Yes Bank Ltd

NSE:YESBANK

Earnings Call Transcript 2018-Q4

[Rana Kapoor, Founder, MD, CEO & Director]

Apologies for especially late start. Let me come straight down to our numbers.As you know, the fiscal year ended -- fiscal year 2018 has had a number of very significant milestones in our life cycle of approximately 13.5 years since we commenced commercial performance in the middle of 2004, and these milestones are basically very important. Number one, our total assets in this quarter crossed INR 3 trillion. Our total loans crossed INR 2 trillion, and our total deposits also crossed INR 2 trillion. And international banking asset that we book in our offshore center in IBU in GIFT City that too crossed a fairly significant milestone of $2.5 billion, aggregating actually to about $2.8 billion. And therefore, we've had a fair amount of compelling growth this quarter, and we will elaborate on this in the course of this presentation.I do also want to mention that while we have been growing quite significantly in the course of '17-'18, which has otherwise been a fairly demanding year for many, many reasons, the bank has been able to ensure concurrently that there is improvement in asset quality after 2 setbacks we had in April 2017 and a second setback that we had in March of 2017 -- sorry, October of 2017. So 2 setbacks in the fiscal year '17,'18 despite which in a reasonably short span of time the bank has been able to make rapid strides in the overall improvement and complexion of its asset quality book insomuch as our gross NPA has improved to 1.28% compared to 1.72% as of December. So sequentially, it has improved a fair bit. And net NPA has improved to 0.64% from 0.93% end December, so that too sequentially has shown a fair amount of improvement.The net credit cost for the full year fiscal '17-'18 stood at 76 basis points, which is well within our revised guidance in the middle of the year, and we'd like to believe that this has been contained at the bare minimum possible compared to market expectations not very long ago when it was being forecasted that this number may exceed 100 to 120 basis points. So we've had a reasonable soft lending as far as the overall credit cost is concerned.And since I'm on this subject, in our earlier interaction with the media we had given a credit cost guidance of 50 to 70 basis points for fiscal year of 2018-'19 so that we have visibility directionally as to where are we heading in the next -- rather, in the current year now. So I thought I'd just mention it at this point itself.The other couple of important points. In the digital space, we are very happy that based on performance over fiscal '17-'18 YES BANK has been ranked #2 by the Ministry of Electronics & Information Technology across all segment players, public, private, foreign and including payment banks. So this is a fairly important recognition of our growing strength in the digital domains and digitalization of the public stack as well as the fact that we are adding more and more APIs to our overall inventory of product offerings.We also have received board approval subject to shareholder approval of a dividend on a INR 2 par value now of INR 2.7, which is about 135% dividend, subject to shareholder approvals, which are being targeted for June 12. So we still have about 1.5 months to go and which basically means that our payout -- dividend payout ratio is about 17.7%, well within our dividend policy guidance of 20% payout and 80% retention. So we would be, therefore, retaining about 82.3% of our earnings for the fiscal year '17-'18.So all in all, this also was the third important year of the bank's large bank phase in our life cycle, which we launched in April of 2015, so 3 years done, 60% done, 2 more years to go until March 2020. And as you can see, from the composition of the numbers that apart part from very strong corporate growth on the back of a turnaround in corporate CapEx, public spending and improvement in the overall environment insomuch as some of these choked assets are finally beginning to move into safer and stronger corporate owners itself provides an opportunity for our corporate finance and our corporate banking businesses to be able to grow with prime corporations.We also in this quarter gone by had a very important debut medium-term note offshore bond offering, 5-year bond offering for an amount of $600 million, which was fairly well priced and was literally on the eve of fairly significant volatility that has ensued ever since the last week of January. And that deal got a very, very good response, started at $300 million, closed at $600 million at treasury -- private treasury plus 130 basis points; and was also the first instrument, not only debt and equity, but the first instrument to be listed in the international banking center in IBU Gandhinagar on India's first international stock exchange, INX, promoted by Bombay Stock Exchange. So a good start to our long-term funding diversification for our offshore book, which, as I mentioned to you, is at $2.8 billion, out of which the funded book itself is about $2.2 billion, making us the rank 1 player in the IBU in Gandhinagar.So it's been a very rewarding quarter, but let me move on that -- and focus a wee bit on our overall P&L outcomes. Fourth quarter was a 29% increase year-on-year in net profit at INR 11,794 million, which is overall for the year was up by 26.9%. And this is despite the fact that we had no real bond gains, very -- overall, we've had a overall fairly good robust delivery on fees through significant penetration in multiple corporate as well as mid-corporate relationships.Net interest income for the quarter grew by 31.4% and for the year grew by 33.5%. So by all means, a very good and satisfying growth in NII for the quarter as well as for the full year. NIMs were somewhat flattish at about 3.4%, although for the full year it was about 3.5% compared to 3.4% for the prior year.Noninterest income was up 13% to INR 14,210 million and for the year as a whole was up by 25.7%, which is also a reflection of growing penetration in our trade book as well as -- in fact, our trade earnings grew by over 100% year-on-year, and some component of retail fees have now attained predemonetization and pre-GST levels, which in a way augers well for further improvement and further granularity in our noninterest fee income base.Our cost-to-income ratio for the quarter was 40.3%, for the year as a whole 40.2% compared to 41.4%. So about 1.2% improvement in 2018 over 2017. And as we unleash more numerator gains in our retail and branch banking businesses through digitization, digital operations, we do believe in the medium term we should be able to further improve on the cost-to-income ratio and bring it well below 40% in the next 2 years.ROAs for the year as a whole were at 1.6%; ROE, 17.