Yes Bank Ltd
NSE:YESBANK
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Yes Bank Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Q4 FY '19 and Full Year FY '19 Earnings Conference Call of YES BANK Limited.We have with us today from the management, Mr. Ravneet Gill, MD and CEO; Mr. Rajat Monga, Senior Group President; Mr. Ashish Agarwal, Senior Group President and CRO; Mr. Raj Ahuja, Group President and Group CFO; Mr. Rajan Pental, Senior Group President and Retail Head. [Operator Instructions] Please note that this conference is being recorded.I'm now glad to hand the conference over to Mr. Rajat Monga. Thank you, and over to you, sir.
So thanks, Ali. I think we will begin this conference with opening remarks from our MD and CEO, Mr. Ravneet Gill. I would sincerely apologize for the delay that has already taken place. I believe we've had more than a reasonable delay, but we were -- tried to help that as much as we could, but finally, we are going to start. So I'm not going to take more time and I'm handing over the conference directly to Mr. Gill. Thank you.
Good evening, ladies and gentlemen. This is Ravneet Gill here. As Rajat said, our sincere apologies for the delay. So sorry to have kept you waiting for so long. What I can do is start with some initial thoughts around strategy and the way forward for YES BANK. And then I'll hand over -- hand it over to Rajat for the financials piece, and then we can come back for Q&A. So the question I often get asked is what was it that excited me about YES BANK and what led to the decision? I think from the outset, there were a couple of key drivers. The first and foremost was in terms of the growth of the bank and the brand that it had built for itself over a decade and a half. The second one was the quality of the people, I used to compete with them as part of my previous employer all the time, are very driven entrepreneurial, very gifted. And the third part was, from what I could see, the technology platform that YES BANK had built was effectively the best-in-class. And in this respect, I must tell you that in early February, I was in Bangalore on one of our several calls, and I met Infosys and Nandan asked me there that, "Ravneet, what was it that made you decide in favor of YES?" And I talked to him about the technology bit. And Nandan said that, "I had the ringside view of that. And I have to tell you that these guys have platformized themselves a lot better than any of the other banks have in the country." And having seen it now from the inside, I think that's something that I would fully endorse.What I can tell you is that having spent almost 2 months in, all those impressions, if anything, have just got reinforced. And if there's one thing which has got reinforced absolutely on the upside has been the quality of the people. It's an absolutely top class team, very driven, very committed, very hard-working. And given the fact that banking is a people's business, I think we really do have the building blocks of building an even stronger, better, financial institution. Talking about some of the themes which will drive our path forward, our growth forward. If I looked at -- if I look at ourselves as a private sector bank in this country, relative to some of our peers, one of the things which I think that differentiates us is the strong corporate focus. And when we talk about the corporate focus, do remember that over the last 14 to 15 years, that YES BANK built itself into the fourth largest private sector bank in the country. It was done in an environment where corporate India was not exactly flourishing and private sector investment actually has been reasonably low in the last 7 to 8 years. So when you see the bank growth in that context, it provides some perspective in terms of just the enormity of the achievement. And think of the times when the CapEx side returns, the investment side returns, how well-positioned would YES BANK be to [ write that chest ].Having said that, one of the key businesses of the bank has been the structured finance business. And given the fact that complex financing typically tends to be a very bespoke business, I think that there remains a perception in terms of how scalable is it? How predictable is it? How sustainable is it? And I think that becomes the first trigger for us to think in terms of building other growth engines alongside the corporate business. And the 2 businesses, which, obviously, become very relevant from our perspective, are the transaction banking business and the retail bank. Interestingly, if you look at the retail bank, given that it has shown under the radar for quite some time, the quality of that business is not always fully understood. So if you look at that book, which grew from INR 43,000 crores to INR 52,000 crores during the year, which is almost a 43% increase, it came on the back of very good credit quality. Actually, the credit bureaus tell us that the book is as good as any in the market, and very, very reasonable earnings along with that. And then if I look at the transaction bank business, which from an asset perspective didn't grow that much. But still, from a revenue perspective, grew 41% from a INR 1,933 crores to INR 2,725 crores. And during this period, it also had, in terms of [ wear off ] increased by 51%. And this efficiency came on the back of better product mix, and of course, repricing, and came in, in a growth-constrained environment given the fact that we were in need of more growth capital. I think we have [ provided a step -- ] opportunities provided to this business, I would feel very, very enthusiastic and optimistic about its future prospects.It's very technology-led, very solutioning-led. And these revenues come on the back of the fact that it still is predominantly a nonfund-based book, and which, of course, has had some bearing in terms of the NII. But once we get that mix right, and we can put in more growth capital into this business, I think the prospects for it are absolutely outstanding. Equally, if I looked at the retail business, where we have 1,100 branches, if there's something that we could have done differently to these businesses, run it at an even more granular fashion. So if I look at the 1,100 branches, we roughly -- only 30% of those currently are profitable. We want to get to a profitability level of about 80% by 2023. And by 2025, these branches should be fully profitable.I think it's come on the back of greater empowerment at the branch level, and of course, more cross-sell. To be able to facilitate that, 2 things that we've done: we've really had a devolution in terms of authority, so we are creating more regions, building very strong regional managements in all these sectors and geographies to be able to empower them to drive strategy, drive growth; equally, we will hire -- we are hiring in the -- we are in the process of hiring people [ off agency ], to be able to give more impetus to our liabilities business.Clearly, if I see, in terms of priorities, liabilities remain the big priority. And I do accept that 1,100 branches may be a little light relative to some of our competitors. But let me give you 2 cuts to that, which will