat Chhalani as the Chief Compliance Officer.

Thank you once again for joining us so early in the day. And now we can take your questions.

[Operator]

[Operator Instructions] The first question is from the line of [ Deepak from Aryan Share and Stock Brokers ].

[Unknown Analyst]

Congratulations for a well -- for a very good quarter.

[Prashant Kumar, executive]

Yes, thank you. Thank you, [ Deepak ].

[Unknown Analyst]

Sir, I just wanted to know, is there anything in future for the AT1 bonds, any provisions to be made?

[Prashant Kumar, executive]

[ Deepak ], I think this issue has been discussed in detail earlier. And at this point of time, since the matter is pending in the honorable Supreme Court, we would not like to make any comment on this.

[Unknown Analyst]

Sir, is there any provisioning to be made on that, sir?

[Prashant Kumar, executive]

No, what I am saying is the entire clarification on this part has been done. But at this point of time to make an argument, why there is no need to make a provision would not be correct as the matter is pending in the honorable Supreme Court.

[Operator]

The next question is from the line of [ Amey ], an individual investor.

[Unknown Attendee]

Just a quick follow-up question on AT1. Do we know when is the next date in the Supreme Court? And how do we know when is the date? I mean 1 -- in fact, I tried to know, but I don't find a way to figure out when is the next date.

[Prashant Kumar, executive]

Actually, this was slated to appear today, okay? But it has not come in the final listing as of date. And I think we would come to know from the registry of the honorable Supreme Court when it will come on the next date.

[Operator]

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

[M. B. Mahesh, analyst]

Two questions from my side, sir. First one is on the cost of funds. The increase has been for this quarter relatively smaller as compared to the last 2 quarters. If you could just tell us at your portfolio level, given the kind of maturity that you're seeing in your term deposits, how are you seeing the cost of funds kind of moving over the next couple of quarters? This is the first question. The second question pertains to the slippages that we are seeing on the retail portfolio. This quarter has been on the higher side. If you could just kind of give us a context into what is driving these retail slippages?

[Prashant Kumar, executive]

Sure. On the cost of funding, the first question that you asked, Mahesh, if you recall we've been saying that the bulk of the repricing has been absorbed till September. And since then, at least in terms of what we are observing as a pendency in deposit repricing, we're looking at not any material impact over the next 1 or 2 quarters. Having said that, Mahesh, what we also are conscious about are the industry and the liquidity landscape could mean that there could be room for us to continue to work on rates. Although our conscious effort is relative to the industry, we need to keep performing better relative to the industry. But as of now, when we look at the repricing or pendency of portfolio, there is a very minimalistic impact from a TD repricing on cost of funding.

[M. B. Mahesh, analyst]

Niranjan-ji, just to add on this question, let's say, in the month of January so far, the situation on the deposit mobilization has been at par to last quarter, worsened or it continues to -- or it has improved? Where would you kind of put the situation today?

[Niranjan Banodkar, executive]

So at an effort level, I have to say, efforts are higher for mobilizing the deposits that we would have otherwise taken. But from our perspective, I think the momentum in Jan continues to be similar to what we typically observe around this time of the year.

[M. B. Mahesh, analyst]

Okay. Perfect. The second question on the retail slippages.

[Prashant Kumar, executive]

So on the retail slippages, obviously, there has been a little bit of concern in the last couple of quarters viewing. So we took some measures in terms of the revision in the scorecards, BRE also in terms of tightening the credit process. So I would say that more or less we have now reached a plateau. And from there, we see that in the coming quarter previous year this getting in a stable state. But good part is that bucket by bucket, there is an improvement in the resolution, so we see a better resolution in the coming quarters from this level. So our expectation is that the slippages will continue for 1 or 2 quarters, it will not rise from here, and then it will start decline.

[M. B. Mahesh, analyst]

Sir, just to understand what is driving these slippages, which part of the product portfolio within retail?

[Prashant Kumar, executive]

So largely the unsecured assets and also some of the segments, a few here and there, but those were minor, but largely, we're seeing that the unsecured portfolio needed a lot of corrections and very timely corrections, which have actually happened and now it's showing the results.

[Operator]

[Operator Instructions] The next question is from the line of Sri Karthik Velamakanni from Investec.