% for the year as a whole. For the last quarter, ROE was 18.8%. So improving trajectory for fairly obvious reasons given the significant growth in PAT. Book value of our 2 [ PCNL ] stands at INR 111.8. So basically important. And effectively, it would have been INR 560 had the share been at INR 10, so approximately INR 560; otherwise, INR 111.8 as it stands.So moving on to the balance sheet. Total assets this year grew almost 45.3% to a level of INR 3,124.5 billion. So INR 3.124 trillion overall in terms of total assets. So we have now meaningfully entered the last category of banks, albeit somewhat smaller compared to 3 other larger institutionally sponsored private sector banks, but distinctly now the fourth largest private sector bank in the country.Offshore assets through our IBU grew 166% year-on-year. Deposits grew 40.5% to, as I mentioned to you, to over INR 2 trillion. CASA ratio was at 36.5% on the back of 41.1% year-on-year growth. And within that, SA stood at INR 443.5 billion. CA stood at INR 288.3 billion, growing at 35.3% and 51%, respectively. So CA grew at 51%. SA grew at 35.3% on naturally rising denominator. And CASA plus retail FDs contributed substantially by the retail network of the bank now stand at 57.2%.Loans and advances in the fourth quarter had almost like a historic increase more recently in our large bank phase. We grew wonderfully at 53.9% to a level of INR 2 trillion -- INR 2.035 trillion across Corporate, MSME and Retail businesses. And within this while the number is still -- may seem small, but core retail itself grew by 99%, so almost 100% to an overall percentage of 12.2%, making this extremely meaningful. And the percentage of core retail advances has improved from 9.4% to 12.2%.Corporate Banking businesses spread across 8 relationship groups, currently constitutes, as of end of March, about 67.9%, which is a sequential growth of 19% and a year-on-year growth of 54.1%. Retail and MSME businesses constitute 32.1%, pretty much the same level as last year. But in absolute terms, the business has grown well. In absolute terms, Retail and MSME businesses have grown by 53.3% year-on-year and sequentially by 18.1%. And we have further breakups on the composition of core retail, micro as well as medium-term businesses, which in aggregate come to a level of 32.2%.Capital adequacy in totality was fairly strong at 18.4%, with total capital funds at a level of INR 469.8 billion. So we are pretty close to the INR 500 billion capital funds mark, with Tier 1 ratio at 13.2% and CET1 core equity Tier 1 capital at 9.7%.In the year gone by, we were able to raise a fairly significant amount of capital-qualifying bonds, which shows in many ways the excellent domestic market risk appetite for YES BANK bonds. And within this amount of INR 124.51 billion of capital funds that we raised in '17-'18, perpetual bonds were INR 54.15 billion, so a fairly big number; and INR 70 billion were in Tier 2 bonds, naturally both qualifying under Basel III.The risk weighted assets, and this is important observation, stood at INR 2,553.4 billion. And as a percentage, RWA to total assets actually improved by almost 5% to 81.7% compared to 86.6% as of March '17. And just so that you see that trending. March '17 our RWA to total assets were 86.6%. As of December, so only 1 quarter ago, it was 84.3%. And as of March fiscal year ending, it was 81.7%, naturally reflecting on the improving trend in incremental exposures being too high-quality credits than the RWA directionally is now heading towards approximately 70%, but a little bit too early to predict an actual number. Right now we are at 81.7%. The next big chapter, which is very, very elaborate, we have further expanded on our asset-quality disclosures fairly significantly not just in terms of where the regulatory requirements compel us to disclose, but there are also several additional disclosures in anticipation of what may happen naturally in the future. But let me address the key numbers first. Our credit costs, as I mentioned to you, for the year as a whole was 76 basis points. For the quarter, it was 13 basis points compared to sequentially December was 18, and a year ago was 19 basis points. So this is an important improvement on a much larger loan base.Gross NPA sequentially improved from 1.72% to 1.28% and correspondingly increased from 1.52% to 1.28%. And overall, this amount is about INR 26,268 million. And the breakup of this is -- ballpark breakup is basically 1.28%. I'll come to the slippage number. The slippage number this quarter was roughly around INR 380.2 crores, out of which INR 290 crores approximately was due to corporate slippages. 60 crores was retail and small enterprises, and the balance, approximately INR 29 crores to INR 30 crores, was due to a failed SDR, aggregating to an overall INR 380 crores of slippage in this particular quarter. So this is 1 of our best asset quality outcomes despite, as I mentioned to you, 2 setbacks we had in April last year back to back literally and then again in October '17. And literally in 6 months' time, we have been able to effectuate fairly significant improvements.Moving on to net NPAs, sequentially improved from 0.93% to 0.64% and correspondingly from 0.81% to 0.64%.PCR coverage as in provisioning coverage is now at 50% compared to just about 46.4% end of December, so approximately 3.6% PCR coverage improvement sequentially. And it is management intention to improve this PCR to about 60% no later than September despite the fact that we are expecting a fair amount of NPA recoveries. But still, we have reason to believe that a 60% PCR is an objective that we wish to achieve by September '18.The next big item on the asset quality composition is our portfolio of security receipts, which improved from 1.06% sequentially December '17 to 0.92%. And this portfolio came down despite the fact that 2 of our older NPAs, which go back to second quarter 2017-'18, were sold, and there was also a recovery. We sold about INR 589 -- INR 