give you a better perspective in terms of the future trajectory of this business. The first and foremost is that if you looked at the way YES BANK's business operated and the decisioning happened and the way management operated, I think it was relatively centralized. Whereas, by definition, I think, liabilities tends to be a more ground up business, a more granular business, and that's something that we are trying to address through more empowered regional management as I mentioned to you. The second thing is that I think there was a single-minded pursuit for fees and then as long as that was getting generated, I think the focus on cross-sell, and of which one -- liabilities could have been [ one ], I think got deemphasized, and that's something that we are correcting, and it's very heartening to see the pace at which it is really gaining traction. Which brings me into the third part, which I talked about, which was really the digital piece. And just to give you -- it's something that I am very passionate about, and I could talk about for a very long time. But I would just try to give you some data points to give you a sense in terms of just how much above our weight are we punching right now. So if you look at just from the point of view of the entire UPI transaction, last year 1.43 billion UPI transactions went through us, which basically was 2 lakh 35,000 crores in value terms. And in terms of number of transactions, we were #2. And in terms of the volumes, we were #1. Which intuitively, I'm sure, surprises many of you. But I will also tell you the enormity of this achievement and the potential that it holds from a monetization perspective, even if you looked at it from an AEPS perspective, which was the Aadhaar Enabled Payment Services, 155 million transactions got processed through this medium. And again, the amounts -- corresponding amounts for those were very, very large.But the key around this is not just the number or how impressive it is from a quantitative perspective, it is the data reference this is beginning to create for us. And if you can put the real -- if you can put good analytics around that, which is something that you'll be in the process of doing, the monetization potential for this business and the cross-sell that it could generate, could be absolutely enormous. So what does that effectively mean? I think what that means is that if somebody wants to route a UPI payment through the YES BANK handle, we get to see a lot of information. We get to see the bank, the bank number, obviously the transaction, the merchant. And if there are repeat transactions, I think, it's very possible to build analytics around that. I'm a very big believer that in financial services, our cross-sell is not a function of pushing products, that's really the job of S&P. In the case of financial services, cross-sell is really a question about enabled, and I think Amazon is a very good example of that. And I think the analytics that I was talking about, if you could marry that to the pool of data that we are now beginning to build up, the cross-sell that we could do around that, whether it was in terms of personal loans, credit cards, home loans, the whole gamut, could be something we could ramp up very, very quickly. So when we look at the distance -- the distance between us and some of our competitors in the businesses that I talked about, at this point in time, it will look a little material, but as you would have seen from a couple of data points that I gave you in terms of the payments landscape, basically it's possible to plug that gap very, very quickly. We could talk about this subsequently in the Q&A as well, but I thought I would give this perspective to you that in an environment where increasingly it has been believed that banks has become technology companies with a banking license, YES BANK is very strongly-positioned to be at the absolute forefront of that journey. Before I do hand over to Rajat to walk you through the financials, a couple of words with respect to the overall credit environment and the asset quality. As you know, that over the last 6 to 8 months, there has been a significant dislocation in the Indian Financial Services markets, stemming from the dislocation in the NBFC space, our mutual funds, and then a lot of related issues, which led to significant risk aversion, and liquidity became a major concern. It definitely had an impact on our credit portfolio as well. And just to be able to demonstrate to the market that we now want to get into a realm of very prudent conservative accounting, you will see that we have taken contingency provisions of INR 2,000 crores this year, which is in addition to the provisions for the quarter of about INR 1,200 crores. In terms of credit costs, our guidance for 2019-'20 would be about 200 basis points, of which 80 basis points had been absorbed through the contingency provision of INR 2,000 crores that I talked about, and I would reckon that for the balance year, our credit cost could be up to 125 basis points, and then would begin to normalize the year after.With that, I will now hand over to Rajat, and then look forward to connecting again when we get into our Q&A.
Thank you, Ravneet, very much. So I will take the opportunity on the call to run us through the financial performance of the quarter gone by. I think the highlights of the fourth quarter continued to be growth driven, which is central in Retail Banking. If you look at our year-on-year growth, the overall advance book has grown by a little less than 19% and it stacks up to about INR 2.42 trillion. Sequentially, there has been about a 1% fall in the loan book, owing to more sell downs and repayments that took place in the fourth quarter. As I was mentioning, within the book, the retail continues to be growing the strongest, and it has achieved about 62.3% year-on-year growth and a 8.6% sequential growth and is now represented by about 17% of our loan book. And this was about 12% last year. So we have seen a 4.5% increase in the retail book share in the last 12 months.A quick look into the deposit side as well. They have grown 13.4% on a year-on-year basis and 2.2% on a sequential basis. The total deposit book now stands at INR 2.28 trillion. We have seen some moderation in our credit/deposit ratio as well, which has come down from 109% in the previous quarter to about 106% as of March 31, 2019.CASA ratio has been more or less flat at 33.1%. However, the granular book, which would comprise of CASA and retail time deposits has improved to about 59% from what was 57.5% 3 months ago. Retail deposits, as such, which if I may say retail time deposits grew 40% on a year-on-year basis, and 8.3% on a quarter-on-quarter basis. So our deposit book is moving towards retail quite nicely, though there was some pullback about 12 months ago, when our overall balance sheet growth was high, but of late, retail has caught up quite nicely in terms of the deposit mix itself. Some quick statistics on our liquidity coverage ratio. It has improved to about 111% on an average for the fourth quarter as compared to 102% in the third quarter, and the LCR ended the quarter at 113% as at March 31, 