YES Bank: Housekeeping time

Bank shrinks balance sheet by 3.5% and loan book by 3.66% to maintain profitability.

In good times, smaller banks such as YES Bank find it tough to grow their books, as they clearly lack the muscle to fight the big boys. So, in this environment when growth is slowing and big banks are busy getting their houses in order, YES Bank should ideally have grown its balance sheet this quarter.

Unfortunately, the macro-economic environment, coupled with unique problems facing different sectors, has resulted in shrinking its balance sheet from Rs 59,007 crore in FY11 to Rs 56,963.6 crore in the first quarter of FY12, a fall of 3.5 per cent on a sequential basis.

While total advances grew 26.1 per cent to Rs 33,104.2 crore annually in the first quarter of FY12, on a sequential basis the loan book has shrunk 3.66 per cent. Rather than chase unprofitable growth, the bank has not rolled over some of the cheaper loans from the past. With several sectors facing operational challenges, opportunities to grow the loan book were limited in this quarter.

Explaining this, Rajat Monga, chief financial officer of YES Bank, says: “We found that growth opportunities are fewer and we didn’t want to chase less profitable deals. The second half should see an uptick. After two strong years of growth, we wanted to consolidate.”

According to Emkay Global, a sequential decline of 3.66 per cent and 5 per cent in advances and deposits, respectively, helped the bank maintain NIMs at 2.8 per cent q-o-q. Moreover, a sharp 90-basis points increase in yield on advance as against a 70-basis points rise in cost of funds further helped in maintaining stable margins.

Net profit climbed 38.2 per cent to Rs 216.1 crore (Rs 156.4 crore in the first quarter of FY11) and net interest income was up 35.1 per cent to Rs 354.2 crore (Rs 262.1 crore in the first quarter of FY11). And, cost to income ratio is rather low at 37.4 per cent, compared to some other larger banks.

Also in the past quarters, analysts have voiced their concern on the bank’s exposure to the telecom and microfinance sectors. In the quarter gone by, the bank has pruned its exposure to both these sectors. Exposure to microfinance is less than Rs 150 crore from Rs 400 crore in September 2010. After growing at a scorching pace for the last two years, YES Bank may well take a breather this year.

The bank’s Version 2.0 plan is on track and, in the first quarter, the bank added 41 branches. Under V2.0, the bank has plans to take its branch network to 700 by 2015, which currently stands at 255. Since the retail network penetration is low, the bank’s Casa (current account, savings account) is also at an abysmal 11 per cent. The bank targets to grow this by one per cent each quarter.