[Sri Velamakanni, analyst]

Question on the risk weight assets. You've not disclosed the number. Could you, one, disclose it? And two, walk us through the movement to CET1 today this quarter, particularly in the context of the DTA line and the consumption due to unsecured risk weight...

[Niranjan Banodkar, executive]

Karthik, so the risk weight number is about INR 2.7 trillion, which was about INR 2.58 trillion in the previous quarter. So we had about INR 12,000 crores of increased -- INR 12 crores, INR 12.5 crores of increase in the risk-weighted assets. Almost INR 7,800 crores did come in from the new RBI circular. Now if I were to just split this from a capital consumption, what like Prashant also mentioned in his opening remarks, we had about 40 basis points of burn that came in because of the new RBI circular. Outside of that, we had about a net 10 basis points of consumption, which was a function of both growth that we had as well as the profitability, the DTA and some amount of continuous work that we keep doing on the rating profile plus the like retail portfolio coming through. A combination of that, we had 10 basis points of net consumption. But both profits and DTA release would be about 20 basis points of that book.

[Sri Velamakanni, analyst]

And the 10 bps decline due to the PSL shortfall is an implied profitability is it, Niranjan?

[Niranjan Banodkar, executive]

No, that's -- it's just that if you look at the balances increase that we've had, we've had about a net INR 10,000 crores of increase in the PSL shortfall deposits between September and December quarter. And as a consequence, we also end up allocating capital on that because it does attract risk-weighted assets. So it's a function of that.

[Sri Velamakanni, analyst]

Okay. So despite being sovereign guarantees in nature, there is capital hit also due to PSL?

[Niranjan Banodkar, executive]

That's right. That's right, Karthik. Absolutely.

[Sri Velamakanni, analyst]

Okay. The other question is on our CA and SA growth. So generally, I think it was part of your opening remarks also that the CASA growth was faster than system. And I see that the branch additions have not been that high, what's contributing to this higher CASA growth relative to other customers?

[Niranjan Banodkar, executive]

So Karthik, from our vantage point -- so there are 2 things really, right? One, for us, we are operating at 29.7% of CASA ratio, so we clearly have a priority to continue to improve our both current account and savings account, right, number one.

Number two, when therefore, we look at an execution plan, clearly, there is a higher amount of focus that is given to mobilizing the current account and savings account, right? Number three is, we are looking at a loan growth, which has been in the range of about 13%. And as a consequence, we are also looking at a deposit growth of 15% to 16%. In that context, we do find that delivering a growth of CASA, which is higher than our deposit growth, is something which we are all working towards, right? So it's a very, very focused execution plan and a consequence of those execution plans are discipline around productivity efficiencies at the branch level, monitoring profitability of each and every branch, making sure the incentive structures are rightly aligned not only for just acquiring customers, but making sure that they maintain balances over the M3, M6 period as well. So it's a function and culmination of all of those elements, which we've been investing over the last 2 to 3 years, we are finding outcomes of those.

And we're quite actually satisfied that -- I know 29.5% is not a very high CASA ratio, but we are quite satisfied that a lot of the SA that is also coming through, if I just look at over the last 1 year, it's not that our blended SA rate would have actually increased. So it's not that we are throwing rates to acquire the savings account, it's a function of very hard core execution in retail to drive the balances.

[Operator]

[Operator Instructions] The next question is from the line of Mahrukh Adajania from Nuvama.

[Mahrukh Adajania, analyst]

I have 2 questions on the -- yes, I have 2 questions. The first is on personal loans that was discussed a bit. So why were tightening measures required in personal loans, what was your ticket size, most of it would be salaried, right? So what was your ticket size? And in general, is it -- is there some read-through for the sector on that bit? And secondly, on just the realization of security receipts. I know it happens as and when, but is there any path you can guide us to build better estimates?

[Niranjan Banodkar, executive]

Okay. Now first commenting on the first question on the personal loans. So our average ticket size remains around INR 2.5 lakhs. However, the segments which were -- which were a topic of concern for the entire industry were, one was the NTC, the new to credit, which was contributing to almost 25% of the industry's acquisition. I think that has -- which was showing a very good behavior for 2 years, started showing some stress at an industry level, there is a concern and there is a cut on that particular segment. The second one, obviously, is where the income levels were less than INR 30,000 a month. So these are the 2 segments which have been cut and this is not just for us, but this is at an industry level. So having said that, I think the most of the concerns which we have tried to capture and tried to bring the portfolio back on track are around these 2 segments.