2019.As Ravneet was mentioning, we have taken a onetime proactive, what we are calling contingency provisioning, of about INR 2,100 crores, which has been accounted for in the results of the fourth quarter. This contingency provisioning essentially relates to our assessment of the bank's credit portfolio, which is predominantly centered in the below investment grade rating horizon and should be constituting about 20% provisioning equivalent of the loan book that we are watching for in terms of the risks in the part of the credit portfolio. And we should be -- after the contingency provisioning, we should be looking at up to 125 basis points of credit cost being factored for the fiscal year 2019-2020.Just to add to some of the statistics, which Ravneet mentioned on the digital payments, we continue to command the highest market share in the UPI person-to-merchant payment transactions, and we have seen an eightfold growth in volumes in the fiscal year gone by. We have also been ranked #1 Remitter Bank on the IMPS platform by NPCI in our peer group for the last year. The reason I mentioned these 2 modalities of payments is because both of them happened to be real-time settlements and are touching hundreds of millions of customers through the year. We've also been very excited about our API banking platform, which is continuing to grow exponentially, and we now have about 850-and-more customers on-boarded on the API banking platform, wherein customers can safely integrate the banking that they want to derive from the bank account with us, with the services that they are rendering to their customers, respectively.A couple of corporate actions also that have been decided in today's Board meeting include a payment of dividend of INR 2 per share, which will be subject to shareholder approval, and also a renewal of the capital raising request to shareholders for raising up to USD 1 billion and limited by a 10% dilution, which has also been approved in the Board today and will be recommended to shareholders in the ensuing AGM.I'll come to the few statistics we want to share on our profit and loss statement as well. We have seen growth moderation in the last 6 months particularly, where we've had, let's say, changed management that the business was undergoing, and some of the outcomes have been somewhat affected, including the net interest income which grew 16.3% on a year-on-year basis. The net interest income for the quarter gone by does have about INR 1 billion of one-offs on account of interest reversals relating to NPA recognition, and I will give the NPA statistics also in a short while. If we compare the NII growth on a full year basis, we have seen a 27% growth in net interest income for this year ended March '19 as compared to the year ended March '18. We are reporting a net interest margin of 3.1% for the fourth quarter, which is somewhat affected by the interest reversals, and net interest margin of 3.2% for the full year ended March '19. We've also seen some correction in our noninterest income. This, again, has elements of one-offs and I will also describe them as we go. Our total noninterest income stood at INR 532 crores for the fourth quarter and INR 4,590 crores for the full year, which was a 28% full year growth in the noninterest income. The contribution by corporate trade finance, cash management fees, has been steadily growing. It grew 24.4% on a year-on-year basis, and there has also been equivalent growth in the Retail Banking fees.This quarter, we've also taken some reckoning of our undertakings -- underwritings and commitments, and we've also looked at the large exposure framework that has got introduced on the 1st of April and as a consequence, have taken some underwriting withdrawals and therefore, have reversed corresponding income or have also taken the decision to syndicate some of our exposures to reduce the exposures entailed under the large exposures framework, and therefore, have also taken a provisioning for syndication for such loans.So these 2 elements contributed to about close to INR 3 billion or INR 300 crores of reversals in the current quarter, and you will see that, therefore, we are reporting a negative line on corporate fee. So the corporate fee, otherwise, stacked up to about INR 1.75 billion, and it was also adjusted for about a INR 3 billion reversal, and the net number is about INR 1 billion-plus negative in our statements. Our operating expenses have grown at about a little less than 20% on a year-on-year basis in the quarter. All told, the preprovisioning operating profit has taken a hit on account of reversals as well as some moderation in the corporate fee, as a consequence of which, the operating profit grew 5% on a year-on-year basis for the full year.Some figures on provisions. We've already highlighted that the -- there is a contingent provision of INR 21 billion or INR 2,100 crores, which relates to the below investment grade, but standard, part of our loan book. Other than that, we've also taken INR 1,270 crores or INR 12.7 billion of specific loan loss provisions during the quarter. We've also taken INR 2.43 billion of mark-to-market provisioning and about INR 0.5 billion of other provisions. So total provisions stand at INR 36.6 billion for this current quarter, including the contingency provisioning. Given all of this, predominantly if I have to highlight, interest reversal of INR 1 billion in the interest income line -- net interest income line moderation in corporate fee, topped with some write backs or reversals. The incremental provisioning that we have taken, we are having to report a net loss of a little over INR 15 billion for the fourth quarter and a net profit of INR 17.2 billion for the full year. So having taken some of this prudential preemptive provisioning, we've also lowered our return ratios correspondingly, so our return on asset and return on equity for the year stand at 0.9% and 11.4%. The book value of the share is being reported at INR 116.2 per share as of March 31, 2019.A few items of reporting under capital also would be for total capital -- the total Tier 1 capital and CET1 ratio, respectively, would be 16.5%, 11.3%, and 8.4%, respectively. Our CET1 would have been closer to 9% had we not taken the contingency provisioning that I mentioned of INR 21 billion. A quick look into our segmental split of business across corporate, SME and retail units. So we have seen increase in share of retail and SME business mix in the quarter gone by. So what was a 32% mix has increased to 34.4% mix on both a year-on-year basis as well as on a sequential comparison basis. Within the retail and the business banking space, we have seen a flat performance in the middle enterprise -- in the medium enterprise space, we have seen a 70 basis point mix improvement in the small and micro space, and a 150 basis point mix improvement in the Retail Banking space.And as a consequence, the [ cut ] -- share of Corporate Banking has come down from 67.8% as of December 2018 to 65.6%, which is about a 220 basis point reduction in the mix for Corporate Banking, which goes along with the direction that the bank is anyway taking to be able to diversify its