Yes Bank Ltd

NSE:YESBANK

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the YES Bank's Q4 and Full Year 2023 Earnings Conference Call. On the management panel, we have with us today Mr. Prashant Kumar, MD and CEO; Mr. Rajan Pental, Executive Director and Global Head, Retail Banking; Mr. Niranjan Banodkar, Chief Financial Officer; Mr. Ravi Thota, Country Head, Large Corporates; and Mr. Sunil Parnami, Head of Investor Relations.

Mr. Prashant Kumar will give you an overview of the results, which will be followed by a question-and-answer session. [Operator Instructions]

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

[Prashant Kumar, executive]

Thank you. Very good morning and thank you, everyone for joining so early in the day on YES Bank quarter 4 and full year FY '23 financial result call. With me, I have the top management team of YES Bank.

Before coming to the key financial highlights for the quarter and last financial year, I would like to start by giving you a glimpse of the YES Bank of today, which we are building as a new age professionally run granular franchise, catering to the Digital India, with best-in-class technology and API stack.

While you may please refer Slide 3 to 6 of our investor presentation, I would like to summarize the key highlights as under; YES Bank has made a strategic shift towards a granular franchise. As on March '23, we have retail assets of INR 90,000 crores, which is 45% of the total assets; and retail liability at INR 115,000 crores, which is 53% of the total liability.

YES Bank balance sheet has been fortified, as all the legacy asset quality issues of the past have been addressed through a combination of recovery, resolution, upgrade, and transfer to an ARC. As against 4.8% at the end of FY '22, the net NPA and net carrying value of security receipts as a percentage of net advances, has reduced from 4.8% to 2.4%. Going forward on a proforma basis, we don't expect any major impact due to the ageing-related provision through FY '24 to FY '26. The bank today has a comfortable liquidity and capital position, with CET ratio of 13.3% and overall capital adequacy in excess of 17.9.

While strategically moving towards a granular franchise, the Bank has been able to fully protect, with core operating profit with [indiscernible] to average assets remaining between 0.9% to 1% over the last 3 years. The productivity and efficiency gains realized during this period, has actually allowed us to protect our core operating profitability.

Lastly, but very importantly, the bank has all the key levers in place to build a scale and from that improve profitability in the midterm. We are here to build a scale and improve the core operating profitability, so with a disciplined execution through the following key initiatives. The first one, higher focus on current account and granularity in saving account, supported by expansion in our distribution.

#2, increase in retail mix with calibrated yield enhancement. #3, strong fee growth through cross sell and transaction banking. #4, and this is very, very important for us, to address the RIDF or the PSL drag through both organic and inorganic means. And the last one, the operating leverage and productivity improvement through digitization.

So, as we take this guide, we would like to take this opportunity to sincerely thank all our shareholders, our Board members, and our customers for their continued support and faith in the new YES Bank franchise.

Now moving over to FY '23 and quarter 4 financial results, we are pleased to report consistent improvement across all our core operating metrices as well as the strategic objectives. In the year and quarter gone by, we have achieved -- like on the profit and loss side, FY '23 marked the second straight year of full profitability. The quarter 4 profit was INR 202 crores and which are higher 3x sequentially, despite accelerated provisioning. Full year profit for FY '23 is INR 771 crore, and this is due to [indiscernible] in the provision coverage ratio through accelerated provisioning. We will talk around the accelerated provisioning later in the call.

Quarter 4 operating profit will stand at INR 889 crores, which is higher almost 15% YoY but our normalized operating profit for FY '23 has gone up by 22.6%. Quarter 4 FY '23 net interest income, highest in 9 quarters at INR 2,105 crores, which is gone up by 15.7% YoY and 6.8% quarter-on-quarter, and for the full year, the net interest income has gone up by 21.8%.

NIM for FY '23, 2.6% which is an improvement of 30 basis points on a reported basis and 22 basis points net operated asset [ valuation]. The NIM for quarter 4, 2.8%, however, adjusted for the ARC transition, quarter 4 '23 NIM have remained flattish sequentially. The core fee income show significant tension, driven primarily by sustained momentum across segments of retail banking fee component as covered on Slide 13. Non-interest income at INR 1,082 crores has gone up by 22.8% YoY. The non-interest income for the full year at INR 3,927 crores has gone up by 20.4%. But if you exclude realized or unrealized gain on sale of investment, the core non-interest income for the full year has gone up by 31.1%.

