Yes Bank stabilised in Q1 in terms of asset quality: Ravneet Gill

We set very clearly defined quantitative goals for ourselves whether it is on the revenue side, the cost side or the asset quality side, says Ravneet Gill, MD & CEO, Yes Bank. Excerpts from an interview with ETNOW.

We must acknowledge the fact that the bank has reported some profits after a huge loss of Rs 1,500 crore last quarter. However, the overall operating performance is still under pressure. Give us the highlight of the performance.
When we say that even though we have returned to profitability, which in itself is a strong statement, we mean our revenues, pre-provisioning, and operating profits were very strong . But if not for the fact that there was this one-time mark to market charge of Rs 1,100 crore, our net profit would have been a lot higher. This needs to be seen in the context of the previous quarter.

Second, If you look at it from the point of view of the challenge in overall macros, the dislocation in the NBFC space and the fact that we were stabilising our asset quality and reorienting certain businesses, this does represent a very credible performance.

Your press release mentions that part of the slippages are from the BB and below rated book. What is the quantum of the B and BB below rated book now and how much has slipped from those two categories?
The key point to recognise here is that the watch list of Rs 10,000 crore was culled out of the sub investment grade book of what was Rs 23,000 crore in the last quarter. The sub investment grade book has grown to about Rs 29,000 crore in this quarter. The increase that you see over the last quarter is almost completely on the back of two names which were our exposures to large financial services players. But on the point that you made about slippages this quarter coming from outside that sub-investment grade book, that is not correct. They may have come from outside the watch list that we have put aside or we had identified. But all of the slippages actually came from the sub-investment grade book.

As far as the watch list is concerned, which was Rs 10,000 crore, we had indicated that those were the accounts in which we could have seen some short-term slippages based on some short-term repayments coming up. But only 25% of that book actually slipped. The rest of the slippages came from the rest of the sub investment grade book. That has bottomed out.

If I look at my overall corporate book, there are two aspects which I would like to highlight. The first and foremost is that the overall SME 2 component of that book is only Rs 404 crore. Second, often questions revolve around the real estate exposure that the bank has. The total exposure to that sector is about Rs 24,000 crore. About 25% of that exposure is already captured in the BB bill and below book. The provisioning that we have made so far and the SME 2 for the rest of the book is just a minuscule Rs 255 crore. This Rs 255 crore is obviously a part of the overall Rs 404 crore of the SME book.

There have been various reports in the media by analysts suggesting that there are three to five accounts that are stressed and most of the banks have exposure to them. Without getting into the names, what is Yes Bank’s exposure to these three to five stressed accounts? How much has slipped and how much is the provision?
From a planned confidentiality perspective, it would not be prudent for me to talk about the total exposure to those three or four names. But the important thing here is that most of those exposures are absolutely current. Part of those exposure are in the form of investments where we have taken the mark to market which is reflected in this quarter’s performance.

If there were other exposures -- funded or non-funded -- which have slipped, we have taken the regulatory exposure in full. But do bear in mind that even though these names may be currently facing headwinds, these exposures are still standard in our books. And to that extent, they do not require excessive provisioning at this stage. But whatever has slipped is fully provided for.

If I am not mistaken the BB and below rated book stands at about Rs 23,000 crore. There are concerns about the entire BB and low rated book slipping over the next few quarters. What is the probability of both slipping entirely?
As I mentioned previously, in terms of asset quality, we have stabilised this quarter. I do not expect the BB and below book to expand from here on. If anything, it should start contracting because some of these large concentrated exposures that we talked about. I expect resolution to happen in these names in this very quarter. You will see a contraction in this book. I will reiterate that it is important to recognise that the watch list was culled out of this sub-investment grade book. These are not two separate pools of assets that we have. So, we are not changing the watch list at all.