asset mix.We continued to moderate our risk-weighted asset proportions as well. So the reported risk-weighted assets stand at INR 3.06 trillion and as a proportion of total assets, this mix now is at 80.2%, which was about a 200 basis -- about a 150 basis point reduction from the same period last year. Some more statistics on the asset quality side. I'll start with credit costs for the quarter, which stacks up to 137 basis points, including about a -- -- the 92 basis points of contingency provision that we have made for the year. And for the fiscal year '19 gone by as a whole, the credit cost, including the contingency provisioning, stands at 209 basis points. We are reporting gross slippages of INR 34.8 billion in this -- in the quarter gone by, which includes about INR 5.5 billion on account of an airline company exposure as well, which has been recognized as NPA. That, otherwise, could have been considered not 90 days overdue as at March 31, 2019. As well as a follow-through INR 5.29 billion crores of recognition on account of stressed infrastructure conglomerate, so if you will recall, we had taken about INR 20 billion of the stressed infrastructure conglomerate to NPA in the previous quarter and had about a INR 6 billion exposure that was still standard, which has been predominantly recognized in this quarter, prior to when the NCLT ruling was imposed on this particular account. So we still have about INR 0.8 billion equivalent of loans, which continue to be classified as standard, pursuant to the NCLT ruling. However, we have taken a 15% provisioning against those accounts, which continue to be classified as standard. As a result, we are reporting a gross NPA of -- ratio of 3.22%. The absolute amount of gross NPA is INR 78.8 billion.We are reporting a net NPA ratio of 1.86%, which is about INR 44.85 billion. A PCR of 43.1%, which is just about lower than what we were reporting same time -- rather same -- last quarter. We have made one sale of an NPA in the quarter gone by, which was done to an ARC on an all-cash basis. So we have been able to recover INR 117 crores in cash as against INR 1.95 billion exposure and the difference has been provided or written-off in our books. Our standard restructured exposure continues to be very modest number of 8 basis points, and this will -- this is just legacy and which will keep running down. Just for abundant measure, we've also got to highlight the outstanding funded exposure to the stressed infrastructure conglomerate, which stands at INR 25.28 billion, of which INR 24.42 billion has been classified as NPA. As I mentioned a bit earlier, about INR 0.86 billion continues to be classified as standard and is carrying a 15% standard provisioning. A few quick statistics on our sectoral position as well. On our top 20 individual borrower accounts, 90% of those continue to be rated A or better by external agencies. Our SMA-2 position has been reported at 98 basis points of advances as of March 31, 2019. Our exposures to NBFC, NBFC stand at 2.9%, which are 70% of those by value rated A or better by an external rating agency. Similarly, on housing finance companies, our exposure position stands at 3.5% and 88% of those are rated A or better.Our commercial real estate exposure stands at 7%, of which about 0.27% are in the SMA-2 category. And also for good orders sake, we have also highlighted that as far as the disclosures for divergence is concerned, given the RBI's annual review from March 18 has been completed, and we have received their findings, the bank has no disclosure requirements under those regulations.We are also highlighting exposure to some of the other sectors, which include electricity in the nonrenewable category, where our position as of March 31, if I -- if we exclude the renewables, is about 1.9%. We have no exposure to state electricity boards. Our exposure to the EPC borrowers is about 10%, of which 6.7% -- so about 67% of that book is rated A or better. Similarly, we have an exposure of 3% to iron and steel, of which about 70% is rated A or better; a 2.5% exposure to telecom, of which about 90% is rated A or better; and about 1.2% to gems and jewelry, of which about 60% is rated A or better. We've also presented our pie-chart of the total sectoral exposure, which you -- we can go through that at your convenience. As you go through our press release for the financial results, you will see several highlights of the work that the bank has done on the digital forefront and the outcomes thereof. I will not go through them -- each one of them, and we could possibly just would like to highlight some of the remaining statistics. Our employee strength has -- is standing at 21,136 as at March 31, 2019. We have 1,120 branches. We did receive a stabilization note on our rating from Moody's in the quarter gone by. Earlier, they had a negative outlook, now they have revised that to a stable outlook -- have revised that to a stable outlook. We were also recognized with the position of Best Technology Bank of the Year, with the Best use of Data & Analytics for Business Outcome and with the Most Customer-Centric Bank using Technology Awards in the medium-sized banks category at the Indian Banks' Association Banking Technology Innovation Awards. I think they should have considered us in the large size, but we will leave the judgment to them. We also were applauded as winner in the Innovation in Data Science at the ninth edition of the Aegis Graham Bell Award 2018 for the industry-first project, which is YES EEE, which stands to Engage, Enrich and Excel, and we are using the data and data science to come to the ability of engaging and enriching the customer experience, and of course, trying to excel at it.We were also selected by the Global Finance magazine as the Best Debt Bank in Asia Pacific for deals announced and completed in the year 2018.So that was a summary that I wanted to present on the bank's financial performance. I did try to highlight some of the one-offs and onetime sort of changes that have taken place in our financials, and of course, we will be happy to take queries and questions on the same. As some of you will know, we are also meeting with analysts at 8:00 p.m. So we will try and answer most of your questions and queries on this call. We will be discussing more of the go-forward strategy in the meet, and if you could save your questions to financials on the call, we could answer these strategic questions during the meet as well. We'll leave that to you, and we are open to questions now. Thank you.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC Bank.
The provisions of INR 2,000 crore, which would be roughly on a portfolio of INR 10,000 crores, would you have a breakup -- a sectoral breakup of the portfolio, like what some other banks give? Say power promoter groups?
Mahrukh, I think the portfolio is basically the situation that you will be well aware of and which are being discussed in the press also of late. So it is predominately around these situations, which are well known to you. It will include real estate. It will include media and entertainment. It will include infrastructure as the, let's say, the highlights there.