Moving over to operating expenses, as covered on Slide 14. As you may notice, the operating expenses have been presented differently compared to the earlier quarters, in order for us to show the real driver and its impact on overall cost. Net operating expenses for FY '23 stand at INR 8,661 crores, which has gone up by 26.5%, mainly due to higher IT spend and other expenses. Cost to income ratio calculated on normalized income remains sluggish YoY, and in quarter 4, the expenses has gone up by 19.3% YoY.

Initially, our balance sheet, the net advances of INR 203,269 crores has gone up by 12.3% YoY and 4.5% quarter-on-quarter, and if we exclude or normalize for ARC transition and reverse repo, our net advances has gone up by 13.2% YoY. There was a sustained improvement in granularity, retail & SME, mid-corporate and corporate mix has further improved to 59% for retail MSME, 14% for mid-corporates, and 27% for last-corporate. Particularly, retail advances mix, 45.2% against 43.7% in December quarter.

For FY '23, the new sanctions and disbursements, which include the Limit Setup, where INR 100,000 crore with retail disbursement of INR 50,000 crores, and INR 25,000 crores for SME, limit set of disbursements. Total deposit at INR 217,502 crore has gone up by 10.3% YoY and 1.8% quarter-on-quarter. The CASA ratio at 30.8% against 31.1% in FY '22 and 29.9% in last quarter. During the year, we have opened 13.4 lakh CASA accounts. The average LCR during the quarter remains healthy at 118.5%, and LCR as on March 31, was 126.2%. But I think very, very importantly the average CASA deposit for FY'23 has gone up for like 26.3% value-wise and supported by 30.4% growth in the average current account deposits. And bank is currently acquiring in excess of 1.3 lakhs CASA customers on a monthly basis, and this run rate would continue to improve during the rest of the year.

While, saving account balances, our strategy of increasing the share of granular saving accounts that is the [indiscernible] of INR 2 crore, will yield positive results, with share improving to 78% of new account deposits. The average daily saving accounts has also grown by 23.7% YoY in FY '23.

Coming to asset quality, the details are there on Slides 3, 19 and 20. But at an overall level, there has been a good improvement in the asset quality. Sequentially, there has been at least a 60 basis-point reduction in net NPA plus net carrying value of security receipts as a percentage of advances from 3% in December quarter. The NPA ratio is 2.2% against 13.9% last year and 2% last quarter, but net NPA ratio has improved to 0.8% against 1% last quarter and 4.5% last year.

The resolution momentum continues to be strong, with total recoveries and upgrades for FY '23 last quarter, quarter 4, is INR 6,120 crores well ahead of guidance of INR 5,000 crores. This is for full year not for the last quarter.

There has been further improvement in breadth of labelled exposures. The slippages continue to trend lower for FY '23, INR 4,775 crores against INR 5,795 crores in FY '22 and for quarter 4, the slippages are INR 1,196 crore, as against INR 1,610 crore in quarter 3. There has been an increase in overdue loans in 30 days bucket by INR 700 crores, but that is also offset by reduction in the 61 to 90 days.

On the capital side, our CET ratio is 13.3, and the total capital efficiency at 17.9. The risk weighted assets to total assets has improved to 69.1% against 72.8% in FY '22, and 70.9% last quarter, and this is due to improvement in collateralized basis and [ run rate into ] loan repayments in higher-risk bucket, and lower market risk capital charge due to higher provisioning for the security receipts.

During the year, we have -- also in addition to opening the 83 branches, we have also added more than 3,000 employees. We have also launched several new products including the YES XPRESS, an industry-first digital onboarding platform for seamless onboarding experience for availing the Cash Management and Smart Trade Products. We have also issued the first electronic bank guarantee in partnership with National E-Governance Limited.

We have become the first bank in Asia Pacific to bring forth a debit card in Mastercard Premium Elite Platform. We have also launched the industry-first Build Your Own Card, which allow customers to fully customize their debit card. All the above points demonstrate a strong momentum in the build-up of a good quality asset and granular franchise.

With this, I want to thank you once again for taking the time out for joining this call, and wish all of you and your families good health and prosperity. We can now open the floor for the questions. Thank you.

[Operator]

[Operator Instructions] We'll take our first question from the line of Mahrukh Adajania with Nuvama.

[Mahrukh Adajania, analyst]

My first question is on basically the SRs, right? So, you did mention that you don't foresee any big ageing provisions on SRs. But when do you see recovery start kicking in?