[Mahrukh Adajania, analyst]

Sure. And on the realization of SRs?

[Prashant Kumar, executive]

So basically, when we started, like when this transition happened, we had the security receipt of INR 8,853 crores on gross basis, okay, which has already come down to INR 6,393 crores in 1 year, okay. So fundamentally, if you see out of it INR 1,853 crores, almost INR 2,500 crores has been redeemed, it is very difficult to predict when the remaining security receipts will be realized. But I think with the track record, we have not seen in 1 year more than 25% of the security receipts have been redeemed. And actually, we have also seen recoveries over and above the security receipt. And if you see the other part, we are continuously making the provisions on the remaining security receipts. And today, the net carrying value of security receipt has come down to 0.8%, okay? So -- and our provision coverage ratio on the security receipts is 73.2%. Our objective is to bring down the net NPA and the net carrying value of security receipt below 1% in the next few quarters.

[Mahrukh Adajania, analyst]

Okay, sir. That's very helpful. Sir, just one more question. I know that you did -- your LDR has kind of stood steady. But in general, in the whole debate on LDR for the industry, where do you think you stand because in general, for everyone, it appears that now LDRs need to come down. Do you think that that's the case for you as well?

[Prashant Kumar, executive]

No, so Mahrukh, we are quite happy with the LDR of around 90%, okay? And this 90% is important for us in terms of both profitability as well as keeping those kind of margins. But if you see that we are continuously focusing on the deposit growth higher than the loan growth. So at no point of time, we are allowing our LDR to go below 90%. It means higher rather than 90%. And going forward also, our strategy would be continuously deposit growth higher than the loan growth. But 90% for us is quite satisfactory, especially when you see a very large amount is being parked in the RIDF to take care of our shortfall in the PSL. So today, 11% of our total assets are sitting actually in the RIDF. I think if you take into account this part, the 90% LDR is quite satisfactory.

[Mahrukh Adajania, analyst]

Got it, sir. This is something that even the regulator would be comfortable with, right? Because there's now a sudden talk that the regulator may not be comfortable with LDRs of some banks, not specifically yours but some banks. That's why asking.

[Prashant Kumar, executive]

Yes.

[Operator]

The next question is from the line of Chintan Shah from ICICI Securities.

[Chintan Shah, analyst]

So firstly, on this unsecured [ piece ] that we have seen kind of some high slippages in the retail segment. So as you clearly mentioned that is largely from the new to credit customers and not from the existing customer base. So usually, I just wanted to understand the underwriting, which we are doing. So that -- there is no concern on that, on the CIBIL score or on the -- based on the past track record of your underwriting. So that should be okay. And only this is from the new to credit where the stresses are coming up. Is that a fair assumption?

[Prashant Kumar, executive]

So the retail business, which you fully understand goes through its own cycles over a span of 5 years to 6 years. And whenever there is any signs of cess appearing, the following actions are usually taken, one, to take the entry scores up, to tighten the criteria around the income levels and [ FOIR ], and third one is to look at the customers where you have a limited understanding, right? Your internal customers will always behave better because not just you have information on their scores, but you also have an information on their transaction history, right? So that will always make it more stronger, and they will always behave on a relative scale better.

The concern always will be the new-to-bank customers. And within new-to-bank, the new segment, which income banks you want to purchase or where do you see stress, you kind of again dissected between the credit scores and then bureau scores, and then you again segment it between the profiles, the locations, the demographic. So you get into full detail when you have to review to tighten the criteria. So I would say instead of -- and what I alluded to was some of the segments, which largely have shown signs of stress. But whenever you get into this cycle, and I would not say that we are actually into the cycle, but there was a bit of correction required at the industry level. And in line with that, we have taken actions across this. So it is not just cutting one segment, you have to take multiple actions to control and unfortunately, the signs are quickly seen in terms of your new-to-bank population, which is coming into as an inflow to the bank, so that is a positive sign.

[Chintan Shah, analyst]

Sure, sir. And so sir, usually, the [ FOIR ] for this below 30,000 customers, would be there -- so what would be [ FOIR ] for that 40%, 50% or even more than that?

