India’s Yes Bank aims to expand margins by 100bp in next 3 years, says MD

By Siddhi Nayak

MUMBAI (Reuters) – India’s Yes Bank sees scope to expand its net interest margin by 100 basis points over the next three years by attracting more low-cost deposits and lending to higher-yielding customers, its managing director told Reuters and CEO on Wednesday.

The push to improve net interest margins (NIM), along with lower loan-loss provisions, is part of an effort to increase the profitability of the lender, which was rescued by a consortium of state entities and private banks in 2020 after a dramatic increase in toxic actives.

For the January-March quarter, Yes Bank reported a NIM of 2.8%, 30 basis points higher than last year but below larger private lenders such as ICICI Bank and HDFC Bank, which have margins of more than 4%.

“Our goal is to further improve the overall savings account to checking account (CASA) deposit ratio. There is a huge opportunity available there,” Prashant Kumar said.

CASA’s deposits represented 30.8% of its total deposit base.

Yes Bank is also counting on higher fee income growth to help improve margins, he added.

In addition, it is focusing on making loans to clients that can generate higher margins. These may be retail or corporate clients ranked just below the highest-rated borrowers, but those who aren’t yet very risky, she said.

“There will definitely be assets that could have a BBB rating, but their risk is not high. We will have pricing power there,” the MD added.

The BBB rating is given to securities that are considered to have a moderate degree of certainty in meeting financial obligations on time.

As a way to boost lending to priority sectors, the bank is evaluating the acquisition of a microfinance lender this year, Kumar said.

Meanwhile, Yes Bank is targeting 15-20% loan growth by fiscal 2024.

It also expects bad loan recovery of at least Rs 50 billion from the transfer of bad loans worth Rs 480 billion to private equity firm JC Flowers, it said.

The share lockup period for the consortium that invested in Yes Bank as part of the bailout ended in March this year. However, big shareholders including the State Bank of India have yet to sell their stake, Kumar added.

(Reporting by Siddhi Nayak; Editing by Janane Venkatraman)