[Prashant Kumar, executive]

So, Mahrukh, on the security receipts, recoveries have already started kicking in, because we are able to get almost INR 1,100 crores from the security receipts during this quarter. Okay? But currently, the ageing provision for both security receipts, as well as for our net NPAs would be in the range of 80 basis points for FY '24 and 100 basis points for FY '25. But we believe that the recoveries and the redemption from the security receipts would not only take care of the ageing -- provisioning for the security receipts but would also take care of the ageing provisions for other net NPAs.

[Mahrukh Adajania, analyst]

Okay. So basically, it will be 80 basis points of costs, loss, but net would be some zero, is what you're suggesting?

[Prashant Kumar, executive]

Yes.

[Mahrukh Adajania, analyst]

Okay. So, the P&L impact will be what, it will be very marginal? I mean if you have to build credit cost for '24?

[Prashant Kumar, executive]

So, Mahrukh, credit costs for '24 would be on account of the future slippages. okay, and those future slippages, we believe some of the credit cost on account of future slippage would also be made by the recoveries and the upgradation.

[Mahrukh Adajania, analyst]

Got it. So, it will be safe to build in 40-50 basis points or what kind of credit costs should be a good assumption?

[Prashant Kumar, executive]

Mahrukh, 50 basis points of that cost on assets I think is a reasonable assumption.

[Mahrukh Adajania, analyst]

Got it, got it. And sir just in terms of the overall growth outlook, right sir, where do you see the gross margin, the big sectors for Yes Bank, right? Because people are seeing pressure on margin for the sector in FY '24. There are mixed views on whether growth will slow down or not, apart from the base effect. So where do you see it settled for your bank?

[Prashant Kumar, executive]

Mahrukh, [indiscernible] was saying like, the margins would be settling for the time, we would be saying we have already started moving in an upward direction. And why this is rare? I would completely agree with you, that because of the higher rate of interest scenario and the cost of deposits for the current year because of the reset would go up.

But if you see our average CASA deposits growth, which is 26% and our average current account growth is 30%.

And this -- I'm saying overall deposit growth is -- reported growth of 10.2%, but even the average deposit growth for us has been 16%. So, I think we would continue this journey in terms of focusing more on the CASA deposits and we are, as a bank -- we don't go only for the end-of-period kind of balances, our focus is more in terms of average balances, which actually is helping us not only in terms of building the liquidity, but also in terms of bringing down the overall cost of [indiscernible].

[Mahrukh Adajania, analyst]

Got it. Okay, sir. Sir, based on this -- basically this increase in the 30-day bucket, that's driven by what segment?

[Prashant Kumar, executive]

So, this is -- basically the segment I would be saying is not so critical. I think this is mainly because of 2 things. One would be like March is a 31-day month, and the movement, with the 31 days anything which is paid on the 31st day, comes into this bucket of 31 to 60 days, which will not happen in June, because June is a 30-day period, that is one thing.

Second also, in terms of debt, we have a little bit out of orders counted. Okay? And in out of order part, that inflows have to come in the preceding 90 days. So there has been some impact there also. But fundamentally, we are not seeing a behavioral change in any of the industry or any of the buckets.

[Operator]

We'll take our next question from the line of Jai Mundhra from ICICI Securities.

[Jai Mundhra, analyst]

Sir, on the warrant, so we have received the 25% of the money and that is not a part of CET1. So just wanted to check, A, what is the standard timeline for the warrant convergent, is it a standard 18-month? And when does this money gets into CET1?

[Prashant Kumar, executive]

So basically, I think if you see our initial [ fee ], the warrant money should flow into the 15 or 18 month period. So I think basically it may happen either just before the close of the current financial year, I'm saying FY '24. It may also go into the first quarter of FY '25.

[Jai Mundhra, analyst]

Sure. And even the cash, the [ INR 900-plus crores ] that we have got, that will really become part of CET1 only upon the complete exercise of the warrant, right?

[Prashant Kumar, executive]

Yes, absolutely. As per that, it will be presented.

[Niranjan Banodkar, executive]

That's right, Jai. And just on that treatment, once we have abundant clarity confirmations, only then we will be able to take that into CET1. For now, we have conservatively not taken that as part of CET1.

[Jai Mundhra, analyst]

Sure. And if you can help me with the RWA amount in absolute amount as of March? If you have that handy?

