YES Bank CEO: NIM set to improve moving forward

Currently, our NIM stands at 2.4 per cent, but without the drag from Priority Sector Lending Certificates (PSLC), it would have been 3.1 per cent. This drag is expected to decrease from the current financial year, which should help improve our NIM. Despite challenges, the cost of deposits has remained steady at 6.1 per cent over the last 12 months, and our deposits are growing well. While CASA (current account and savings account) has been stable, the impact of PSLC has been significant. We believe we’ve hit the bottom in terms of NIM, and although I won’t provide specific guidance, with the measures we’ve implemented and a potentially easing interest rate cycle, our NIM is poised to improve.

Across the industry, we’ve observed increasing stress on unsecured loans, particularly in personal loans and credit cards, over the past few quarters. This has been a topic of discussion for the last four quarters, and it was initially flagged by the regulator, advising banks to exercise caution in this segment’s growth. This trend is evident in the results of other banks as well. For us, while our SMA (special mention account) numbers are slightly higher on the retail side, this is primarily due to unsecured loans and credit cards.

Around the second quarter of the last fiscal year, we implemented corrective measures by tightening our underwriting standards and customer eligibility criteria. As a result of these stricter norms, we’ve seen slower growth in these segments after Q2 FY24. However, the customers who have been onboarded since then are showing healthy trends.

It’s not that the bank made a mistake earlier. We need to take a practical view. Just like life-saving treatments can be costly and have side effects, they’re critical for survival. This bank was once heavily dependent on corporate loans, and diversification of risk is crucial for any bank’s stability. The financial difficulties we faced were largely due to this over-reliance on corporate loans. To mitigate risk at that time, we shifted towards low-risk retail products, fully aware that they wouldn’t be as profitable. So, nothing has come as a surprise. Everything has its time horizon, and moving into lower profitability products wasn’t a mistake—it was the right strategy given the circumstances, especially with the bank in a difficult situation and the onset of COVID-19, when the future was highly uncertain.

Yet, we were fully aware that whenever things improve from bank and ecosystem perspective, we will start moving into a better yielding product. This journey has already started. Secondly, if you see profitability of retail asset of other banks, it is mostly coming up because they have large exposure to credit card or microfinance (MFI). We don’t have much exposure to MFI and credit cards. Building these kind of portfolios takes time and we have been very patient in our strategy. Gradually, we are moving into that direction and last quarter we made it very clear that on retail asset side now we are moving into a direction from low risk to slightly risky. We are not going from very low risk to very high risk.

Nobody knows what happens in future. In 2020, I was thinking that I am retiring from State Bank of India. Now we are discussing this. So, we would not want to be much bothered about what happens in future. Our full focus is to continue delivering value for stakeholders. We have been doing this over a period of time. This should also not be a person specific goal. I think the biggest change which we are making in this bank is moving from a person specific goal to organisation specific goal.

In terms of the banks who invested in us during our difficult times, they have to be definitely given an exit due to regulatory norms, as a bank cannot remain invested in another bank. So I think this is something which will definitely happen, but when will it happen only time would tell. As a regulated entity, we have a responsibility of informing exchanges about material developments and we would follow the norms.

MFI is something where we would be continuously interested in exploring different options as this is one business which we don’t have. Building this business within the bank is difficult and takes lot of time as against acquisition.