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Edited Transcript of YESBANK.NSE earnings conference call or presentation 8-May-20 12:00pm GMT

Q4 2020 Yes Bank Ltd Earnings Call

May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Yes Bank Ltd earnings conference call or presentation Friday, May 8, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Niranjan Banodkar

Yes Bank Limited - Senior President

* Prashant Kumar

Yes Bank Limited - CEO, MD & Director

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Conference Call Participants

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* Aakash Dattani

HDFC Securities Limited, Research Division - Research Analyst

* Aakriti Kakkar

Goldman Sachs Group Inc., Research Division - Research Analyst

* Bhavin Shah

* Jai Mundhra

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* M.B. Mahesh

Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst

* Mahrukh Adajania

IDFC Securities Limited, Research Division - Director

* Manish B. Shukla

Citigroup Inc, Research Division - Director & Lead Analyst

* Manish J. Karwa

Axis Capital Limited, Research Division - Executive Director of BFSI

* Nilanjan Karfa

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to YES Bank Limited's March Ending Financial Results Conference Call. We have with us today from the management, Mr. Prashant Kumar, MD and CEO; Mr. Anurag Adlakha, Chief Financial Officer; Mr. Ashish Agarwal, Global Head Wholesale Banking; Mr. Rajan Pental, Global Head Retail Banking; Mr. Neeraj Dhawan, Chief Risk Officer; and Mr. Niranjan Banodkar, Head Financial and Investor Strategy. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Prashant Kumar from YES Bank Limited. Thank you, and over to you, sir.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [2]

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Thank you very much and good evening to everybody. I hope you and your families are safe during the current time. And I really know like who are the people who are attending, but I think most of you have interacted earlier in my earlier role in State Bank of India. So I think that would be great reconnect with all of you.

So I think you must have seen our detailed presentation on our quarterly and annual performance. So I would not like to repeat those numbers. I will give more focus on the -- what are the challenges before the bank and what is our strategy to overcome those challenges.

I think from the presentation, it's very, very clear that we have acknowledged that we are facing challenge in terms of -- there is a gap between the liability and on the asset side. We have reached on the capital CET as well as on CRAR. And we are having a huge stressed asset portfolio. So I think everybody would be interested in knowing like what is our plan to going forward and meet those challenges and come out with a very, very strong brand.

We have tried to give a road map in our presentation. But still, I would like to give some clarity, some thought process, how we are like to do it. I think this bank has conferred earlier because of the governance issue. So I think first thing what we have done to take care of the governance issue and what we have done, we must have seen under the reconstruction plan of the bank. It's really, really eminent, Board has been, say, called by the government of India and the consultation with Reserve Bank. So the people who are in the Board, the Chairman and Mr. Sunil Mehta, who was earlier Chairman of Punjab National Bank, and he was also earlier on the Board of State Bank of India. And similarly, we have other members who are very eminent and professional.

Now coming to like how we would like to fix under the guidance and supervision of the Board, we have carried out the reorganization of the bank and what we have fundamentally done. The credit underwriting has been segregated from the risk. So now we have a separate Chief Risk Officer and Chief Credit Officer. Similarly, what we have done that we have created a separate stressed asset group to give focus on the recovery and resolution on our stressed asset that have been what we have done. We were having multiple products and the sales team on the corporate side. So everything has been converged under the head of the corporate. So these are some of the fundamental things what we have done on the restructuring of the organization.

Now on the liability side, postmoratorium, I think it was quite expected that there would be outflow. And we have seen those outflows, both on the corporate as well as on the retail franchise. But after 31st of March, the outflows have been more or less stabilized.

And in fact, we are getting huge positive response from our retail customers. And during the month of, say, April 2020, we are able to raise almost 1,03, 000 retail fixed deposits, which is more than any of the number of the FDs, which was generated during the last 12 months, even during a very good time. Now amount-wise, this is less, but the issue is that since we are moving from the -- our dependence on the bulk deposit on the retail side are more granular, so I think this number is becoming more important.