[Prashant Kumar, executive]

Certainly. So this is -- today, it is not as simple as it used to be a couple of years back. Today, you segment the customer and then decide. CAT A company or a CAT B company or a CAT C company would all have a different approach to underwrite. So I would say there are multiple factors, which is a far sophisticated scorecard, which today is applied as compared to the erstwhile file. So this is, I would say, the tightening on various fronts, not just the income to the loan ratio, but -- to the [ EMI ] ratio, but also to the thresholds of what is your entry level for income, even that is into the consideration, including putting the CAT A, CAT B categorization of the company's [indiscernible].

[Chintan Shah, analyst]

Sure, sir. And sir, secondly, on that profitability part, thanks for that -- for the levers, the improvement in profitability. So you have mentioned that increase in organic fee -- there were some talks earlier of acquisitions and inorganic acquisition to boost PSL. So is that still on? Are we still working towards that? And on the PSL -- so firstly on that, yes. And I'll come to the last question.

[Niranjan Banodkar, executive]

So yes, there is work happening to find ways to accelerate the PSL journey for us. But having said that, when you look at creating or acquiring -- acquisitions, it obviously is time consuming, you need to have right fits, and there are multiple criteria that go into the evaluation. So it does take time. But I think having said that, I think it's important to note that, it's not that we are just waiting for that lever to express itself in our balance sheet, we continue to work on our own organic channels. We continue to work on other means of inorganic acquisitions into the balance sheet for complying with the PSL. And again, I will again refer to Prashant's opening remarks that he -- where he's been -- where he said that if we look at our problem in PSL, which is in subcategories of small and marginal farmers, noncorporate farmers and weaker section.

Across these 3 subcategories, if you look at our compliance to PSL, we have only been improving our quarter-on-quarter, and it's actually part of our presentation as well. So it's not that we are just waiting for this inorganic acquisition as a lever to come in and express itself. Yes, it will further propel and accelerate the acquisition machinery. But having said that, we are now looking at very nominal numbers of noncompliance in fiscal '24 across the subcategories.

[Chintan Shah, analyst]

Sure. And sir, one lastly just on that 1% RoA mark aspiration. So do we envisage that to come in FY '25 or probably in FY '26, what could be the rough time line, can you just confirm that?

[Prashant Kumar, executive]

I think, Chintan, we need to be very realistic. And I think one of the big drag on our profitability is 11% of our assets sitting in the RIDF, though we are working very hard and we are quite confident that this year, there will not be any shortfall in the PSL, but I think the PSL book coming down to a normalized level would take some time. And I think this is the biggest threat. So 1% RoA, we don't see happening in the FY '25. But I think the way we are executing our strategy, we may see this 1% RoA in the FY '26.

[Niranjan Banodkar, executive]

Chintan, if I also add to that, see 1% ROA for us is very important from the perspective of getting it delivered through core operating profits. And you would have seen that we continue to have good momentum resolution, P&L write-backs through the security receipts portfolio. But you'll appreciate that what we have been doing very consciously is actually using that to keep reducing the drag on our security receipts and continue to work on improving the PCR right? So I think just to mention that RoA 1% target is being thought about from a core operations and not just for a number from a profitability because ultimately, we want to get our [ NNPA and SR ] also below 1% from the recoveries of the [ SRs ].

[Operator]

The next question is from the line of Dinesh Jain, an Individual Investor.

[Unknown Attendee]

And so my 2 questions on -- basically, every month -- every quarter, you guys are disbursing about INR 30,000 crores of loan, which amounts to -- and in annual report also, you are disclosing that you have about INR 1 lakh crore of disbursement in a particular year, which amounts to 50% of your portfolio. So despite doing that, your growth is at about 15%. So it means your -- is it your average loan size is somewhere about 2 years or something like that? Why it is not translating into the growth, that's point number one?

Point number two, is in the provisions on the -- this time the default on personal loan is about INR 1,000 crores. Your total net interest income for the year is INR 2,000 crores. So if your 50% of your portfolio is towards personal loans, which is about INR 1,000 crore and you have already -- you are defaulting -- your defaults are INR 1,000 crore in a quarter, does it mean that 100% of your personal loan net interest income is getting defaulted. So is it something -- some bigger underlying thing is there, which we are not understanding? Or is it the earlier YES Bank which is returning now to the fore?