But any breakdown, like quantitative breakdown?
Well, we would -- I would say, it is roughly well distributed. I don't think there is something which is standing out per se. They would be roughly balancing -- maybe 20%, 30% would be what a single sector might be occupying there.
Okay. Got it. And the other question is that if you take the example of other private banks that went through an adjustment period in the asset quality or in their fee income, it was never a one quarter thing. Like the fee adjustment took 4 to 6 quarters of growth. It took that much time to come to revive; and likewise, for credit costs. So how do you see it phasing out in your bank now?
So Mahrukh, I think the -- if you look at the -- firstly, the last quarter was particularly peculiar for us. We were going through a fair bit of change at the leadership situations, and we've had, let's say, only a month each with, let's say, CEOs in charge in this last quarter. So there was a little bit of, I would say, therefore a decisioning slowdown. We do believe that the business momentum, now that we are relatively more back in shape, we are also taking preemptive and -- sort of provisioning, that we would get back to getting the feedback. However, we are also going to be taking accounting changes in our fee recognition, particularly corporate fee. So we will follow a mix of recognition and a deferment. So any fee, which is above a threshold, let's say, 1.5% or 2%, will be deferred over the period of the loan. So that we will not be able to get back quickly. But as Ravneet was mentioning, that we still have a fairly functional corporate business, and I think we will have to recognize the incidence of fee more on account of conservative accounting that we are going to be taking going forward.
Okay. And just a follow-up question on stress -- on the stress portfolio that -- there are stress companies and stress groups. So is there likely to be additions? Because what usually happens is that one company of the group goes under stress, and then rating downgrades happen for many other companies of the group. I mean it's happened before in many groups. So do you see the stress portfolio increasing? Or you've now done a thorough study and -- I mean, does it increase from hereon? Or how does it...
So let's say, I don't think the group issue predominates. So if you look at -- though I did not highlight that, but if you go through our investor presentation, we have given a rating breakdown of our exposure, like we give every time. There has been an increase recently in the below investment grade portfolio. And we do believe that there is very little of group interaction happening between the below investment grade and the above investment grade. So it's mostly, let's say, normalized. So if a part of the group is below investment grade, the other parts of the group is also falling in the below investment grade category. The book that you will look at is not necessarily -- you should not look at that as the stress book because not all below investment grade, a lot of small companies tend to be in below investment grade even just because of sheer size. So it is the part of the book, which we believe, needs active monitoring from our side is what we are highlighting, and taking provisioning against that.
And it should remain pretty stable?
Well, there will be ins and outs. There will be ins and outs. I think the book is also, let's say, if it slips, it'll also be ripe for recovery because our collateral position continues to be good. The -- some of these cases might have liquidity events at the end of -- towards resolution. So there would be a fair amount of recovery as well. So I think -- but if you combine our contingency provisioning and the guidance for next year, I think we are factoring a little bit of the ins and outs already in that.
The next question is from the line of Abhishek Mehta from Asit C. Mehta.
My first question is regards Corporate Banking. The share has fallen from 67 to -- 67.9 -- 65%, 250 basis points as you mentioned. Just wanted to know that further going down the line, is this share going to come down? What is the target? Or there is no specific target in mind?
Abhishek, we have, let's say, a medium long-term target which will be retail plus SME 50 and corporate 50.
Okay. So maybe if 15% will more come down, Corporate Banking side?
Yes, progressively. Yes, so that is more like -- more or less a 5-, 6-year target. So -- I mean we also don't want to grow the retail and SME business that fast that we have other issues that might come up. So we will smoothen the transition but we will have a plan which we're already working on.
Okay. Sir, one more thing regarding -- I think the NPA issue is [ there ] a bit. Now recoveries, what is the idea? Because I was just wondering that is recovery possible because one thing that came to our mind is your recurring dividend [ year-on-year ], yet there are losses. So are you hopeful for recovery? So if dividend payouts happen, then on one side you are paying dividend and on the other side you have losses regarding your assets. So that's what I was wondering why. So the link -- I was just trying to link it.
Yes. So we of course believe that there will be recovery, and I think we'll have a fair amount of recovery. That recovery sometimes has to be looked at with some patience in terms of time. The adjustment that we have taken in this quarter, Abhishek, is also onetime. Lots of them have one-offs. Some of this will -- this part will not repeat. It could be that there is normal course of gains and losses in the business that we will have to deal with in course of time. But this is not something that we're going to do on a recurring basis. Clearly not.
The next question is from the line of Adarsh Parasrampuria from Nomura.
Sorry, I joined a little late. Just want to clarify, you said the INR 2,100 crore of contingency provision is against a INR 10,000-odd crore stress book that you would identify, is it?
That's correct.
Okay. And does that -- does it kind of take care of the BB and below book that has seen an increase? Like, why did that happen? Why did the marking suddenly happen in a single quarter? And...
So we have seen, let's say situations that have evolved, Adarsh, in the last 3 to 6 months. So -- I mean the last 3 to 6 months, Ravneet was also highlighting in his commentary, have been -- have had a element of financial stress that has been added to -- I mean you've been -- I'm sure you've been reading the news and the press, and there have been downgrades, there have been, let's say, asset value erosions. So it has been something which has a reason, and we have to recognize that, and we have to talk to you about that. And which is the effort -- is what we are making. So I would still caution that you should not assume that all the BB and below is a problem because there would be normal-course BBs also, which -- the worry happens if typically, the -- I am more concerned if there is a move from a BBB to a BB because that is where there is deterioration which is being evidenced. So which is what we are trying to kind of preempt and protect ourselves from.
