You have taken the ARC deal. Can you give us more details on the deal and how it aids the bank on the asset quality side?
On the ARC, we were engaging with the partners for last one year and now we have finalised a partner who has given Rs 11,183 crore which is 135% of our own net NPA which we carry in our books. Now once we have already launched the system, depending on the final bidder, which would be definitely more than Rs 11,183 crore, the bank would be able to move most of the NPAs in that ARC.
Once we have launched the system, the bank would be able to move most of the NPAs in that ARC and then at the end of the financial year, the bank would be left with the gross NPA number of 1.5-2%. Not only structurally the balance sheet would be very strong, but even optically, it gives a very good sense to investors about the bank.
The second part would be definitely in terms of management bandwidth which is currently engaged in the recovery and the resolution and which would be subsequently done in the ARC process.
The third major advantage would be because we are carrying a gross NPA number of almost Rs 27,000 crore. Once this would move out, even the requirement for the bank for keeping the priority sector would be lower and that would add to our bottom. Following the subsequent recoveries to the ARC, we would be getting almost 80% of that in the bank.
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You have made provisions of almost Rs 6,600 crore on the books. Is it a bit higher from what the management was earlier expecting?
I think even the carrying value of the SR may be lower than Rs 6,500 crore but even if it is Rs 6,500 crore, this is not an issue because we would be continuously getting the recoveries which would offset the requirement for the additional provisions on the SR.
Are you saying that the net asset quality on Yes Bank’s book is lower than the bid put in by JC Flowers and you will adjust the excess as a set off against the net carrying value?
Yes, that would also be there plus the recoveries in next two-three years because this aging requirement would also be there for next three years when we would also be getting the recoveries from the stressed assets book and that would offset those requirements.
What is the kind of due diligence done on Yes Bank’s side and how confident are you about recoveries going ahead?
The due diligence from both the partners have been done very extensively. Due diligence from our partner on the individual assets has taken a long time because before submitting any bid, they also need to be sure what kind of recoveries came in.
We have also seen in terms of their capabilities and ability to put large amounts of the capital. We are confident of the recoveries from this ARC, because if we see this deal, which is 135% of the net carrying value of the NPAs in our books, it means this is also discounted because the recoveries would happen over a period of two-three years. If there is a bid for Rs 11,183 crore, it means the recovery prognosis for our net carrying value is much higher and after discounting it is Rs 11,183 crore, which is still 135% of the net carrying value.
We are quite confident and we have demonstrated in the past that we have been able to recover much more than what we have provided and if you see the recoveries that we make, almost 40% comes to our P&L.
The big cue really for the stock is the fundraise that you have planned for almost $1 billion in FY23. You have been talking to the likes of Carlyle and Advent. How much will your CET improve post that and as the bank has strong growth plans, when do you expect the fundraise to be completed? Will it be done this year itself?
The entire billion dollar which we are proposing to raise within the current financial year would be entirely CET; it is not a debt. Currently our CET is around 1.9%, but the bank definitely requires not only to create a buffer but also the growth capital for the future growth. So during the financial year, depending on the market conditions, whenever we find the right time we would be raising this capital.
Will the fundraise then come in in the first half or the second half? Are there any ongoing talks?
No, I think there is no constraint from the growth side. It is not like a constraint that we would not be able to grow if we are not able to raise capital by the first half. That is exactly what I am saying. Currently it is a comfortable CET. It would not hamper our growth aspirations. It is more in terms of the market conditions. We need to take a call which is good for the bank. Whether this happens in the first half year or second half year it would not impair the growth prospects.
Could you share some growth perspectives for FY23, FY24?
For the current financial year, we are aiming at a growth of 15% on the loan side where retail, MSME and medium enterprises would grow more than 25% and the large corporates we are aiming to grow around 10%. But overall, it would be 15% and by June we have already registered a growth of 14%. But at the same time, we also need to be cautious in terms of what is happening in the ecosystem as there are huge challenges in the environment, both locally and globally. India is much better than what is happening globally but we need to be very cautious. Next year’s growth would be more than the industry. So depending on what happens overall in the industry, we would be growing more than the industry.