[Niranjan Banodkar, executive]

So Dinesh ji, on the first question on disbursement. So when disbursements happen, there are also repayments that keep happening in the book. So I'll give you an example of the large corporate business where clearly, we have diverted away from the kind of large corporate business that we should do prior to March '20. This is more working capital in nature, transactional in nature. And yes, we do have a significant amount of fresh disbursement, fresh lines that get set up. Yes, utilizations could be -- could have its motions of -- some quarters, the utilizations are high, some quarters, utilizations are low. But I think the momentum of new business acquisition is very high.

But having said that, in the large corporate book, despite the new disbursements and you would have also observed that. We do have -- we have seen degrowth in that book over the last 2 to 3 years. That is because of our legacy book that we had in the large corporate, we've seen repayments. A lot of those we were consciously triggering those exits, so that we continue to reduce the legacy assets that we had in our balance sheet.

It was also one of the strategies for us to reduce those exposures because they were also coming in from, let's say, real estate or hospitality. So that journey also coincided with the new acquisitions that were happening in the large corporate. And as a result, what you see is a net function on the loan growth. That's number one.

Number two is if you look at similar comparison on the retail side, on retail, what we have seen is a disbursement run rate of about anywhere between INR 10,000 crores to INR 12,000 crores, let's say, that we might be doing for quarter. But equally, we would be having about INR 6,000 crores to INR 7,000 crores of, let's say, repayments and maturities that happen every quarter. So what, again, you see as a net result is post the repayment. So what we are seeing is 15% brought -- 13% to 15% loan growth, I think, is fairly reflective of new business origination as well as old.

The last point I wanted to make is when we look at disbursements, it's about making sure that you are penetrating into the relationship of clients. What we are quite confident about is that now that we have -- we are entering and acquiring large-scale customers across -- when I say large-scale customers across corporate, mid-corporates and MSME, we have a good hope now on these customers. And as and when utilizations pick up, you would also start seeing those on the loan growth. I think that's just a simple explanation I thought I should provide. That was the first part of the question.

I think the second question you asked was on provisions and NII, which we have about INR 2,000 crores of NII. And you -- I think the question was, you were correlating that with INR 1,000 crores of slippages, right? So the first point there is when you look at the NII, we are looking at NII also has multiple elements of drag anything. We spoke about Prashant mentioning again and again that there is a significant drag coming in from the existing stock of RIDF, which is sitting today at about in excess of INR 40,000 crores on our balance sheet, 11% of the total assets. So I just want to contextualize that INR 2,000 crores in the first place is not a normalized run rate of NII that we should be looking at. That's number one.

Number two is, like Rajan mentioned, when you look at INR 1,000 crores of slippage, you do go through cycles where there will be certain uptick in performance or delinquencies in certain products, in certain geographies, in certain segments. But I think that is where management intervention comes in, is to, say, okay, have you identified the problem? And have you taken cost corrective actions to make sure that incrementally, you are kind of not repeating those geographies from a disbursement perspective. And I think we are quite pleased to see that we have taken the necessary actions to plug the new slippages. And like Rajan mentioned, we do believe that the run rate should start normalizing or reducing from here on.

I think the third thing, which you also have to look at is not just a gross slippages, there is also a run rate of recoveries and upgrades that we see. So while for the full bank, if my annualized slippage ratio is, let's say, 2.3%, actually, the net of recoveries and upgrades, the ratio would be about 1.1% to 1.1%, right? So it's not that the whole block of 2.3% goes into a loss. There are recoveries and upgrades that do happen over a period of time.

The last part I wanted to mention is, again, while the impact of this was acute in September, but we did see some element of that also play out in December. We also had an accounting policy change where -- and we did go through some explanation in the last quarter, so I'm not going to spend a whole lot of time. But that meant that because of the accounting change in P&L interest, the delinquency was slightly higher on the retail book. But to summarize, we do believe that the relevant cost-corrective actions have been taken, and the delinquency should start stabilizing to reducing from here on.

[Unknown Attendee]

That answers my question. One last point I wanted to say on this whole priority sector thing and all, which suddenly got popped up into this particular slide. So where you guys not aware, last 3, 4 years that this particular thing was, you didn't see it coming, and suddenly, this has popped up this particular quarter? Or you were knowing 3, 4 years back and you were working on it and nothing happened, and therefore, this quarter, it has popped up that this has become now a new reason on the block?