[Prashant Kumar, executive]

Bear with us for 30 seconds. We'll just share that.

[Jai Mundhra, analyst]

Sure. And secondly, sir, if you want to update on the status of AT1 bond which is sub judice. But if you can explain your competencies at this point of time?

[Prashant Kumar, executive]

No Jai, I think since the matter is pending before the Honorable Supreme Court. At this point of time, in addition to paying the write-down of AT1 was done in accordance with the regulation, that is fee regulation. We have seen this. We have a very, very strong legal opinion about it. But this matter is pending in the Honorable Supreme Court. We would not like to add anything as of now.

[Niranjan Banodkar, executive]

Yes. The previous question, the number is INR 245,000 crores, INR 2.45 billion.

[Jai Mundhra, analyst]

Sure. Sir, the second question is on PPoP, right. So I take your point that credit cost is going to be very benign at least for the next 12 months. But how do we look at the PPoP margin of the bank? So your costs are also elevated and you are of course building a lot of ESG into franchise. And the margins this quarter were also very good. So even if I had to take fourth quarter PPoP margin still around 1.1%, 1.2% of assets. Even if the credit costs were to be very benign, it will not run, until and unless PPoP margin goes up to a large extent. So what is your thought process on the PPoP margin specifically?

[Prashant Kumar, executive]

There I think what we are also trying to communicate, that this is strategy on the granularization of balance sheet especially going on the retail, always bring that additional burden of the cost, because if you see our increase in the cost, this is mainly related to the business cost, that is one part.

Second thing, the major cost is also coming from IT. And this additional investment in IT is not only preparing the bank for the future, but also for bringing the efficiency in our systems and the processes. So more digitization, more internal efficiency. So I think what we have done and this is not something we are saying that we would jump to a particular trajectory. But it's a continuous upward movement.

[Niranjan Banodkar, executive]

Jai, sorry, if I can also add to what Prashant mentioned is, I think you also have to take into cognizance, the risk profile of the balance sheet, which has also meaningfully changed over the last 3 years. So for example, if I actually look at normalizing for the RWA to assets and look at RWA, you would actually start to see already an improvement in the normalized behavior, right? So just to summarize, what we're seeing is, over the last 3 years, retailization has therefore kept the PPoP to assets at check.

And the reason is because in fact, there were lot of efficiency plays that played out within the retail businesses, had it not been for that in fact, the PPoP to assets would have actually come lower, #1. #2, we also see that the risk profile has improved and a good indicator of that is the RWA to total assets. Despite that coming off sharply, we continue to see our PPoP to assets maintain right. It is a sign of -- I would say going forward, it is a matter of scale, the operating leverage that kind of kicks in, is what is going to result into expansion of the PPoP to assets.

What I would like to add is, we understand, of course, the cost of funding play is something which -- which, of course, it's not going to be a magical pill, but therefore there has been also a focus of bank to also look at how can it improve fees and one of the, I would say, big takeaways that we've had for fiscal '23, is you just look at the run rate of the retail fees, the way it is growing.

So clearly these elements will start playing out. I think, Prashant in his opening remarks also mentioned about, that we need to address RIDF. Clearly, that in itself has a significant drag on our PPoP to assets to the extent of almost 30, 35 basis points. So once we start, which is the work that we will solve -- to solve these, will start feeding in that 5, 10 basis points into the PPoP to assets. So we are actually -- yes, we are quite confident that, the work that has gone in over the 3 year period, and that we'll continue to do -- will give us long-term -- [ PPoP to assets ] without necessarily looking at 1 quarter or 2 quarters.

[Jai Mundhra, analyst]

Sure, thanks. And sir, lastly, I think in your opening remarks you mentioned that the NIMs have gone up by 30 basis points QoQ. That if one were to adjust for the ARC transaction then the NIMs -- the NIMs expansion is I think 10 basis points only. So, if you can elaborate sir? I mean is this the only -- the mathematical numerator -- sorry, denominator theme that is the adjustment, or is there anything else which impacts the reported NIMs?

[Niranjan Banodkar, executive]

At an NII level to assets, clearly, because that does not take into account the ARC sale. There is about 8 to 10 basis points improvement in the NII to assets. But from a reported net interest margin perspective, given that we went through the ARC transaction and there was a gross and net denominator adjustment that happened, the NIMs have gone to 2.8%. But I think the way to look at this going forward, Jai, is that, what you're seeing at Q4 actually is more reflective of the franchise from here on.