Our team, during the current difficult time at the ground level are constantly in touch with customers. My senior leadership team is also talking to the customers, both on corporate as well as on the retail side. I'm also talking to the retail customer on daily basis. And it's a very, very good feedback from the retail customers and corporate customers. People are very appreciative of the way the -- our teams at the ground has taken care of their needs during the moratorium as well as using the current lockdown. And everybody is more than satisfied in the type of customer service provided by the bank even earlier and during the current time. So we are quite hopeful that with this type of customer confidence, with the type of support we got from the government of India, Reserve Bank of India, investors led by State Bank of India and several other private sector banks, I think this confidence is coming. And gradually, we will be able to build our liability portfolio to just have a better alignment in our balance sheet. At the same time, we continue to get the support from Reserve Bank of India in terms of funding, and that support would continue. So we don't see any issues out of it. The only thing is we need to build the liability portfolio on our own.

The second thing, if you see on the stressed asset side, apart from creating a very, very focused vertical for speedier recovery and resolution of this portfolio, we have also made 74% provisional coverage, both on the loan side as well as on the investment side. So basically, attempt has been made to insulate the balance sheet from any past event. So 74% is more or less in alignment with the LGD. And we believe like going forward, we need to take care of the provisioning requirement, more or less, only for the fresh slippage.

We believe like we need to, say, grow our capital ratios, and we don't believe like meeting just regulatory requirement would be enough. So we would like to go beyond that. And our target is that we should maintain at least CET1 of, say, 10%. We already got the approval to raise capital to the extent of INR 15,000 crores. We have already appointed merchant bankers -- 6 merchant bankers to take it forward. And on the basis of the advice from the merchant bankers, we will decide a mode in which we are going to raise capital. It could be QIP. It could be a write issue, it could be FPO, it could be a combination of both those things.

You must have also observed that despite the moratorium for almost 15 days, despite very, very difficult time during the last quarter, still the bank is able to generate a very small amount of operating profit. We continue to work on this to have a decent operating profit, and for that one part about the control on the cost is very, very critical for us. So what we are trying to do that we are targeting a reduction of the cost to the extent of something around 10% approximately. And you must have seen like during the current year also the cost increase has come down from 20% to something around -- Niranjan it was 7%.

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Niranjan Banodkar, Yes Bank Limited - Senior President [3]

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Yes.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [4]

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So now we are targeting a reduction to the extent of 10%. And this would happen in terms of both cost on the staff side as well as cost on doing the operations.

At this point of time, I would also like to draw your attention about the trend that we continue to be the market leader on the payment space, and this is mainly driven by our superior technology capabilities on the payment side. We are very, very happy to share with you that during the moratorium, very large customers were have moved away from us have come back in total because their feedback is that the way we were able to take care of their requirement, other even large private sector banks, they have not been able to do that. So we are seeing that those customers who are having the cash management product, who are having the -- integrate the systems on the payment side, they have come back. So I think that is a continuous journey. And going forward, the technology will be very critical for us and what we are now trying to do that apart from having our strength on the transaction side, we are also building our technology capabilities for the data analytics, for the artificial intelligence, the customer acquisition through data analytics, the acquisition of customers and the total loan life cycle management on digital. So I think going forward on the digital platform would not only, say, give us a lot of competitive advantage in terms of cost reduction, it would also help us in having a very, very focused marketing. And our data analytics team is -- would be able to generate, they are in the process. We already have a large team working on this so that we can have a very targeted approach for both liability as well as on the asset side.

One very, say, strategic shift, which we are making in the bank, as of now we are almost like 55% on the corporate and 45% on the retail and on the MSME side. So gradually, we would be moving like to the extent of 60% on the retail and MSME and 40% on the corporate. But one thing is very, very clear that in the immediate future, on the corporate side, the focus is asset light, more liability generations, more on the transaction. So our relationship with corporate would continue but would depend more on the liability, transaction and the cash management instead of on the asset side. So gradually, it would come down and going forward I'm not saying that we would be out of the corporate finance. But definitely, yes, for the time being, we have taken a pause. And once the situation would improve, both internally and externally, then we would scale up our operations on the corporate asset side also.