5,894 million, so INR 5.89 billion and 2 security receipt sales. And we also had an overall recovery of INR 552 million in security receipts. The management statement, as in the last quarter on security receipts, continues to expect minimum 35% to 40% (sic) [ 30% to 40% ] recovery in the course of fiscal '18-'19 of this net number of security receipts, which is presently at INR 18,847,000,000.The fourth key item is standard restructured exposure. This is a relatively small percentage. It's only 16 basis points, which improved from 42 basis points as of December '17. And then you look at the sigma of the entire net NPA plus net security receipts plus the standard restructured exposure, these 3 main components added up to 1.73% of our total advances, which is a significant improvement over December 2017 sequentially from a level of 2.41%. So 2.41% has improved to 1.73%, and the total of quantum of this in 1 quarter has come down from INR 41.5 billion to INR 35.4 billion.We have further details and further disclosures on asset quality given naturally the importance of these disclosures. And this also shed some light in terms of where does the bank stand vis-a-vis the NCLT exposures, which are pretty much headlines every day in India nowadays. In NCLT-1, as you'll recall, which came out in June 2017, there were 12 accounts listed by the Reserve Bank of India. YES BANK has exposure to only 2 accounts, which is 0.16% of our total loans and advances, and the quantum of these 2 loans at INR 3.2 billion, which is classified as NPA, with a provisioning coverage or 50%. So these 2 accounts are at 50%. We are not -- we have not taken any relief on the recent dispensation provided by Reserve Bank of India to reduce the provisioning on such NCLT accounts to 40%. And on these 2 accounts, we continue to maintain provisioning at 50%.NCLT-2, which came out a list of 28 accounts in September of 2017, we basically have exposure to 7 of these 28 accounts, aggregating to INR 6.5 billion, which is 0.32% of total loans and advances and substantially across 3 accounts at about at INR 5.7 billion. And here, the 3 accounts are also classified as NPAs, so they're part of our NPA balance. And NCLT-2 accounts in aggregate, these 7 accounts have a provisioning coverage of 43% and are naturally embedded in the overall NPA totals.The second very important disclosure, which is an add-on, is based on the RBI circular of February 12, we have -- or the subject naturally was resolution of stressed assets revised framework. We do want to mention that there is no immediate impact. There is 0 slippage as a consequence of this circular. And we are not expecting any significant impact whatsoever beyond these 2 and 7 accounts in NCLT-1 and 2. So 0 exposure as far as accounts above INR 50 billion are concerned, and there is impact of only INR 2.8 billion in the second run, which is the INR 20 billion to INR 50 billion range, which was announced in this circular of February 12. So only INR 2.8 billion is our exposure to accounts between this INR 20 billion to INR 50 billion range.I also wanted to mention that risk management leadership in the bank, and this goes back to -- as far back to June of 2018, and naturally this is being refreshed every month, every quarter for sure, that we have also looked at accounts, our SMA-2 accounts or accounts which have some fragility and are -- could be adversely labeled. And we looked at accounts from INR 10 billion to INR 20 billion, which would be the next rung were -- was RBI to come out with, let's say, a more detailed program, so INR 10 billion to INR 20 billion. And even from INR 1 billion to INR 10 billion, we looked at all such delicate accounts, sensitive accounts. And I'm happy to report that based on internal findings and reviews which have been conducted, that there is minimal impact for any such accounts being potentially referred under IBC to NCLT. So these are 2 additional disclosures for even accounts below the second slab, which RBI intimated in February 2018.On sensitive sectors, as in the past, we continue to monitor nonrenewable energy power sector exposure, which is all of 2.7%, down from 3.4% sequentially, with 0 exposure as in the past to state electricity boards.Iron and steel is fairly modest at 2%, and this is a major turnaround sector in the economy. And out of the 2%, 1.5% is A or above rated.Telecom is 2.2%, improved marginally on a sequential basis from 2.3%, out of which 1.9% of the 2.2% is A or above rated.We also added -- because of the current sensitivities, we also added 1 more sensitive sector, which is gems and jewelry, which constitutes in aggregate about 1.4% of our total advances. These are vintage accounts, fairly granular, no lumpiness; and out of this 1.4%, 0.9%. So bulk of them are A or above rated.And in totality, our overall corporate portfolio, which is approximately 67.9% of the overall advances, 80% of this portfolio is A or better rated. As in the past, we also have a fairly significant charge on our various sectoral exposures, driven by our managed banking strategy and our 3 Eye relationship product and risk management architecture, which allows us to be more agile and proactive in this management, as has been demonstrated distinctly over the last 10 years since the outbreak of Bear Stearns in March 2008, so almost 10 years ago. And Lehman also at September will be 10 years old. So our bank of 13.5 years, as in like fiscal year ending March '18, is 13.5 years in terms of commercial performance, 54 quarters would be even more precise, has seen the last 10 years the vagaries of exogenous and endogenous risk. And time and again, despite all kinds of strains, time and again AQR, divergences, the bank has proven its agility, its expeditious capability and capacity in turning around adverse situations and yet being able to grow and navigate growth, as clearly demonstrated in the year gone by and most definitely in the quarter gone by.So this is a fairly long commentary on asset quality because I wanted to give the strongest possible assurance to all of you that we are in fairly good shape. And we do believe that '18 and '19, despite global volatility and some domestic volatility as well, that we should be able to maintain growth of around 30% in '18-'19, and we are reasonably confident of the same.There are also fairly detailed disclosures and commentary on our digital banking initiatives. I could go