And the INR 2,100 crore of contingency plus 125 bp of credit cost, right, that's another INR 3,000-plus crores. Does this INR 5,000 crore, the provision, consider the collateralization that you have. So broadly, that's an estimate of, say, a loss given default you may have? Or like what went into saying that 125-plus, say, INR 2,100 crores that you've made? I'm just trying to understand -- I know it's a little too early, it's been only like a couple of months. But I just want to understand the adequacy of putting these things -- both these things together in the context of collateral you may have on these loans?
So let me break this answer into 2 parts. It does not factor LGD directly. It factors LGD because we may be assuming, let's say a base case of 50% PCR, give or take. It does not factor that if I have a view you that I will have 20% LGD so I'll take only 20% provisioning, not really. It factors only if there are recoveries. So I hope I'm able to clarify the position. So it is more accounting judgment. It is not a collateral judgment that we are taking. Having said that, we still believe that we have very strong collateral values, and we will get recoveries over time. And that -- from LGD perspective, we will be sufficiently covered between the contingency and the expected credit costs in terms of the guidance. All -- LGD is sufficiently covered. But how LGD is -- accounting does not work like that. I hope you're understanding my point that if it slips I have to take add-on provisioning irrespective of LGD. If I have to keep an average 45%, 50% PCR, I have to take 45%, 50% provisioning on the incremental slippage also.
Understood. And last question on the income side, both on NII and fees, right? Now if you kind of change the structure in which the business was being done on the corporate side, obviously there are some one-offs and corporate fee but that will grind down to a significantly lower number than the usual run rate. Any sense here and now this quarter would have been exceptionally poor as you mentioned, but any sense there? And the second question related to income again was on the NII. You still have a large pool of asset which looks stressed, which may have a default situation or [ a given ] NPA marking, though you've kind of -- will provide for it. That does have income effect in terms of NII, right? So we've seen for corporate banks the way our NIMs kind of have come down. So if you can just address both these NIM and corporate fee kind of both the lines.
Yes, sure. So let me start with NIM because that has an element of both a gain and a loss. So we are also ballparking, Adarsh, a growth, let's say, outcome which is more reasonable, more in the, let's say, early to mid-20s, at best. Of course within this, there would be a -- possibly a retail, which will outdo the average and maybe the corporate book will have a more moderate outcome. Of course, we'll have to support the corporate book outcomes with a lot more churn in the strategy implementation and not just adding to our balance sheet. The reason I was making this point is that this also relaxes our liability side a lot. So we are also expecting gains to come in on account of the liability side as our book is moving now to retail very, very quickly, which is also bringing us gains in terms of relative advantage on cost of fund side. So there would be, I would say, a 50 basis point cost gain on an [ as-is, where-is ] basis that we will be baking in, in terms of our near-term -- near- to medium-term outcomes, which is quite a substantial amount -- I mean it actually does about a 15%-plus to our NII on an [ as-is, where-is ] basis let's say keeping the growth aside. So there is cushion as far as the loss of NII on account of slippages if there are, and gain back on account of cost of fund advantages. So I would -- but for, let's say, timing differences, I would trade them off more in favor of liabilities at this point in time. The fee, however, on the corporate fee side will be a more durable change. So I don't think we are suggesting a sharp bounce back. Also, throw in the conservative accounting that we are going to add to that. So that will basically make us follow a strategy where we will have to make up the lost fee across transaction banking, Retail Banking and the financial markets businesses. And there is scope. Of course, we will not be able to make that up in 1 quarter but we are gunning for making that up in 12 to 18 months.Our transaction banking fee is up 32% on a year-on-year basis, and our Retail Banking fee is running at -- is running up at 37% on a year-on-year basis. So pretty good momentum, in my opinion. And with the, let's say, the highlights of strategy that Ravneet had indicated earlier in the call, this is something which we will -- when we are -- we have the platform. We just have to make it fire more, but we will need some time to be able to make this adjustment.
The next question is from the line of Pranav Tendolkar from Rare Enterprises.
I just need 3 answers. So first is, what is the normalized corporate fee that we should look at? So it has come down from INR 600 crores -- around INR 650 crores per quarter to INR 470 crores, if I remember correctly, in last quarter. And it's because of reversals, it's nearly INR 11 crore this quarter. So what would be the number going forward on a normalized basis? I'm not asking on a quarterly basis but even in a annual basis, will it be INR 1,000 crores or what will be that number roughly?
Yes, so it will be closer to that number, definitely. I mean this should do better than that. And I think we will see what happens. It really depends on what kind of business you want to do on the corporate space. I will just take a little bit extra minute here. So let's say, I have a fixed resource which is my credit appetite, and liquidity and capital, which all I have to add up to make loans. Now if I make term loans, hypothetically, I usually, get underwriting fee then there is not much to earn other than interest income in the course of the loan. But as we are now flipping our strategy, we will do a lot more working capital-styled, let's say, allocation of resources. The moment I do more working capital, I also go more into LCs, guarantees, hedging, cash management. So the -- while the -- what we have been showing you under corporate fee will fall and maybe it'll bounce back to only to half its peak. But it'll -- because of the underlying change in strategy, there will be, let's say, fall through into other lines of fee business as well, which we were also discussing just a bit earlier when we -- I was also highlighting to -- on the call that our national banking fees is up more than 30%, despite what the balance sheet has gone through in the last 6, 9 months, particularly. So we will get back but I don't think we are now designing ourselves to match the peak. We will want to push the income into more recurring style of -- annuity style of earnings so that we are also delivering what we believe are more sustainable form of earnings.
Right, right. So that is one. Second is that in this period of transition, that is 1 or 1.5 years, what kind of loan growth and slippage rate you are visualizing? So I'm not going to hold you accountable for that number, but roughly you will have something in mind, right?