[Operator]

We'll take our next question from the line of [ Pratap Makwana ], an Investor.

[Unknown Attendee]

First of all, congratulations for such a nice result. I have a few questions which pertain to the report of which has been submitted for the current results of FY '20 to FY '23. Bank has done fantastically well in all 4 fronts, except the 3 areas, provisions -- enhance the provisions for net profit decline year-on-year, and -- and the EPS. These are the 3 areas you could [ confirm ] for the investor.

I would like to know from the management, what is the -- the provisions which has been increased year-on-year, what is the breakup of the provision carry forward, and how it is going to be utilized? Whether it is an asset quality improvement, whether it is averages for the NPA reduction, or whether it is asset expansion? You have mentioned that [ 89 ] branches have been added, and so when these 89 branches come across in terms of adding the revenue in NII and the -- as well as the gross profit also?

My second question on this regarding that, being retail investors, so what is the plan for Bank management to distribute the profits to the investors in terms of the dividend and bonus? Because the operating profit has been increased, not the net profit has been increased due to the provisions carry forwarded.

[Prashant Kumar, executive]

Pratap, thank you so much for taking time out and joining this call, and to have continued interest in our bank. I just missed out, you were saying there are 3 things where we have not been able to deliver. One is on the provision side, second was on the net profit and what was the third thing?

[Unknown Attendee]

EPS.

[Prashant Kumar, executive]

Sorry?

[Unknown Attendee]

EPS. Earnings per share.

[Prashant Kumar, executive]

EPS. Okay. Right, sorry. I got it. So fundamentally, Pratap, actually if you see in terms of our core operating profit are continuously improving with good growth on the quality deposit, and also in terms of moving to the advances, which is more granular, which is more safe, which would not actually go for any kind of credit costs going forward.

If you see our net NPAs, as on March '22, and with a very, very minimal security receipts, it was 4.8%. Now in 1 year, this bucket of 4.8% has come down to 2.4%. And this 2.4% of both net NPA and security receipt. Suppose, you take a base case, there would not be any recovery. Then you need to make some ageing provisions, and this ageing provision would be 80 basis points in FY '24, 100 basis points in FY '25.

But if you see our trajectory for recovery and upgradation, last 3 years, we have made almost INR 19,000 crores of recoveries and upgrades. Even in the current year, we have made a INR 6,120 crores. This will continue in the next year also. So we believe that whatever is the ageing provision, for both NPAs and the security receipt, and some of the provision requirement for the fresh slippage would be taken care by the recoveries and the upgradation.

And in worst case scenario, our credit costs would be between say 40 basis points to 50 basis points going forward. And the movement that is going to happen, because if you see in last 3 years, the net NPAs, the gross NPAs, have come down drastically, which also bring down the credit cost going forward. We had a choice to declare a profit, higher profit, which would be actually -- would be addressing your question. But I think it is important to actually strengthen your balance sheet, so that the future earnings, they don't have any impact of the provisioning requirement of the [indiscernible].

I think this is the direction which we have done. We have strengthened the balance sheet quite big and we have reached to that situation, where most of the credit costs, because they have come down would be taken care by the recoveries and upgradation. So I think next year, you would be seeing that kind of the profitability, which would be coming in our operation and which would be actually talking about improved net profit and definitely improved EPS.

I don't know Pratap if I am able to take it...

[Unknown Attendee]

And the last part on the -- regarding the investors?

[Prashant Kumar, executive]

At the moment we go into this journey in terms of declaring a good profit, so sharing the good things with all our stakeholders is definitely something which will happen going forward.

[Unknown Attendee]

Yes. And anything on the -- these provisions are related to the asset quality improvement or expansion part?

[Prashant Kumar, executive]

No. The provisions always basically happens only for asset quality, bringing down the net NPAs. You were talking about opening the [ 83 ]branches, right? Now these 83 branches, normally a branch takes 18-month to 24-month minimum in terms of -- for breakeven and contributing sizable business. But I think we have seen, like in the branches which have been opened, they have already started contributing to our business. So I think next year, we will be seeing a good traction because of the new branches.

[Operator]

We'll take our next question from the line of Saurabh Kumar from JPMorgan.

