Want to grow loans cautiously: Yes Bank MD & CEO Prashant Kumar

Prashant Kumar discussed the bank's deposit strategy, loan growth trajectory, the status of stake sale, and other key developments

At a time when banks are struggling to mobilise deposits, YES Bank has managed to grow its deposit base more effectively than many of its industry peers. In a conversation with Subrata Panda, Prashant Kumar, managing director and chief executive officer (MD & CEO) of YES Bank, discusses the bank's deposit strategy, loan growth trajectory, status of stake sale, and other key developments. Edited excerpts:

 

YES Bank has managed to grow its deposits at a better pace than the industry. How have you done that and can the momentum be sustained?

 

Our deposit growth has been higher than most other banks for the last four to five quarters. There is always a discussion in terms of whether it's only the rate of interest which attracts the customer, but our belief is it's the service, and having a customer connect. Ultimately, all banks are offering almost the same thing, but the way you treat customers is something which we are focusing on continuously. We would like to continue this momentum of deposit growth. Our focus is more in terms of improving the CASA (current account savings account) deposits. We have a credit-deposit (CD) ratio of 85 per cent, so our deposit growth would also depend on loan growth. At whatever rate we are able to grow on the loan side, our deposit growth would be higher than that. If because of any reason, loan growth is slower, we would cut down on term deposits. But CASA growth would continue to happen. On the loan side, we want to grow cautiously.

 

You have calibrated growth in the retail segment. Why?

 

If you grow only on vanilla products like home loan, or new car loan, you don't make money. Only those banks where the cost of deposit is low, are able to make money on these products. If you go for unsecured loans, there is a higher risk also. So, we are going somewhere in between. Instead of a prime home loan, we are moving into affordable home loans, and loan against property. Similarly, instead of a new car loan, we are moving into used car loans. So, loans remain secure, yields will be better, and risk is also calibrated. For these products, we need a proper distribution network, the right kind of underwriting mechanism, and right collection mechanism. With focus on these products, we are building capabilities on all three things. And, we believe that we will be fully ready by the end of the current financial year (FY25). That is why we have calibrated growth in the retail segment. Because if you do home loans and new car loans, then your profitability is impacted. So, our focus is on improving profitability.

 

So, will you go slow on plain vanilla retail products?

 

Plain vanilla products we will offer to our own customers through our branches. We will go aggressive on the plain vanilla products once we are able to further reduce our cost of deposits.

 

And what are your plans for the unsecured segment?

 

Right from the initial stages, we have been careful on unsecured segments. It has been further cut down because we have strengthened the risk parameters. Unless the situation improves in the ecosystem, we would continue to be very cautious. In terms of credit cards, we are acquiring around 50,000 (new customers) every month. We are originating these credit card customers through internal channels only. If need be, we can go to even 100,000 but I think it makes sense that we get quality customers. We will continue to have around 50,000 new credit card customers every month. Everybody is seeing stress in the segment, but unlike some other players, we are not because our portfolio was not as large as them.

 

What is your strategy for the corporate segment?

 

Our bank has an inherent strength in handling SMEs (small and medium enterprises) and the corporates, including the lower end of the corporates. We are growing continuously at 25 per cent in the SME and mid-corporate book. In the large-corporate segment, after reconstruction of the bank, we were continuously disbursing. However, it was perhaps not reflecting in growth because we were shedding some of the riskier assets. So, our rate of disbursement remains the same but now it is reflecting in growth. When it comes to corporates, anybody can give a loan, depending on the pricing. But, I think, corporates are looking for solutions and we are in a position to provide solutions to them. Currently, retail and SME are about 60 per cent of our book, and the rest 40 per cent is mid- and large-corporates. We would continue to be in the same range.

 

How do you see your NIM (net interest margin) trajectory, given that it’s lower than your peers…also, what will be the impact on NIMs when RBI cuts rates?

 

Our NIMs have been impacted because a large amount of our assets – 11 per cent – was sitting in the Rural Infrastructure Development Fund (RIDF). Now RIDF has started coming back to us. Now we are meeting all the requirements of the priority sector, so there is no need for us to put any additional money. Hence, there would be a gradual improvement in NIMs. Despite such a good growth on deposit side, we have been able to control our cost of deposit. Our cost of deposit in the last one year has always remained the same, whereas the cost of deposit of our competition has gone up. So, we are not increasing the rates.

 

Retail deposits constitute 66 per cent of our deposit base, and the rest is corporate deposits. Any change in the rates because of RBI rate cut reflects immediately on the corporate side. So, even with a rate cut, we will not see a negative impact on our margins.

 

What is the status of sale of SBI’s stake in the bank?

 

I can't make any comment on this. This is SBI stake. So, all calls have to be taken by them. I also have a responsibility not to speak about these issues because if there is any such thing, first we will have to inform the stock exchange. The conversations around stake sale do not have any impact on our present or future strategies.

 

What are you expecting from the Monetary Policy Committee (MPC) meeting this week?

 

We are facing a slightly complex problem. Inflation continues to be high but growth has come down. I think nobody was expecting growth to slow down so much. Now what can be done if RBI does not want to cut rates? They can cut the CRR (cash reserve ratio) because that would give banks more liquidity and more funds to lend, which can support growth. Some of the credit demand also depends on the rate of interest. So, if there is a CRR cut, banks would be able to reduce lending cost.

 

What is your credit-deposit growth target?

 

We estimate our loan and deposit growth will be around 15 per cent. Our SME and mid-corporate segment is growing at 25 per cent, and large-corporate at around 15 per cent. But there is growth pressure in the retail segment and that may result in a slightly lower credit growth.