YES Bank plans to trim corporate portfolio; most of the fund raised to be used as buffer

NEW DELHI: YES Bank, which launched a follow-on public offer (FPO) to raise Rs 15,000 crore from the market, plans to limit its corporate portfolio while concentrating its effort to grow the retail and MSME book.

The bank said its bad loans, which mostly belong to corporate books, have been placed in a separate vertical where the focus is only on recovery and resolution. With this, the focus has moved towards growing its business.

“Earlier corporate and retail and MSME loan book ratio was at 55 is to 45. We would like to change this mix and have corporate share at 40 per cent and retail and MSME at 60 per cent over a period of time. We would like to grow at the rate of 20 per cent on the retail and MSME side,” said Prashant Kumar, CEO & MD of YES Bank.

The corporate vertical will now focus less on awarding advances and more on growing asset light businesses like providing digital and transaction solutions. The bank clarified it is not looking to cull the corporate exposure, but just pause lending in this segment.

The private lender, which is a leader in digital payments with 38 per cent market share, said it’s sitting on a huge database due to the large number of transactions it processes and is going to utilise this for generating business leads and acquiring new customers.

Shrinking deposits, which was a problem for the bank around the time of its collapse, have largely been contained and are seeing growth every month, the management of the bank claimed.

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“We see net deposit growth going ahead. Among the short-term targets are getting more deposits, increasing transaction banking and working on cost optimisation,” said Kumar.

Kumar stressed that the company has resolved its corporate governance issue, while setting the wheels in motion for resolution of other problems.

How will YES Bank bank use FPO money?

The proceeds from the proposed FPO, which Dalal Street dealers expect to sail through very easily given the low price and a new crop of Robinhood investors, will be used mainly as a buffer.

“The issue will take the CET (Common Equity Tier 1) capital ratio from current 6.3 per cent to almost 13 per cent. This will also give us a buffer of 500 bps over the regulatory minimum requirement. Since we have already made provisions on our existing books, we believe even due to Covid we will not require to use more than 100 bps current capital for provisions. And it will also take care of our growth requirement for the next two years,” said Kumar.

Reserve Bank of India guidelines mandate a commercial bank to have a minimum CET CRAR (the amount of equity capital as a percentage of its loans) ratio at 8.20 per cent.

Prashant Kumar also said YES Bank has a comfort of almost 250 bps of capital that is sitting in deferred tax assets; this is without counting any potential recoveries from bad assets.

A bad loan bank soon?

The bank’s top boss also said the lender is exploring the possibility of hiving off its bad loan assets to a separate subsidiary, where investors who are experts in areas of stressed assets may come in with equity participation.

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“This will be subject to regulatory approval. If we get the approval, the subsidiary will be managed by professionals. Any upside can be shared both by the bank and the investor in proportion to the equity participation,” Kumar said.



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