That's a very good question which I can answer but not be held accountable for.
Yes.
Okay. So slippage is a tough one in the sense that I mean because it involves estimating risk of timing, so it's hard. So therefore, I would rather not guide or misguide you at all from that. So -- but I think where we are a little bit more clear is on the credit cost and how that will pan out in this respect. As far as growth is concerned, I was just mentioning a bit earlier in the call, I think we are gearing up for a early to mid-20s kind of a growth outcome but with a lot of churn thrown in. So even in the quarter gone by, we have seen a churn of about INR 20,000 crores to INR 30,000 crores of -- in that loan book. Though the loan book had only -- it had degrew about 0.5% to 1% sequentially but there still is a fair amount of churn. There are repayments that keep coming through, so we also relend, we syndicate, we sell down. So all of that will become more prominent in terms of the corporate strategy, particularly. As far as the retail side is concerned, the growth will be clearly -- it will nudge 30s, 40s in the near term on a year-on-year basis, maybe even higher in -- if the markets are good. We do see that there are, let's say, the nonbanking lenders, which are not all as well-oiled as they used to be. So the retail markets are also opening up for more conventional banking players, including us.
Right, right. So even this [ INR 2,100 crore ] contingency provisions that you have done accounts for how much percent of the slippages associated? I guess if 50% of the slippages are...
No, 20%, not slippages. We don't know if they will slip. We do believe there are risk situations where -- some of them you are reading in the press as well. So to be able to cover ground on that, we don't know whether they will slip. We are purely taking a preemptive provisioning. We are calling that contingency provisioning.
Right, right, right. Sir, last question from my side. So there are a lot of technology initiatives that you have taken on the Retail Banking side, and the productivity and fee income is actually showing a very great growth. So is the transition period -- neglect -- will that transition period kind of neglect that smooth engine that you have built up? Like -- because it is very difficult to invest it when capital is constrained.
No, investments are not that -- I mean not -- even if we do a lot of investments, it will not be that -- it will not be a burden on capital that. Our capital is by far consumed by lending. By far.
The next question is from the line of Rakesh Kumar from Elara Capital.
Hello? Hello, can you hear me?
Yes, I can. Go ahead, please.
Yes. So the first question is related to on BB and below book. So what kind of slippage we are expecting from this book maybe 2 years, 1 year down the line?
So -- okay, it's not a -- I don't have a perfect answer there but I'll try. So we are assuming in our, let's say, both micro as well as macro balance of that book that we are preparing ourselves for half of that book to slip -- preparing, which has also gone as a input in terms of our contingency provisioning.
Correct. So in case of other private bank in the last 8 quarters, the average slippage rate was close to around 85% or so. So does that number which we have estimated and put, is enough?
Well, in our judgment, yes. The number that we have put, and including the credit cost for 12 months that we have taken, it should be good for and more than what I have described to you.
Okay. And this 125 bps credit cost number, like, would that lead to higher provision coverage which is now around 43% by the end of next year?
So we are also giving up to 125 guidance. So I'm leaving the room open for it to be little lower depending about how our recoveries also pan out. We've also taken a substantial slippage in this quarter gone by as well. So which also gives us, let's say, a bigger room for recovery outcomes also. The reason, therefore, we are giving an open guidance is because we will use the benefit to also up the provisioning coverage if the benefit comes to us. So you have to assume that we will want, let's say, if not 12, maybe 18 months, that we should take our provision coverage to 60%. And we are factoring that the upside if we get from our guidance will also be looked at actively for increasing PCR.
Okay. And what is the plan we have to raise equity capital?
So the -- we are -- we've also taken a renewed approval from the Board to raise equity. So we are also in a time where there are elections around the corner. We are also in a context that we are discussing with you today where we are presenting, let's say, a little atypical outcome. It's all for the good in our opinion. But we still need the time to communicate that to you, to the investors. And I think only if our message is being well understood, we will be able to discuss the opportunity of raising capital. So in my opinion -- in our judgment currently, I think we are good for that. So we should be looking at capital-raising options the moment we are able to come to conclusion that our message is being well understood.
The next question is from the line of Pranav Gupta from Birla Sun Life Insurance.
Hello?
Yes, Pranav, go ahead, please.
Yes, just a data-keeping question. Could give us a break up of reductions in GNPAs? So break it up to recoveries, upgrades and write-offs.
Yes. Just bear with me for a few seconds.
Yes, sure. No problems.
Are you online?
Yes, yes.
So there is a 1 billion to 2 billion, approximately, I will give you the final numbers if I get hold of them. But 1 billion to 2 billion of each upgrade and recovery.
Okay, okay. By the time you pull the numbers, just another question on your real estate piece. So the CRE exposure amounts to about 7%. Could you give us some color on what the book comprises of, the number of borrowers, what kind of transactions we have there and what kind of stress [ we are emerging ] from that book.
So there is a -- let's say, a 70-30 split in that book, give or take. It will be [ 70-80, 20-30 ] between residential and commercial. So commercial is generally, let's say, doing okay. The residential, particularly the luxury end of residential is the one which is, let's say, currently facing illiquidity. And there is not enough, let's say, of the assets translating into sales and therefore, liquidity. So we have, let's say, predominantly addressed, if you allow me, we have -- I would say, almost entirely addressed the stress book, either in Q4 gone by, or in the preparation in terms of contingency provisioning that we have taken. So our entire, let's say, real estate exposure, which we believe, either is already stressed or may have stress which can be imminent, has been addressed either in the fourth quarter slippage or in the contingency provisioning. And therefore, the ballparking of the below investment grade book that we were discussing earlier.