[Saurabh Kumar, analyst]

Just 2 questions. One is on your CD ratios around 93%, and if you look at your deposit growth, last quarter has been quite decent on the retail side, but how should we think about your CD ratio going ahead? I mean would you now want to kind of reduce loan growth, get the CD to below 90%? Or -- I mean any thoughts there would be appreciated?

The second sir is on this other assets, so your other assets to total asset ratio is still elevated and maybe that's kind of contributing down to your overall profitability. So what will be the view on that reduction? Thank you.

[Prashant Kumar, executive]

Saurabh, we would be -- on the CD ratio side, I think we would be comfortable with a CD ratio of around 90%, at least for '24, okay? And your question related to -- sorry?

[Saurabh Kumar, analyst]

Incremental CD ratio should be below 90%? I mean that's the way to think about it?

[Prashant Kumar, executive]

Yes. So basically if you see like, if you don't go into the end of period kind of balances, okay, then our average deposit growth is around actually 16%, even now, which is higher than the loan growth. So I think this trajectory will continue. And we would be -- actually, we are targeting a loan growth between 15% to 20%, and the deposit growth of around 20%. And I am again talking about the average deposit growth.

Your question related to the other assets. One of the very, very large chunk of the other asset is our investment in RIDF, okay? Where, like I shared earlier, this is a drag of almost 30 to 40 basis points. And this year, we are trying to address this issue, both from organic as well as inorganically.

[Saurabh Kumar, analyst]

And sir, what will inorganic mean as in? Buying the PS-LC or...

[Prashant Kumar, executive]

It would be a combination of PS-LC also plus our rural branches -- currently, all rural branches are not contributing to the PSL advances. So this year, we are making available all the PSL advances at all our 400-plus rural branches, so that would be actually part of the organic. But that would be only a part of it.

[Operator]

We'll take our next question from the line of [ S. Srinivas ], an investor.

[Unknown Attendee]

My question is regarding the ROA, return on asset. The return on asset, is it in line with the guidance which was given earlier for the current asset? And what is the return on asset which is expected for FY '24? And I would also like to know the mix between the advances and investments for the current FY?

[Prashant Kumar, executive]

So I think if you see the ROA part, our guidance earlier was somewhere between 0.4% kind of thing, 0.4%, 0.5% which is 0.2% as of now. And one of the reasons is that recovery estimation -- some of those recovery estimations, which would be having a direct impact on the P&L, there has been some timing mismatch it has moved to the current financial year. That is one part.

Second, also in terms of that we have, like I was sharing earlier, we are continuously strengthening the balance sheet and bringing down the net NPA and the carrying value of the security receipts. So I think in the FY '24, definitely, we would be -- we are targeting and we are quite confident that we would be in a position to reach that ROA of that 40 to 50 basis points on a very, very conservative basis.

And if you can give the number?

[Niranjan Banodkar, executive]

Advances...

[Prashant Kumar, executive]

And the investment.

[Niranjan Banodkar, executive]

This is completely on the advances to total assets is about 57% as of March '23 and investment is about 22%.

[Unknown Attendee]

Okay. So now going forward like, the ARC transaction-related recoveries, will they outpace the provisioning on the ARC portfolio or not?

[Prashant Kumar, executive]

Yes, absolutely. Not only the provisioning requirement or the security receipts, but they would also take care of our provisioning requirement of the net NPAs which are being sitting in our book.

[Unknown Attendee]

Okay. Can you just give the figure like, as I can see the net profit for FY '22 was more than INR 1,000 crore and now in FY '23, it's only about INR 750 crore, there is a 25% reduction I think. So is it, I mean, because of the high cost-to-income ratios, when do you see the cost-to-income ratios coming down, in line with the best-in-class banks, like ICICI or HDFC?

[Prashant Kumar, executive]

So basically like 2 things are different in terms of provisioning and the cost-to-income ratio. The provisioning since we are continuously expensing, when you see like [ next ] year, the ageing-related provisions have come down to just 80 basis points, okay? This actually is a result of bringing down the net NPAs and the net carrying value of the security receipt.

But if you talk about the second part, the cost-to-income ratio. I think please appreciate that since we are going for the retailization of our balance sheet, you will require a lot of investment and the expenses for this. But now we have reached to that stage, where the cost-to-income ratio will start coming down in the current financial year. But if you are talking about best-in-class, I think it will take some time. It's a journey. I think it will take another 3, 4 years, where we would be at par with the best of the class banks.

[Operator]

We'll take the next question from the line of [ Piyush Chawla ], an investor.

