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Yes to bank on CEO’s ‘best practices’ philosophy

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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 after the results.

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 strategy.

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 the past.

“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.




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