through them. They are -- it'll take a fair amount of time. But we are doing reasonably well in re-architecting the bank as a technology company in the business of banking. So that is how we are restating our mission that we want to be -- increasingly be tech company with being in the primary business of banking. And our Future: NOW strategy, which is driven by digital transformation, which has been orchestrated nationally by our leadership led by Rajat Monga and Anup Purohit and designed by our YES Accelerator in-house accelerator as well our YES FINTECH in-house division led by Aseem Gandhi and Amit Shah, respectively, are doing some wonderful work in the overall digitalization and the digitization of the bank's process and systems and the customer and service experience in totality. So I won't go through the detail.On social media, our rankings continued to be -- to make us globally very proud. We are the second highest followed global bank brand on Facebook, with 7.3 million page followers. And in India, we are ranked 1 on Twitter, even ahead of State Bank of India, as of this quarter ending at a level of 3.3 million followers. And Instagram is also ratcheting up nicely, putting us also at #1 rank, with 644,000 overall followers on Instagram as well.In terms of expansion and knowledge initiatives, our headcount, as in our human resources, stood at 18,238; branches at 1,100. We added about 50 branches in the last quarter, and ATM network is 1,724. And these investments in our physical infrastructure are being managed very prudently given the outlook of digital operations and more and more digital operations, which we are centralizing in a very significant new investment being domiciled in Chennai in Ambattur, where we are consolidating our back-office operations in a 700,000-square-feet centralized center, which will help us to improve our service levels, improve our quality assurance, our turnaround time and also reduce our HR costs and improve the consistent and superior experience for our customers, which is a mission-critical objective of the bank.I did mention to you about the $600 million issue [ made initial ]. It did many firsts, but I won't to repeat that. Two -- Reserve Bank of India, as recently as last week, has given us 2 very important approvals to set up international representative offices in London and Singapore; so 2 very, very key money center locations, having established successfully our first rep office in Abu Dhabi almost 3 years ago in 2015 April, and that rep office is doing very, very well for our global Indian business, our NRI enterprise business, plus also helping us to improve our overall origination of NRI and international corporate banking and corporate finance initiatives, which is somewhat reflected in our international banking unit GIFT City report card.On sustainability, one of the favorite subjects in the bank, we are the only Indian bank to be awarded prime status by a very leading German agency called OEKOM Research, which is their latest ESG assessment. And this puts us into the top 12% of peer banks, top -- which are 249 of the top 1,000 banks in the world. So 249 of them qualify to be accredited by this particular research agency, which measures banks on sustainability. And we as a bank, young bank, are in the top 12% of this peer group of 249 banks worldwide.The Reserve Bank of India also gave further approval for another 1 year for our bullion and silver operations for the fiscal year 2018-'19. And I'm pleased to report to you, and this is also somewhat a reflection of our growing branch banking business, that we imported and sold approximately 60 tonnes of gold in fiscal '18 compared to a prior year level of 34 tonnes, so 34 tonnes went to 60 tonnes in 2018.The Board of Directors in the meeting earlier this afternoon have approved for recommending to the shareholders at the AGM to be held on June 12 a couple of very important approvals, [ stroke ] recommendations. One is an enabling approval, even though there is no immediate need but just an enabling approval, for equity assurance of USD 1 billion through either of QIP, GDR and/or ADR. So it's just enabling approval with a cap of no more than 10% dilution. So that is one enabling approval. Two, the borrowing limit -- a new borrowing limit of INR 30,000 crores has been approved for the new year '18-'19, which will be effective from the AGM date. And the total borrowing limits of the bank have been enhanced from INR 70,000 crores to [ INR 1 lakh, 10,000 crores ], so that's our total borrowing limit. And for the year, the borrowing program is, as I mentioned to you, INR 30,000 crores, which will be fungible between medium-term offshore bonds, domestic NCDs, affordable housing, green bonds, tier 2 bonds, perpetual bonds, so on and so forth.The overall awards and recognition is a fairly long page. I won't elaborate on that. I'll leave it to you as you get time to go through some of these accolades which are across many, many functions. And I'm very, very happy on one account, particularly that the bank's recognitions for our human capital, across the board globally, including CNBC Asia's IBLA, recognizing us for our talent management. We got the rank 1 award for talent management from Asia CBLA -- CNBC IBLA. That was very important. And a number of other HR awards for the overall human capital, which to us is the intellectual property of the bank. And this is something that drives us, motivates us as the management team of the bank. And this is a very, very clear recognition and a fairly recurring recognition nowadays.I just want to add 1 or 2 other quick points on the breakup of provision. We had a provision of INR 399.6 crores, so INR 3,996 million. The breakup of that is NPAs were INR 1,740 million; NPI ARC, INR 1,050 million, out of which approximately INR 880 million was ARC-driven provision, and the balance was approximately driven by the NPI provision. And unhedged exposure was INR 60 million. And GLL, given the exceptional growth in the quarter contributed to amount of [ INR 1,150 million ] towards the overall provisioning for this particular quarter.One other key metric was basically our daily average liquidity coverage ratio, LCR. That stood at 102.1%, well above regulatory requirements. So I thought I would mention this too.And with this, substantially the management commentary is done. And we are now open to your questions, please.