[Prashant Kumar, executive]

So Dinesh ji, that's not -- to be honest, we've been -- if you go back to our commentary also about a year back, we did mention that we are keenly evaluating acquisition of an MFI entity or entities that might be the MFI business. This was all keeping in mind that the bank needed to solve its PSL subcategory acquisition side. So as you are aware, we have been talking about the drag that RIDF is causing. It's just that we have brought that out explicitly. So that because we were getting these questions time and again, and we were explaining on calls through our commentary. I thought it was just important that as an entity, we put that out in absolute clarity as to what would be the drivers on improving the PSL drag and what is the drag. So we just put that out in black and white. That's the only difference. It's not that we were not aware of, nor that we have not been guiding as to whether this is a problem statement for us or not.

[Operator]

The next question is from the line of Narendra Podwal, an Individual Investor.

[Unknown Attendee]

[Foreign Language]

[Prashant Kumar, executive]

[Foreign Language]

[Unknown Attendee]

[Foreign Language]

[Rajan Pental, executive]

[Foreign Language]

[Unknown Attendee]

[Foreign Language]

[Prashant Kumar, executive]

[Foreign Language]

[Operator]

[Operator Instructions] The next question is from the line of Mahrukh Adajania from Nuvama.

[Mahrukh Adajania, analyst]

Yes, sorry. Sir, I had a follow-up question again on the personal loan base. So basically, we have weeded out all the customers, which were probably looking a little discomforting and because of closure of lines to them, these slippages have occurred or because anyway they were on the lower income side, these slippages have occurred, assuming that -- were some of these BNPL customers, given -- may not be right, given that your ticket size is high? Or how do we look at the whole [ feed ]?

[Prashant Kumar, executive]

So ma'am, first of all, BNPL came as an experimentated phase. So fortunately, we never tested waters into that particular segment. Two is once the customer has come in, we have to bear him for 36 months. So it is not that you can weed him out in between, unless you proactively go back and insist that you close the account, which generally is not the likely situation.

In our internal database, proactively when you are looking at acquiring a customer, obviously, we have weeded out that set of customers, which we potentially were putting it up to our teams to acquire. So from that extent, you are right. Also, from the customers who are coming out from the outside market, we have -- since we have tightened the criteria, so these customers will automatically get rejected. So from that extent, for new to the bank or from existing customers, certain segments have been eliminated. But this is nowhere close to the BNPL model. These are the normal personal loan customers.

[Mahrukh Adajania, analyst]

Got it. So sir, going ahead will growth in personal loans be slower than earlier only?

[Prashant Kumar, executive]

I think growth is not that issue because there are a lot of customers and personal loan is growing at a particular pace. But whenever you will do any kind of policy cuts, temporarily there will be a dip in the business and then you gain ramp up because you have a large distribution now, which also then alters their way of acquiring and bringing back the customer to various banks.

[Mahrukh Adajania, analyst]

Got it. Got it. But so the key reason for the slippage would be what then? As in -- it's just that the income levels did not support or what would it be, in general?

[Prashant Kumar, executive]

So I can tell you that...

[Mahrukh Adajania, analyst]

Or the 36 months lapse for many this quarter?

[Prashant Kumar, executive]

No. So I will give you an industry level answer to it. And obviously, these things do reflect in overall across portfolios. One is that customers taking more than one loan after they have taken from you, right? That tends to be one of the bigger reasons. And secondly, it can be around the income levels not going up or the inflation being high, the disposable income coming under state. So there could be various ranges and the retail portfolios throw you a lot of opportunities to get insight into the portfolio in various squares, which you have to then cut and then kind of look at what is going to be a new acquisition strategy.

But having said that, even in personal loans, even if I dissect the quarter between the 3 months, we have seen a very, very good month, December month, wherein the resolution rates have really gone up to upwards of 87%. So the resolution rates have become better. So these customers who are -- even who have defaulted, their resolution rates are getting better.

[Operator]

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

[Unknown Attendee]

Just, I have -- there is too much deviation from the listed security house analysis, and why there is too much negative number in retail segment?

[Prashant Kumar, executive]

Sir, can you repeat your first question? Deviation in which element you want us to clarify?

[Unknown Attendee]

Because the market has accepted too much profits in this quarter, means from the listed house analysis, efficacy house analysis, like ICICI security has expected a figure around INR 500 crore profit at this quarter. But we have got just something INR 281 crore net profit and MK Capital also analyze too much profit, but we get less profit than this number.

[Prashant Kumar, executive]

Yes. So...

