Banks are flush with liquidity, but they also have to look after the interest of depositors.
Businesses will not be in a position to resume normal activity for a long time after the lockdown is lifted and the loan moratorium should be extended to December 31, 2020, Yes Bank MD & CEO Prashant Kumar told Shritama Bose. The bank is working to take its current account savings account (CASA) ratio to above 40% over the next one to three years, he added. Edited excerpts:
Your CASA deposits have taken a hit. What are you doing to regain the trust of depositors?
We must understand that the problem has not surfaced in a day. The problem with Yes Bank started on October 1, 2019, when shares held by the erstwhile promoter were sold and then the depositors started moving out. The problem was getting more and more serious and once the moratorium was imposed, the depositors got uncomfortable. Over a period of time, there was a growing trust deficit and the moratorium compounded that problem. But the fact that the moratorium was lifted within 13 days gave a lot of confidence.
This bank is quite good in terms of customer reach. I have been speaking to 10-12 retail customers every day and the feedback I get is that they are very happy with the service during the moratorium and the current lockdown. The trust factor is also coming back. But the Covid situation has complicated everything. There is fear on everyone’s mind. We made our employees reach out to customers because with the lockdown, there was little else happening. After March 31, deposits have moved away in the institutional and corporate side because these depositors needed the money for their own requirements. This was compensated by retail.
The second point is that our bank is a market leader in the payments space. For example, PhonePe, which had moved away during the moratorium, has now come back fully. Some large corporates who had moved out the cash management piece have come back. We are confident that with an aggressive outreach to customers, gradually we would be able to build that deposit base and the focus is on the granular side. We want to take the CASA ratio to over 40% over a one- to three-year period.
What is your near-term strategy to bring Yes Bank back on its feet?
We have made a 74% provision on the NPAs and also on NPIs, which means investments. This means my entire non-performing portfolio of Rs 50,000 crore has been insulated against future earnings. So, there is no need for additional provisions there. We have done a study that if we create a subsidiary within the bank and the entire book is parked there along with the provisions, it would release a lot of liabilities. Or, if a bad bank-type structure is created outside the bank, I can shift the entire thing along with the provisions. If you remove this book and the provisions from the balance sheet, the remaining part would be A-class because on the retail side our NPAs are just 1.5%. I take care of the liabilities. So, if we can segregate this (NPA) portfolio into a separate entity then the remaining bank over the next 18-24 months could be one of the best in the private sector.
The advantage for this bank is its huge technological superiority. I have made a team of 100 people who are professionals on the analytics side who are working on our database to see how we can target customers for both liabilities and assets. It will be a very targeted approach and very cost-effective because your conversion to actual business would be much higher. The remaining bank would be very strong in terms of margins, technology, data analytics and artificial intelligence. My vision is that the remaining bank will be a digital bank.
MSME loans account for 20% of your book and it’s now clear that without government intervention, this segment will not be able to function. What is your ask from the authorities?
We are looking at two things. One is to extend the (loan) moratorium immediately and not by two or three months. My thinking is that as things currently stand, we need to extend it till at least December 31 because once the lockdown is lifted and you resume your economic activity, it takes time to generate income. One of the biggest problems is that all migrant labourers have moved back. So, even getting labour for your MSME unit would be very difficult. So, you need to extend the moratorium and then capitalise the interest. You can’t expect people to repay your entire interest.
Banks are flush with liquidity, but they also have to look after the interest of depositors. So we need a backstop from the government in the form of loan guarantees, without which banks cannot lend. Preserving financial entities at a time like this is critical.