INSUBCONTINENT EXCLUSIVE:
Mumbai: A whole new philosophy would determine the way Yes Bank functions under the new chief executive Ravneet Gill starting with the way
it accounts for fees received, provides for dubious loans and interprets regulations.
In a presentation to analysts after the bank posted
its first-ever loss on Friday, Gill shared his thoughts on the way forward for the new-age private sector lender.
The video of the
presentation which was put up on the internet on Saturday was taken down by the bank on Sunday morning.
A spokesperson said that the video
was removed because of a technical issue.
ET reviewed the video on Saturday in which Gill is seen saying in a presentation that revenue and
profit-boosting practices such as booking fee income in advance before the full amount flows into the bank, may be things of the past.
“We
used to book our fee income at one go
From now on we will amortise it over the life of the loan which is the best practice
Our cost of funds is also 125 to 150 basis points above our private banking peers we want to correct that,” Gill told analysts immediately
One basis point is 0.01 percentage point.
The financial statement released on Friday showed a fee income reversal of Rs 280 crore
It is not clear whether there could be similar reversals in the forthcoming quarters.
Gill said he plans to make liability building a key
performance indicator (KPI) for the bank’s branch banking workforce, which would mean moving away from an aggressive asset-linked branch
model.
“One reason why the focus was not so much on building liabilities was because the bank was earlier managed top to bottom whereas
liabilities are more granular and are built from the branches bottom to top
We plan to review the KPIs in our 1,100 branches to focus on liabilities,” Gill said adding that over 30 per cent of the bank’s branches
are profitable right now which he expects to improve to 80 per cent by 2023 and 100 per cent by 2025.
On Friday, the bank posted a loss of
Rs 1,507 crore for the January-March quarter, compared with a profit of Rs 1,180 crore a year earlier, its reported loss since its 2004
launch.
Gill took over on March 1 after the Reserve Bank of India declined to sanction another CEO term to founder Rana Kapoor, forecast
credit costs to remain elevated this fiscal year as well
The bank made total non-tax provisions of Rs 3,662 crore, more than nine times the Rs 400 crore reported a year earlier and nearly seven
times the Rs 550 crore reported in December 2018
This included a Rs 2,100-crore contingency provision that it made “pursuant to a review of the credit portfolio”.
In his presentation to
analysts, Gill said the bank will henceforth “align with regulations and governance” without giving up on the bank’s aggressive
nature.
“There is a perception about Yes Bank in the market
Like one client came to ask certain things because HSBC wanted an approval from RBI and he wanted to know whether we can do it without RBI
approval regulatory scrutiny is not in our best interests We will align with regulations and governance,” Gill said.
Analysts who attended
the presentation welcomed the changes as a long-term positive for the bank but cautioned that these changes in recognition and conservatism
could create volatility in the short term.
“The change in guard at the bank is effecting a rethink in business model mix as well as
Hence in the near-term upsides may be limited as the bank’s changed strategy may entail slower growth and moderate return ratios, albeit
with a better quality of incremental business and more conservative accounting
We believe after the initial reaction by the market, most likely negative, we expect the investors to start assessing how the bank is
shaping up for the long-term,” said Lalitabh Shrivastawa, analyst at Sharekhan by BNP Paribas who has still maintained a buy rating on the
stock but will reassess the bank after the knee-jerk reaction likely next week.
Gill defended the extra provisions the bank made but refused
to call it kitchen sinking.
“These are just prudent accounting norms and I would not call it kitchen sinking we have taken a 20 per cent
contingency provisions on some accounts which could be troublesome in the future,” Gill said
Analysts however are preparing for a slower 25 per cent profit growth by the bank in the near future compared to its average of 35 per cent
“We appreciate this clean up we continue to like the bank but we should now be prepared for a 25-30 per cent growth in the near future,”
said Gautam Duggad, head of research at Motilal Oswal.