[Unknown Attendee]

And also one more thing I want to add. There is too much speculation around [indiscernible] and this -- what are you doing in this regard to control this news?

[Niranjan Banodkar, executive]

[Foreign Language] We were not able to hear you well. I think the first part of the question, which we could gather was around that the market expectation was a certain number, and we have delivered a certain number below expectations. Is that a fair question?

[Unknown Attendee]

Yes.

[Niranjan Banodkar, executive]

Okay. So let me respond to that and maybe we can come back to the second question. So Kunal ji, we will -- to be honest, we will not be able to comment and, let's say, on every quarter's expectations that market will have. I think we -- at the start of the year, we've been saying that there is a certain path toward profitability to a 1% RoA, and which is a journey which is -- which requires a lot of execution, focus. It is -- it was a 2- to 3-year journey that we had highlighted, number one.

Number two, as the kind of period plays out, of course, there are a lot of external factors that also come in, and you would appreciate that over the last 1 year, there has been a significant spike in interest rates generally in the environment as well, which is resulting into NIM compression, not only for us, across all the banks. But I think there are certain principles with which we work. There is a certain strategy which is in place, and we are sticking to that strategy.

And just from a profit standpoint, because that was a specific question that you had, for us, it's very important to get the NNPA and security receipts also below 1%, right? So it's important that we keep improving our PCR for the bank, we keep reducing the drag and keep working on expanding the operating profit, right? And that's the work which we keep executing day in, day out.

We also take, by the way, through this question of a feedback that maybe the expectation itself in the first place needs to be managed better and that's something we will be happy to communicate more emphatically and effectively on an ongoing basis.

Yes, we were -- sorry, we're not very clear about your second question. If you can just repeat the second question?

[Operator]

I'm sorry, sir, the participant has already left the queue.

[Niranjan Banodkar, executive]

Okay.

[Operator]

We'll move on to the next question, sir, which is from the line of Srinivas, an individual investor.

[Unknown Attendee]

I have 2 questions. Actually, what is the guidance for this RoA-accretive products from the current level of 55%? As at the end of FY '25, where we would be expected to be? And what would be the impact on the bottom line?

And second question is like Prashant sir was saying that from 8,000-odd levels, like the security receipts on the asset portfolio have come down to 6,000 and odd, 25% recovery has happened. But if we see the presentation like the security receipts as a percentage of advances is only 0.8%. That comes to roughly INR 1,850 crores. So what is this difference between INR 1,850 crores and INR 6,000-odd crores, INR 4,000-plus crores. Can we assume that like once the provision becomes 0, entirely the INR 4,000 crores would be attrition to the profit, bottom line?

[Niranjan Banodkar, executive]

Yes. So basically, 0.8% is a net gearing value of SR, security receipt, after making the provision. And once like if net carrying value comes down to 0, then whatever recovery would come would be directly addition to the P&L.

[Unknown Attendee]

Okay. Sir, the second question?

[Prashant Kumar, executive]

On the RoA-accretive products, our objective is to -- and again, the first point there is we are talking about the large-scale distributions. Therefore, the path towards migrating towards a higher RoA-accretive products is something that we keep calibrating over a period of time currently, which we are running at about 55%. The trajectory would be continuing to improve that. You could -- you will continue to see about 5% to 10% improvement in that mix over the next 6 to 9 months. I think that is really where we will continue to work.

Now what does that mean from an RoA perspective, ultimately, some of these products on the margin, I'd say, again, there are 2 elements, one is on the margin and what it does to the book. On the margin, which means to the disbursement mix, these products are already generating an RoA, which could be about 60 to 70 basis points higher than what, let's say, the other products would be. But for those to get expressed on the book, could take about anywhere between 2 to 3 years. So it is like a -- on the margin, you might end up making today about 2, 3 basis points on the book every quarter, but it will take some amount of time before it starts getting reflected on the book.

[Operator]

Ladies and gentlemen, we will take that as a last question for today. I would now hand over the conference to Mr. Prashant Kumar for his closing remarks. Over to you, sir.

[Prashant Kumar, executive]

Again, thank you, everyone, for joining our earning call too early in the day. Thank you so much, and wish you all the very good day.

[Operator]

Thank you very much, sir. Ladies and gentlemen, this brings the conference call to an end. Thank you, members of the management. On behalf of YES Bank, we thank you for all joining us. You may now disconnect your lines. Thank you.