Due to time constraints, we will take the last question from the line of Haresh Kapoor from IIFL.
Could you just first, just help me understand, on the growth side, you mentioned that the growth rate will be mid -- early to mid-20s. Is that what you just mentioned for FY '20? Or moving forward, also we will be in that range? And we -- because we are kind of trying to build a retail franchise or any other thoughts on that. Second, if you could -- Mr. Gill, if you could just kind of highlight in terms of any other personnel additions that you're trying to make, even in terms of the retail piece. If any of you are kind of making any hiring or allocating it to someone internally. And any other key functions where you really want to strengthen your team.
Sorry, this is Ravneet. Was the question directed at me?
Yes, yes.
Okay. So, again, a couple of points with respect to that. I think there was a newspaper article, if I remember correctly yesterday, with a [ mutual ] totally speculated in terms of the hires. We are making some very senior hires but those are really more in terms of the control functions. To get our operations, back end, governance, compliance sort of those completely up to scratch. One of the big things which we have embraced as an objective as a management team here is to comply with the highest standards of governance. We want to be on the side of the Bank of India and we would like that validation coming from them. And I'm sure that in short order, we should be able to achieve that. So that's as far as the hiring goals. On the business side, the quality of talent that's available in the bank is just off the charts, I mentioned that right at the beginning. On the retail side, clearly, we gave you some of the numbers in terms of the growth, and what we didn't talk about actually was the credit card business, which, again, is off to an absolute [ flyer ]. Quickest 250,000 cards. And if you look at the spend -- sorry, 500,000 cards, sorry. And in terms of spends, et cetera, absolutely at par with the [ bank ].What we have decided is that given we want to focus now so much on liabilities and given that we will, at the same time, grow the asset -- retail asset book so strongly as well. So Rajan will look after quite clearly the retail asset business. We have Rajanish who looks after the credit card business. And we have are on the lookout now for somebody to come and drive the retail liabilities business as well. In the normal course, I think Rajan could have done both those businesses. But given how strongly ambitious we are with regard to our retail assets book, we thought we'd bring in somebody then to be focused full-time on liabilities. To be honest, I mean, I'll just make 2 more points. Bringing somebody to head that business in a sense is not the answer. I mean, clearly, we're changing KPIs at an individual branch level in terms of what will constitute the performance and merit -- operating merit in these branches. I made the reference to the regional management teams. A lot of technology going in. So for instance, we have a very interesting product offering, which is a [ spot-on ] bot, if you will. You go in there, type in your details and if you want somebody calls you right away. We prequalify you on the basis of just the data that you input, and that has also given us a great database in terms of our cross-sell. It's something that nobody else in the industry is doing yet. We need -- we are hiring about 2,600 people, feet-on-street, to be able to -- really can gain a lot of momentum as far as the liabilities business is concerned. But equally what I would say is that if you see the work that we are doing now for the various governments, so we work for the Maharashtra government, for the Haryana government, for the -- a tourism department of Pondicherry and a couple of others. What they're doing is that in terms of fee governance they are tying up with various fintechs, and we are basically embedding our payment systems into those fintechs. So the -- again, how -- and given what a large liabilities business the government banking piece constitutes, I feel very enthused that through a combination of people and technology, we'll be able to grow that business very quickly. But having said that, there was a previous question which talked about whether we'd be contained in terms of technology for our retail businesses. All that I'd say is that our technology is not just geared for retail. If there is one business which -- or if there is an approach which is slightly differentiated from competitors, is that we will actually use technology for convergence between our wholesale and retail businesses. So our wholesale businesses, the transaction bank for instance, is very, very much technology driven. So yes, so those are the plans in terms of investments, in terms of people. Overall, like I said that we want to stand in certain functions in the bank, wherever we feel that we have a capability gap, we'll plug that. But just to go back to the article that was there in the press yesterday, I mean there's absolutely zero desire or zero need to destabilize management.
Yes. Just coming back to this one question on the growth side, I think I just kind of missed some part of that. So you obviously mentioned -- I think Rajat mentioned that early 20s to mid-20s is the growth rate. What I understood is that, that might be for next year. But how do we look at a 3-year cycle or -- and if we are kind of seeing some different strategy. Could you just comment on that part, I might have just missed it if you mentioned something more.
No, I think -- this year I think we grew around 17%, 18%. But what we want to do is, we want to go and stabilize at, let's say, 20% to 24%. We don't want to chase the 40%, 50% growth strategy that has been there in the past. We just want a much more calibrated growth model. And quite clearly as a bank, our aim is to be a generally consistent long-term-sustainable ROE in the vicinity of 1.5%. So obviously, that's a long distance away at this point in time. But all our efforts are really going to be geared towards achieving that in the journey ahead. I'll give you just a small data point in terms of, again, growth and revenues, et cetera. If we look at our cost of funding, I think we are well wide of our peer group in the private banks sector. And if we want to come down to the same level of -- same cost of funding, quite clearly, I think there's a need to build more sustainable, more predictable revenue streams and more granular businesses. And unless we do that, I don't think our cost of funding comes off as quickly as we'd want it to. And when you look at the size of the book, I mean just think that every 25 basis points, what it does to our profitability. So you have to go back to the point, we want to stabilize at a growth rate of [ 20% to 24% ] and ROE which is in the high-teens.
Due to time constraints, that was the last question. I now hand the conference over to the management for their closing comments.
Thank you, Ali, and thank you, everyone, for your patience. And I have to apologize once again for the late start of this call. And we look forward to meeting some of you personally now in the analyst [ meeting ]. Thank you.
Thank you. Ladies and gentlemen, on behalf of YES BANK, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.