[Unknown Attendee]

My question is that, it was earlier indicated in this call, that the operating leverage would now start to kick in and that would have a positive impact on the profit. So do you have any idea on how much should be the balance sheet size before we can see the operating leverage to actually kick in?

[Niranjan Banodkar, executive]

So Piyush, when we look at the -- there is a certain scale that you would typically build in the retail before the benefits of those flow into the P&L, right, from a leverage standpoint. So what we're saying is, if I just use, let's say, retail assets as a good example, we've already now reached a INR 90,000 crores of book, where we are disbursing new assets, which are almost as large as you know, I would say, barring maybe one in NBFC, more than any other NBFC and possibly in the top 5 or 6 banks in terms of the size.

Now what that means is, given that you have now a great penetration into the ecosystem of retail, we have good experience of dealing with various products and the collection, understanding of that. We're able to also start printing the yield on that book, right? You're not moving from a low risk to high risk, but within the, let's say, low risk, you're able to start calibrating yields. That's #1.

#2 is, if you go back to the way we were also looking at sourcing our retail assets in the past, a bulk of it was indeed coming through external channels. As we're building scale, there will be a shift of the acquisition onto our internal channels. What that also means, is that the cost of acquisition kind of comes down quite meaningfully.

And that is also dependent on the extent of customer base that you have, right? And over time, over the last 3 years, we've also been able to build a very large customer base in aggregate. I mean we are annually adding in excess of 1 million; 10 lakh customers. But why that is important is, because it effectively gives the bank a base on which it can cross-sell, not only assets, but also fees which effectively give you the income, right?

So we believe that, A, the mix shift from a large corporate to now a large retail, that in itself meant that our cost to income remained at static levels over the last 3 years' journey. But if you actually deep dive into the individual retail business, we've already seen significant improvement and leverage play out.

So as the mix now keeps improving into retail, but now at a pace which is slightly slower than what we would have seen in the last 3 years, the benefit of that will start playing into the profitability. It is a journey. I mean, it is not going to be a 1 quarter, 2 quarter outcome, I mean, I want to reiterate that. It's a journey, but I think we're very confident that over the next 2 to 3 years, you would see a very good profitability outcome at a core operating performance level.

[Unknown Attendee]

Okay. So as I understand, I mean the costs would largely remain the same. So my -- I mean if you can put it in numbers, what would be the balance sheet size, wherein we can see the profitability, which is competitive? Will it be INR 4.5 lakh crore or INR 5 lakh crore? What is the balance sheet size, wherein the cost would be optimized? If you can indicate the numbers?

[Niranjan Banodkar, executive]

So let me present it in a different way. Our cost to assets is about 2.6%. We've been operating at that over the next, let's say, a couple of years. We don't see that cost to asset very materially change, so we're kind of using those 2 cost to assets, using it to kind of continue to invest into branches, IT investment. But the work that we need to do now, is really to improve the income to assets, where fundamentally we are looking at, A, improving your cost of funding and that's a function of how the mix of your assets improved to the balance sheet.

#2, we will look at yield calculation on our retail assets book. #3, again a point that Prashant highlighted right at the start of the call, there is almost 8% of the balance sheet today sits in RIDF deposits, in the deposits where the bank has placed in lieu of shortfall in DSM and these yields very low.

So if we stall our PSL deficit either organically on our balance sheet or through purchase of PSLC, the benefit of that will play out over a 2 to 3-year period. So for example, if we take interventions next year, we should be able to expand the PPoP to asset in year 2, 3, and more permanently, right.

So the way we are looking at is fiscal '24, let's say, our cost to assets and we've given this guidance, cost to assets broadly remain range bound, you should not see that increase meaningfully. But on your revenue to assets, we will want to continue to see improvement, we have seen that this year on a normalized basis, we will continue to see that next year as well on the revenue to assets.

[Operator]

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to turn the call over to Mr. Prashant Kumar for closing comments. Over to you, sir.

[Prashant Kumar, executive]

Thank you. And once again, thanks everyone for joining the call too early in the day and to have a continued interest in what we're doing as a bank. And we can assure all of you, that last 3 years, at least we are more confident in terms of, we have taken the right approach, right direction, and I think with this strategy and the transformation, we would continue to deliver more for our stakeholders. Thank you so much.

[Operator]

Thank you, sir. On the behalf of YES Bank, that concludes this conference. Thank you for joining us and you may now disconnect your lines.