The watch list was created for a very specific purpose which is to be able to -- in a very transparent proactive fashion -- signal to investors where potential slippages could have occurred. We wanted to do that before raising capital. And as it turns out, we were more conservative in our assessment of that watch list because only 25% of that slipped. Having said that, there is no intention or a need to change the complexion or the size of that watch list of Rs 10,000 crore. If I look at my sub-investment grade book of Rs 29,000 crore, it has peaked and from here on, we will see a contraction.

The recent ET Now exclusive stated that PE and domestic investors are looking to infuse close to $850 million in capital in Yes Bank. Can you confirm this news? And is there any update on the quantum and timing of this fund raising?
I will answer this question in two parts. First and foremost, it is important to recognise that the capital we are looking to raise is only growth capital. Our capital is enough to be able to absorb any slippages that may occur in the sub-investment grade book. So, we are not looking to raise capital from a provision standpoint. Our capital is very much going to be growth driven.

Secondly, it would be inappropriate for me to comment on the news flag that had appeared on ET Now. What is absolutely true is that we are in very close engagement. We are very closely engaged with both public and private side investors. They have a lot of interest in investing in Yes Bank. They see that the Yes Bank portfolio. from an asset quality perspective, is really just a handful of names and is not a very large granular portfolio suffering from some cycle. The fact is with each resolution, it materially improves the upside for them. We remain very engaged with these investors. But beyond that, it may not be right for me to say anything at this stage.

What are the milestones that investors should be tracking on the capital front? What are the targets for your operating performance over the next three to four quarters?
We set very clearly defined quantitative goals for ourselves, whether it is on the revenue side, the cost side or the asset quality side. Those parameters are very clearly laid out in terms of what we think should be in line with our growth aspirations and the market opportunity.

But we will be able to articulate them with greater clarity post the capital raise because that will have a big impact and influence in terms of what the growth trajectory in the coming quarters could look like. We will be able to provide a lot more granularity around that in the quarter as we go along.

Could you give us more clarity on the timing of the capital raising? Can it be completed in the next two quarters?
Like I said, the operating performance for this quarter in reasonably challenging times gives us a lot of confidence in our operating performance. It also gives us patience with regard to capital raising. Having said that, we have said this in the past and we would like to stick to it that, for us capital raising should be a quarter two (Q2) event.

Margins have been under pressure and fee-based income has declined. However, we are seeing that the share of retail deposits have increased slightly. Give us your outlook.
An improvement in margins is a function of two things. First and foremost, we have now become a very liability focussed bank. Even in this quarter, what we saw in terms of the retail liability piece was very heartening and encouraging.

Secondly, if you look at the NIMs that we have reported for this quarter, they get somewhat masked by the fact that we had to derecognise revenues of almost Rs 230 crore on the back of provisioning. So, that did artificially depress the margins. But as I see it, as asset quality begins to stabilise now, our liability strategy -- especially on the retail side -- will start to gain momentum. I can clearly see a margin expansion in the current quarters.

What kind of discussions are the management having with regulators, be it NPA recognition, whistleblower complaints, etc?
We have been very closely engaged with the regulator, providing them with a lot of data points and MIS around our operating performance in terms of capital position and asset quality. I can say that the regulators have been very comfortable with that. It is a very constructive engagement which has become even stronger post the appointment of Mr Gandhi as an additional director by the Reserve Bank of India on the board of Yes Bank. With all the experience that he has and his background as deputy governor of DBR, he brings in a lot of regulatory insights. He has obviously strengthened the overall functioning of the board. I would say that our relationship with the regulators is a very transparent and constructive one. We will continue to strengthen that going forward.

Are any management changes expected by the bank? Can you tell us about the recent senior hires that the bank has undertaken?
As we disclosed sometime back, we have had two senior hires. We have brought in somebody as head of compliance and controls in governance. Then we brought in a very senior professional as head of financial management and strategy. There are a couple of other senior hires which we will look to make to plug certain gaps. On the business side, wherever we think that we have a capability gap, a client segment that we want to get into or a product set that we would want to fast track, we would put some real talent behind that. It is a dynamic ongoing process and we will keep refreshing and strengthening our management pool.