[Operator]

[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC Securities.

[Mahrukh Adajania, Director]

I just wanted a sense of future loan growth because there's a lot of opportunity. This year you've grown very well at 54%. Because so many banks are in PCA, would you like to continue to grow at this pace if it is available? Or would you like to slow down to [indiscernible]? How do we look at it?

[Rana Kapoor, Founder, MD, CEO & Director]

Yes. Mahrukh, we have reason to believe that despite the higher denominator for '18-'19 and potentially even in '19-'20 till definitely March 2020, our objective as a management team is to grow around 30% given unique opportunities, given the market backdrop for us to grow. As we also know, there's a fair amount of compression in the markets. There's also a lot of introspection going on. So -- and the good thing is that CapEx somewhat is coming back. Public spend is looking a little bit more robust, and a lot of the choked assets are finally likely to see some light at the end of the tunnel. 1 or 2 of them are in the advanced stages of getting redeemed as in rehabilitated. And we do expect that at least 10, 15 of the larger NCLT-1 and 2 cases in the course of fiscal '18-'19 will also provide opportunities for selective growth in some of these assets. So we have reason to believe that we should be able to grow definitely around 30% and try to endeavor to achieve similar P&L outcomes. Usually, there's a bit of a lag effect on P&L, but our endeavor will be that P&L should grow at least 25% to 27% and advances grows around 30% or so.

[Mahrukh Adajania, Director]

But if you get an opportunity to do 40%, 50%, like you got this year, would you take it?

[Rana Kapoor, Founder, MD, CEO & Director]

Mahrukh, I think, yes, because significantly the environment -- the credit environment is significantly derisked. Substantially, the recognition process in the, let's say, the asset quality looming concerns, which were overhanging for the last 2, 3, 4 years, is largely recognized. I think there is fairly advanced remediation going on and naturally also recovery around that. And we have reason to believe that there are opportunities to grow with larger corporates as there are opportunities to build small, medium enterprise exposure. And our retail business is also achieving critical size and momentum with some fantastic bench strength in place, good teams, national coverage and a brand which is also resonating and back offices which are fairly well equipped with proper bench strength. So I think, literally, most aspects of the bank are fairly well aligned to capture growth at a time when there is compression by the banking system for reasons -- for their own in-house reasons.

[Mahrukh Adajania, Director]

And just one more question on deposit growth. The moderation in savings is largely because of the rate environment where people need more term. Or how do you look at it?

[Rana Kapoor, Founder, MD, CEO & Director]

Actually, some of the CASA numbers, and particularly SA, seems to get overshadowed because of the overall rapid growth of the overall balance sheet. But SA has indeed grown, Mahrukh, by 35.3%, and CA has grown by 51%. So in absolute terms, there is very good growth but somewhat diminished by the overall balance sheet growth. And we have reason to believe that as of 6% savings offering that we continue to be fairly competitive. And I think increasingly with our payroll strategy, with our B2B2C conversions, with our API installations improving, with our corporate customers and with fantastic traction happening in our retail branches that we should continue to see 30% to 40% SA growth. And naturally, we also like to see CA growing considering the cost advantages embedded there.

[Operator]

[Operator Instructions] Our next question is from the line of Veekesh Gandhi from Bank of America.

[Veekesh Gandhi, Research Analyst]

I have 2 questions. First is can you just give us some color on the [indiscernible] [ involved ] with funded assets in the IBU? What kind of lending is this and corporate profile? And the second question is on margins. So obviously, this would around -- one of the [indiscernible] around YES BANK has been the sustained lines of margins and probably -- I understand there's a lot of opportunities. Probably, that would have led to some investments in margins [indiscernible] while it's been flattish Y-on-Y full year. But how do we look at margins from here on, let's say, 1 year out? So these are the 2 questions from my side.

