Investors believed in our ability to bounce back: YES Bank MD

The entire (QIP) book was built within half an hour of opening and eventually we had an oversubscription of three times. This (oversubscription) came at a time when there were two other IPOs in the market. And both of them were under-subscribed. Our issue came on the back of very challenging macros. What we told the investors was the reality in terms of what our asset book will look like and our future growth trajectory. Somewhere there was a belief about the ability of this bank to be able to bounce back, generate very strong revenues and access capital on an ongoing basis. I think many of these got demonstrated and that is what gave comfort to a lot of these investors, some of them first time investors, including a very large Indian fund and US-based Key Square Master Fund.

Historically, what you have seen is really a very strong structured finance bank. But equally there are two other businesses — retail bank and transaction bank, which are good businesses but are undersized. And I think, we needed to show the market a path as to how we would scale these businesses and what that would mean from diversification, revenue generation and client engagement perspectives. So, I think, people (investors) liked that story.

When it comes to asset quality, unlike some of our competitors, our concerns were not really very granular in nature. (In the case of YES Bank) there are a handful of entities which are facing illiquidity. And if those could find resolutions, the complexion of the book would look completely different.

There is a saying that banks will become technology companies with a banking licence. From this perspective, I don't think there is another bank which digitally is as enabled as YES Bank is. And this is something that the market doesn't yet recognise.

There are three names that accounted for nearly 80 per cent of the 'BB and below' rated (sub-investment grade) book. Two out of these should have full resolution in this quarter. So suddenly the sub-investment grade book, which is currently at ₹29,000 crore, will start to contract. When this happens, the risk perception around the bank will get a little moderated. It will also release capital for us. The two resolutions that I am talking about account for about ₹9,000 crore.

The reason why we raised this amount and not more, even though the demand was much more, is that right now our (shareholder) approvals were for a 10 per cent dilution. This takes our CET-1 (common equity tier-1 capital) up from 8 per cent to 8.60 per cent. And then through balance-sheet rationalisation, we will try and add another 20-25 basis points.

De-growing some of our loan book — the wholesale (large corporate) loans. Eventually, what we want to do is free up some capacity to be able to grow on the retail side. And a big driver for trying to grow the retail side is that unless you have a retail assets cross-sale, generating liabilities is not easy. These two go hand-in-hand. So, just to be able to make sure that we can continue to strengthen our liability franchise, we will actually grow even our retail asset book.

Right now the loan mix of corporate: retail is 67:33. In terms of revenue, we want this to be 50:50 by 2025. However, I want YES Bank to retain its corporate look, feel and character. I don't want it to become a retail bank.

The best way to lower RWAs (risk-weighted assets) is to try and lend to high rated corporates. For that our cost of funding needs to be really competitive and we need to work on that. And when I said that we really want to strengthen our liability franchise, it is from this perspective — to be able to bring down our cost of funding. So, we are working on that. And then we will be able to move (lend) to higher rated corporates, which will bring down the capital that we need to put around that (lending). Also, the RBI recently cut the risk weight in retail assets. So, that will bring down the capital requirement for making these loans. And, of course, as we keep getting the resolutions and moving assets out of the sub-investment grade book, there will be some capital release coming out of that as well.