Yes Bank - Future Is Bright
Yes Bank has declared its third quarter results. The company's net profit was up at Rs 25.1 crore (Rs 251 million) versus Rs 14.5 crore (Rs 145 million). Rana Kapoor, MD & CEO of Yes Bank stated that they are expecting to maintain NIM at 30% and other income at 50% of total income.
Yes bank is looking at USD 75-100 mn of capital raising. The NIM has improved to 3% versus 2.9%, comments Kapoor who feels that timely PLR increases ensured NIM expansion. The number of branches of Yes Bank is to increase to 100. Kapoor stated that the RoE is at 14.1%, while its CAR was at 14.3% and CASA at 7.2% versus 5%.
Excerpts from CNBC-TV18's exclusive interview with Rana Kapoor:
Q: Walk us through what led to the growth in NII this time around?A: As you know, our overall net profit over the corresponding quarter has increased by 73%, which represents the single biggest increase we have seen in any quarter over the life of the bank. We have been around for nine quarters now. The total income, which has gone up quite significantly to almost Rs 205 crore, represents an increase of almost 152% and our operating profit has gone up to about Rs 47.9 crore, which represents an increase of almost 83% over the corresponding period as well.
Q: Your interest expenses have gone up a little faster than your interest income; the interest expenses have gone up by about 270% against a fairly decent jump in your interest income as well. Would that mean that your NIMs are slightly pressured?
A: Your observations are right, while interest expenses have gone up during this period, our net interest margin has actually improved to 3% compared to 2.9% in the September quarter and 2.7% in the June 06 quarter. So we have actually had three quarters of steady increase in net interest margin partly because of our re-rating our asset portfolio as in fairly timely PLR increases as well as fairly regular portfolio review of our pricing. So it is mainly to do with the fact that we have been ensuring that as operating expenses as well as interest expenses go up there is a commensurate rise also in our overall realisation.
Q: Your advances have grown by 151% to Rs 4,800 crore, while your deposits have more than doubled. Rs 5461 crore is where Yes Bank’s deposit stands now, which is a 207% growth. What are your plans or targets going forward? In the next 12 months, where do you see your balance-sheet size?
A: As you know, I can comment at best on where we stand today. We are maintaining a nil NPA portfolio and have achieved a return on assets of about 1.4%, an ROE of 14.6% and a capital adequacy rating of 14.3%. In terms of 12 months from now, I can safely predict to you that the number of branches that we are working towards should be somewhere around 100 by March 2008.
We are at about 29 branches at present, going up to 60 by June 07 and with the branches coming in, we should be able to garner many more lower cost current accounts and saving accounts, which is one ratio which has also improved in this quarter to 7.2% versus being at slightly over 5% in the preceding September quarter. So we should be able to double from here within one year give or take 5%.
Q: Just to get back to the point you made about net interest margins - because of the growth that you have seen and interest expended and because of the way interest rates have been moving, do you expect to hold these margins for the next two quarters?
A: Our guidance in the previous sessions with CNBC has been NIMs anywhere between 2.7-3%. We have been actually improving on these NIMs; so I hope we can keep 3% going but as you know in our overall composition, almost 50% of out total income is in terms of non-interest income. This quarter, it was 47.5% but for the nine months ended December, it is bang on 50% the total income. So our model is, while the interest income continues to be very important, equally important is the robustness and the continuity of our non-interest income, which has been very steady.
In fact, in this particular quarter our non-investment banking and non-treasuries is almost 30%, partly because of retail accruing well, as well as the cash management in trade, and third party distribution contributing quite meaningfully and we see that trend of anywhere between 47.5% to 50% non-interest income sustaining for the best part of certainly the next five quarters.
Q: What are you factoring in by way of increases in interest rates and do you expect that to impact the retail demand that you are seeing at this point that at all?
A: In our case, bulk of retail is third party distribution and deposit-driven strategies. We have a very minimal retail asset programme because we recognise that the markets are correcting on pricing and we don’t want to venture at a time when there is far too much pricing risk embedded in retail assets.
In our strategy, we are seeing a lot more depth and traction accruing in our small and medium enterprise end of the business. We are seeing a lot more momentum build up in emerging corporates and in our structured and corporate finance portfolio, which are actually giving us spreads more attractive as well as fees, which is fairly reasonable even compared to retail assets. So we are seeing a lot of robustness in our SME and in our emerging corporate strategy plus the cross sell potential for treasury for trade. These are areas, which are very vital to our overall business model as well.
Q: If you are tripling your number of branches from 29 to 100, you must need lots of capital. Are there any capital raising plans?
A: We do have capital raising plans and have done a couple of tranches as you know in the last quarter with Swiss Re - we did roughly USD 26.5 million. We do believe that in the next three months or so, we should be able to raise around USD 40-50 million of additional capital as in tier-I and we are also progressing our upward tier-II initiatives. In fact we have a transaction underway. So it remains our intent to garner anywhere between USD 75 to possibly USD 100 million over the next few months.