[Rana Kapoor, Founder, MD, CEO & Director]

Foremost, thank you for your valued sentiment. On your first question on IBU, we have a total asset book of INR 2.8 billion, of which our funded book is INR 2.2 billion. This funded loan book is predominantly to subsidiaries of Indian corporates or their international operations, largely for -- so that's our #1 activity. And our second activity is also some prime NRI houses which are domiciled in key money center locations, whether they're Abu Dhabi, whether they are in London. We are working very, very closely with some of these NRI houses who have a presence in India, assets in India because but we are finding that given the overall returns in India a number of the NRIs are stepping up their investments within India. So that would be our second level as far as corporate advances are concerned. In fact, I should have mentioned that we have actually recently set up an international corporate banking and an international corporate finance unit as a subunit of our Corporate Banking and corporate finance business to actually grow this book and to prime Indian multinationals who are -- who have growing concerns, good operations and who are investing in international businesses with deep asset support, corporate guarantees and/or other tangible support of their domestic balance sheets. So we are not taking stand-alone risk there, but we are taking fairly credit-enhanced support of these corporates predominantly with India country risk and not so much international country risk or transfer risk. So that's part of the strategy. On margins, your observation is indeed valid. And I think this is the period where we need to convert our hard work of the last 1.5 decades, which has gone into building our knowledge banking strategy, which we also call mindset and mind share with our clients. And right now is a sweet spot in YES BANK's life cycle to grow loans. So there will be some margin sacrifice for improving our risk-weighted assets, some margin sacrifice maybe for 1 or 2 more quarters. But invariably, we have seen as we break into larger corporates and if we do a good, smart job of entry, it more often not translates into superior cross-sell. And once the cross-sell comes in, naturally it starts improving the overall [ rail rock ] and also the margins in course of time. Two, it continues to be our endeavor to corporates intensely on our CASA growth, with uncompromising objective to get to 40% CASA well before -- very well before March of 2020, and I sense that may happen well within this fiscal year by March '19. So we still have 4 quarters to improve our CASA from 36.5% to 40%. So we are advancing this objective from 2020 by at least 1 year. And that should naturally accrete. And the third point, as you know only too well, because you write some very outstanding research reports, that there is a lot of stored value in our SA balances because we have INR 443.5 billion in SA balances, averaging 6%. So there is stored value. And as you know, some of our larger peers are offering around 3.5%. At some stage -- some stage over the next couple of years, we too will unlock some of the stored value. And today, if I have to equate the stored value at 6% versus 3.5%, this in itself is somewhere between 35 to 40 basis points in our NIM improvement were we to fully unleash this value. It's unlikely that we'll do it 1 shot, but this is the embedded stored value in our margin and in our [ hard house ]. And also one other point but that is more gradual, that we are also producing more and more organic priority sector rather than buying participation certificates, which come at very low returns and at negative spreads. So through Sumit Gupta's leadership and our rural branch banking businesses and our PSL businesses, we are generating more and more in-house priority sector lending. And that in any -- will also reduce the cost of PSL gradually. That won't happen in 1 year. It possibly will start showing significant and like superior results maybe over the next 2 years. So there is more organic production of PSL rather than buyouts of PSL. So when you add these 3 or 4 things, we are still on track for a focus in NIM by March 2020.

[Operator]

The next question is from the line of Kunal Shah from Edelweiss Securities.

[Kunal Shah, Associate Director]

Firstly, in terms of the -- definitely, you highlighted that you are planning to increase the provisioning coverage to 60-odd percent. But any kind of a credit cost guidance for FY '19? Earlier, you said like somewhere around 70 -- 50 to 70-odd basis points for FY '18. So any guidance for FY '19?

[Rana Kapoor, Founder, MD, CEO & Director]

Kunal, thanks. Yes, this question has been raised. And we believe the credit cost guidance for this year, somewhat better than the actual of 76 basis points, is 50 to 70 basis points for the year 2018-'19 and without in any way impacting our P&L outcomes, which, as I mentioned to you, should be distinctly PAT should be between 25% and 27%. So without impacting them, our credit cost guidance is 50 to 70 basis points.

[Kunal Shah, Associate Director]

Okay. And if you can also share the rating profile as the larger part of the growth has also come in Q4, so if you can just share the overall rating profile.

[Rana Kapoor, Founder, MD, CEO & Director]

I think, the overall -- as we have tried to disclose in our media announcement that the 67.9% of our corporate portfolio, 80% of this is A or better rated. And there is a further breakup, which is available. And maybe Rajat, you can go to it.

[Rajat Monga, Senior Group President]

Yes. So Kunal, the rating profile will be made available on our IR presentation that will be on our website. I'll just quickly relate it to you on the call. So we will get that split between AAA at 23.2%, AA category at 13.3%, A category at 42.9%, BBB category at 18.5% and the below investment-grade category at 2.2%. The rating profile has generally shifted for the better. And if we just want to draw a comparison about a year ago that Rana was mentioning earlier on the call, our risk-weighted asset intensity has fallen from 86.6% to 81.7%. That's about a 500 basis points fall in risk-weighted intensity. If you relate it to the -- entirely contributed by the new growth. What it means is essentially that the new growth of last year, the 54% asset growth, has come at a risk-weighted intensity of about 68%. So while the legacy book may have been at 86%, but the new book risk-weighted intensity will stack up to about, let's say, 70%. So there is a good 15%, let's say, reduction in risk weight intensity. Given the opportunity also that is currently available, the environment -- lending environment in the country is derisking and debulking, so that is also reflecting in risk weight intensity. It is also showing up in somewhat moderated margins like you were discussing earlier.

