YES Bank continued to grow its earnings at a healthy pace in the latest June quarter, driven by strong growth in its loan book. But there have been concerns on some of its exposure in the large corporate segment, as the corporate loans still constitute about two-third of its portfolio. BusinessLine spoke to Jaideep Iyer, Group President of Financial Management at YES Bank, to take stock of the company’s performance and exposure to large corporates. Excerpts:
YES Bank managed to deliver a healthy 35 per cent growth in loans in the latest June quarter results. Which segments led the growth?
Let us first put the 35 per cent growth figure in perspective. Fiscal years 2013 and 2014 were fairly sluggish in terms of growth. Hence some of the growth has been because of the lower base. After the first quarter of the 2016 fiscal, we raised additional capital. That was also the time when the new government came into force and there have been indications of policy stability and progress on reforms. In the latest June quarter, our loans grew 5 per cent sequentially, which is close to 20-21 per cent annualised growth.
In terms of sectors, we have been focussing on segments that have been relatively less impacted by the slowdown, namely pharma, agri, healthcare and hospitality. Within the power sector, our focus has been on the renewable energy space. We have done two green bond issuances recently, including a $50-million transaction with IFC Washington, to look at opportunities in the renewable space.
YES Bank has also built its presence in SME and retail segments, which has driven growth.
But retail is still a very small portion of your portfolio…
Yes, loans to individuals such as home or auto loans, is still a very small portion. Predominantly, our retail loans are tilted in favour of commercial such as construction equipment, commercial vehicle, etc rather than consumption. In the next three years, the commercial portion of retail loans will continue to dominate. Thereafter, our focus will be on the consumption side of retail loans.
Sometime back, there was a report which highlighted risks to YES Bank, on account of its large exposure to stressed companies. Is there any cause for concern?
The quantum of exposure mentioned in the report was grossly overstated. This was because of the limitation of methodology that was used.
Our actual exposure is safely less than half of that mentioned in the report and not to all the names. Also not all the names mentioned in the report are necessarily under stress. Leveraged groups will have parts of the businesses that are doing well.
Our exposure to these companies is not predicated on operating cash flows of these companies, but on ring-fenced positive cash flows or on collateral by a stronger entity in the group. Under these circumstances we do not believe that we face stress from these large-ticket names.
As of this June quarter, we have also started disclosing the rating distribution of our corporate exposure. We do have a small portion – about 2-2.5 per cent – below investment grade. Whatever stress happens, it will largely happen within this portion of our loans.
Within the infra space, what is your current exposure to the power sector?
Electricity and power put together is about 9 per cent of total loans.
But your exposure in power was much lower last year – about 5-6 per cent…
There are a couple of reasons for the growth in this segment. One is our focus on the renewable energy space. About 50 per cent of our exposure to power is to this segment, where the execution risk is much lower. Our overall exposure has also gone up because we have subscribed to bonds of companies in the power sector. Almost 20-25 per cent of our power loan portfolio is between AAA and AA bonds. We have zero exposure to conventional power projects.
Your restructured book has gone up in the last two quarters. Why?
Our restructured book has gone up because of delay in three or four road projects. Hence the restructured assets have increased due to technical reasons and not because of stressed cash flows. These assets continue to be classified as standard and carry 5 per cent provisioning.