MUMBAI: Yes Bank, which is in talks with investors to give an exit to the SBI-led lenders who are its majority shareholders, sees profitability improving and the resultant gain in RoI (Return on Investment) from this fiscal as the Rs 44,000 crore tied up in the Rural Infrastructure Development Fund (RIDF) will begin to come back to the bank in tranches from this fiscal.
This will have Rs 11,000 crore getting released, ramping up its growth capital and margins. “Having achieved the PSL target last fiscal, we’ll get Rs 11,000 crore released from the RIDF by November or December, shoring up our growth capital and the margins. This means we can lend more, and improve our margins, leading to increased RoI,” Prashant Kumar, managing director and chief executive of the bank, told TNIE in an interaction.
As much as Rs 44,000 crore are tied up in the RIDF now for not achieving the mandated PSL targets in the previous four fiscals since the bankruptcy of the bank, he said. The RIDF, set up in 1995-96 to finance rural infrastructure projects, is maintained by the National Bank for Agriculture and Rural Development (Nabard).
“People are comparing us with competition, completely disregarding where we started off from. There are certain legacy issues as the bank was not meeting its priority sector lending targets, as a result Rs 44,000 crore of our assets are sitting in the RIDF accounts where return is 2% below the repo rate,” he said.
“Our operating profit is growing steadily and we’ve delivered strong net income, but the issue is people are judging us as compared to competition. I think in another 12-18 months we would be in line with the market on the profitability front,” Kumar said.
The bank reported a net profit of Rs 502.43 crore for the June quarter, a jump of 47% over last year. He expects the bank’s return on investment, which is the real gauge of profitability for a lender, has fallen to a nadir with the crisis has been steadily improving. The RoI was a low 0.5% in FY22, which improved to 0.78% in FY24 and it should be closer to 1% in FY25 and cross 1% in FY26.
While the main reason for the low RoI is the RIDF fund, which limits its growth capital, the other main reason for this is not having any high margin yielding business, Kumar said. Sounding bullish about the coming years, Kumar said going forward, the bank will be better off as its more margin-yielding retail loan book has crossed 60% as of the June quarter. Earlier, the bank had a small retail book as its focus was corporate lending.
Another reason for rising profitability is the increasing returns from the NPAs sold to JC Flowers ARC. So far 50% (Rs 3,400 crore of the Rs 6,800 crore) of security receipts has been resolved. That apart, the bank has got an upside of Rs 1,000 crore over and above these security receipts and the net carry value of the remaining receipts is only 0.4%, he said.
In December, Yes Bank sold NPAs worth as much as Rs 48,000 crore for cash and security receipts. The portfolio purchase price was Rs 11,200 crore as of March 2022.
Asked about entering any new segment like wealth management, insurance or mutual funds, he ruled out pursuing any such plans saying, including gold loans, our immediate and mid-term priority is to improve the profitability of the bank in general and the RoI in particular.
“The only area we want to enter is microfinance which we will do through an acquisition. Last year we tried a buyout but did not go ahead as valuations were too high. We are constantly evaluating a good MFI candidate,” the ex-SBI official who was selected by the RBI to sail the bank out of the crisis said.
On the reason for not entering the high margin and least risk gold loan segment, he said “this segment is stronger in rural markets, where we have minimal presence. Plus this is a high investment business as we need to set up store rooms and storage vaults which given urban focus is not worth attempting now given our present weak balance-sheet.” After the Reserve Bank-managed rescue act in Mach 2020, the private sector bank is owned by SBI and other lenders.