[Operator]

The next question is from the line of Manish Karwa from Deutsche Bank.

[Manish J. Karwa, Research Analyst]

I just wanted to check on the capital position. Obviously, given the growth that you're doing, you will require some capital during the course of the year. So how are you thinking on that front?

[Rana Kapoor, Founder, MD, CEO & Director]

Yes. Manish, there are 2 forms of capital that we want to engineer maybe in some sequence in the course of '18-'19 and potentially spilling over into '19-'20 is a pure equity capital raise towards the end of the year or the beginning of next year of not more than USD 1 billion. And as I mentioned earlier, this would be within a 10% dilution cap. The second thing that we have been able to amply demonstrate is our ability through domestic sources be able to raise perpetual bonds, which qualify, as you know, for Tier 1 ratio. Last year, we raised INR 5,400 crores. We also raised INR 7,000 crores of Tier 2 bonds. Tier 2 bonds have been rated AA+, so that finds a ready market. And our perpetual bonds are only 1 notch below that at AA. And depending on the frame of mind, I know our leadership here in this room is working reasonably hard to see in the course of '18-'19 if we get a rating upgrade. And should that happen, naturally that will also help our overall cost of funds, our overall pricing and add more teeth and more depth to our distribution for our perpetual bonds as well as for our Tier 2 Basel III compliant bonds. So it'll be a combination of a couple of these activities, as demonstrated through our QIP in March '17 and through, as I mentioned to you, INR 12,450 crores of capital qualifying bonds raised in fiscal '17-'18. So we'll continue to work on that path and make sure our cap add is not for 15% and at least Tier 1 is kept above 12%. And we would not want our CET1 to fall below 9.5%. Certainly not below 9%.

[Operator]

The next question is from the line of Amit Premchandani from UTI Mutual Fund.

[Amit Premchandani, Fund Manager]

Sir, you just mentioned 9.5% CET1. Right now it's at 9.7%, and you're kind of guiding for 30% growth next year. And if you raise capital by the end of next year, this 9.5% target may not be met. So can you just take us through how you are planning 30% growth and also keeping 9.5% CET1?

[Rana Kapoor, Founder, MD, CEO & Director]

Let me take the easy response first, and then Rajat will add to it. Number one, please remember that with a PAT increase as we have done in 2017-'18, which has grown by over 27.5%, our retention of earnings is fairly high at approximately 82.5%. So that and given our risk-weighted assets to total asset combination, which has improved to 81%, so if you look at retention of earnings at around 82%, 83% and with a fairly liberal dividend of 135% and still retaining 82.5%, that in itself provides us in-house retained capital to be able to grow at, at least 20% to 22% given our RWA combination. And then naturally through perpetual bonds and our Tier 2 bonds, we can grow another 4%, 5%. And in course of time, as I mentioned to you, towards the end of this fiscal year, early next year, there will be need for our core equity capital issuance. And to me, that is important because it is ROE accretive, as we have demonstrated time and again through our 3 QIPs over since 2010, 2014 and 2017. Each of our 3 QIPs have been very, very accretive. And therefore, we will time it in such a way that we raise measured goals and be able to sustain growth levels of around 30% with high retention of earnings. Rajat, you want to add? Nothing? A little more to it?

[Operator]

The next question is from the line of Adarsh Parasrampuria from Nomura.

[Adarsh Parasrampuria]

Firstly, on the RBI audit and divergence. I think the FY '17 divergence has been handled or at least addressed very well. Just wanted to understand that you -- we may have concurrent audits for FY '18. And having learned then you had limited chance in FY '17 to see what the regulator was looking at in terms of divergence, how do -- and we kind of draw comfort from the fact that you would have addressed that for FY '18 in any possible manner. If you can give some qualitative comments around that.

[Rana Kapoor, Founder, MD, CEO & Director]

Well, that's just a good question. In the fiscal year, we actually, as I mentioned to you, had 2 divergence-related setbacks in April and afterward, so literally 2 inspection outcomes. In a way, it has literally with a gap of 6 months on record. But physically from 1 outcome to the beginning of the new -- next inspection was a gap of only 3 months. So naturally, the bank has been reasonably -- the management has been baptized. The board has been baptized. And I must confess, even the statutory auditors, KPMG, now for the last 2 years have been more than adequately baptized. So literally, the audit committee of the bank, the board of the bank, the management of the bank, the stat auditors of the bank, everybody has deeply dived into RBI, so-called IRAC rules, which naturally have been interpreted by us after 2 setbacks in the last fiscal year. And the level of diligence which is going on, first in-house by the management; two, by the stack auditors; three, also by the ongoing off-site regulatory supervision, which is embedded in the risk-based supervision of Reserve Bank of India; and the on-site is typically about 2.5, 3 months in a fiscal year, has given us enough experience to believe that we understand how RBI is interpreting these IRAC rules and divergences. And with heightened interventions of the stat auditors, naturally, a lot of in-house tests, further upgradation and fine-tuning of broad-approved policies, a lot of measures have been taken. And naturally, the auditors, particularly for the fiscal year ended March '18, have been extremely in depth, extremely diligent in addressing RBI issues and have given us [ on qualified ] opinion, including relating to past loans, past divergences, past assets that were NPA. So all of that has been reviewed. And I think collectively we are now -- we have a full understanding of RBI expectations in this regard.

[Operator]

Due to time constraints, we will take the last question from the line of Nitin Aggarwal from Motilal Oswal Securities.

[Nitin Kumar Aggarwal, Research Analyst]

My question is on the balance sheet growth. Now this year, we have grown our balance sheet size from INR 2 trillion to INR 3 trillion, so very rapid growth that we have seen. And we have said that we would want to grow nearly 30% for FY '19 as well. So how challenging do think will it be able to fund this growth, as the deposit growth still remains relatively soft and credit deposit ratio this year has increased pretty sharply?

[Rana Kapoor, Founder, MD, CEO & Director]

Well, Nitin, yes, as I did mention earlier that we are targeting about 30% growth in advances. And the funding for this is coming through CASA and retail FDs, which constitute now 57% of our funding base. Roughly about -- as you know, cap add is at 18%. So when you add another 18% or even 15% to that number, you are looking at approximately around 75% coming in from our retail network plus our equity and our hybrid equity base. So our borrowing dependence as in institutional borrowing dependence and mostly long tenure is just between 20% and 25%. As -- and given our ratings and improving ratings in the course of time plus access to international borrowings, as demonstrated, we believe a mix of, let's say, 60% coming from branch banking as in retail banking, capital plus capital qualifying bonds contributing roughly around 15% to 18% and the rest of 20% to 22% coming by borrowings will be the approximate liability management mix of the bank to fund this growth. Rajat, do you want to add?

[Rajat Monga, Senior Group President]

Yes. So I think you can assume that, like in the past years, CASA has been growing anywhere between 40% and 50%. We believe it will continue. So the base is getting heavier. So maybe it will continue to grow at the lower end of this range. So that itself is a good start because the low-cost deposit mix is maintaining its 40-odd percent growth rate. There are already -- this year was harder because the loan book grew more like 54%, and we could not up that phase for our regular deposit business because that's not very easily possible either. But the momentum is continuing. The branches are getting added. The -- our business is getting stronger on the ground. So we should be able to keep the CASA meter running at a 40% year-on-year growth. As long as we achieve that, I think the rest is logically, I would say, falling in place. We will -- we have grown our deposits at 41% even this last year, and we will be able to keep that pace easily going provided CASA does its job at a 40% year-on-year growth. That'll also improve the mix of CASA by another 200 or 300 basis points, help the margins in the process as well. The funding will fall in place. I don't think there is a very -- that's not a very big ask. This year was harder. Next year will be easier.

[Operator]

Due to time constraints, that was the last question. I now hand the conference over to Mr. Rana Kapoor for closing comments.

[Rana Kapoor, Founder, MD, CEO & Director]

Well, thanks a lot for your patience and support. I think time and again the bank has demonstrated mostly over the last 10 years, so 40 quarters, against all kinds of headwinds, global, Eurozone, U.S., China, Japan, India, that the bank is able to navigate growth and be able to preserve its asset quality even after extraordinary couple of setbacks. And I also want to give a strong assurance that given the agility of management, the strong support of the board, led ably by our Chairman, Mr. Ashok Chawla -- and today, we have also added 2 more board members to replace 2 retiring members, Mr. Chandrashekhar, who was the Chairman of -- or rather the President -- Executive President of NASSCOM. He is also being inducted on the board today. And when Dr. Pratima, who's a dean of one of the top colleges in Pune, is also coming on our board, so lady director has been also replaced. So what I'm trying to say is that the objectives of the bank to grow, preserve quality, maintain proper board and management governance. And on management governance also we have made a couple of changes, which are in public domain. So I think, literally, board and management governance is really stacking up well. And I think in the next 2 years, we'll more than amply demonstrate the ability of the bank to really emerge as a large bank.And some of the numbers we have shared with you in the past as part of our 5-year vision and strategy, which was announced in April of 2015, I think we are back on track to achieve that, to be a INR 5 lakh crore bank, so INR 5 trillion total asset bank, and certainly cross INR 3 trillion in deposits and advances by 2020, as we have done INR 2 lakh this particular year, and work towards emerging in the top 6, 7 public and private banks in the country surely by 2020. I think, on profitability, we are already there, as you can see. And I'll request my colleague Niranjan to share a peer group comparison of the 3 institutional bank and 3 banks including us in our peer group. And you can see that we are very much on track and have emerged as the fourth largest stand-alone bank in the country. And I think we will maintain that position for quite some time to come at least organically in our case. Good luck. Thank you very much for your patience. Thank you.

[Operator]

Thank you. Ladies and gentlemen[Audio Gap]