So I think I will stop here. These were the initial comments. I just thought I should give some thought process on the strategies for the bank going moving forward. And now I would be very, very happy to -- and my team also here to have your questions and would like to try to respond to those questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Aakash Dattani from HDFC Securities.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [2]

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My first question is, could you provide a breakup of the borrowings as on 31st March, please?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [3]

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Okay. What is the second question?

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [4]

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And my second question is if you could sort of dive deeper into your strategy on the deposit front?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [5]

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Can you please repeat your second question?

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [6]

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Yes. If you could dive deeper into your strategy on the deposit front?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [7]

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Yes. So if you see the details of borrowings as on March 31, the total borrowing was almost like INR 1,13,000 crores. Okay. Out of this, the refinance was INR 23,700 crores. It was a RBI window available towards -- to the extent of INR 50,000 crores, and there was the overseas borrowing to the extent of INR 9,400 crores, and there was IBPC...

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Niranjan Banodkar, Yes Bank Limited - Senior President [8]

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Subject of about INR 18,500 crores.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [9]

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Okay.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [10]

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Yes. And coming on the retail side. So basically, what is happening, when you move on the retail side, your task becomes more difficult, but it is also more sustainable. So it is more on the customer connect, okay? And what we have observed, what is the feedback, I think our customer service is really, really good, and the people are happy, both on our digital capability as well as on the personalized customer service. So I think what we are doing, our bank was having a deposit base of almost INR 2,00,000 crores as on September 30, 2019. So everybody who was having the deposit with us as on September 30, as on 1st of April, we are targeting all those customers, and we are following them, our teams, even during the current times where everybody is not able to attend office. But I think during the entire lockdown period, the customer calls, the customer connect, which has been made by our team have been the highest. So it's a one-to-one connect, and at in all levels, giving the comfort, assuring them the safety, sharing with them what are the developments, which has happened in terms of -- new investors, which has come up, the support which we are getting from government, RBI and other banks. And at the same time, extending all those facilities. So it's a process, which will take time. It cannot happen overnight. But definitely, the COVID situation has made it more difficult. But still in the COVID situation, we are finding continuous inflows, and the data which I have given in terms of the number of retail term deposits, which we have faced.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [11]

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Sir, lastly, would you be able to quantify the deposit as on 15th April?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [12]

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Qualify the...

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [13]

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Quantify the deposits -- the total deposits as on 15th April, please?

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Unidentified Company Representative, [14]

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15th April.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [15]

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So April 15, we don't like have the data date-wise. I can give you, say, deposit figures, I think which we have published on the 2nd May also.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [16]

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Okay. So that would be as on which date, 2nd May?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [17]

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2nd May.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [18]

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Yes. If you could please provide that figure.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [19]

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So I think that is something around...

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Unidentified Company Representative, [20]

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INR 1,03,000 crores.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [21]

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It is there in the presentation. INR 1,03,000 crores.

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Operator [22]

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The next quarter is from the line of Aakriti Kakkar from Goldman Sachs.

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Aakriti Kakkar, Goldman Sachs Group Inc., Research Division - Research Analyst [23]

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Sir, I just have 2 questions around the capital raise. The first is that what are the options for fundraising that we have? And the second one is that how relevant writes issuance at a discounted price be given the urgency of capital raise and the time needed to fix the financial issues?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [24]

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So Aakriti, actually issue on the option side. I think we are working on all the options, all the 3 options that are available, QIP, writes issue and the FPO. QIP, I would be very happy because it happens very fast, okay? So only thing is like as for SEBI formula, we cannot give more than 5% discount on the last 2 weeks average. So if we find investors who are willing to put money at this rate, we would be more than willing to do it very fast. But that situation seems difficult. So I think what we have done, we have applied for both fast track writes issue as well as fast track FPO with SEBI. And if we get that, then it can happen very fast. Otherwise, in the normal route also we will do. And definitely, if we go for the write issue or FPO route, then depending on the advice and the investor interest, we will decide on the price.

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Operator [25]

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The next question is from the line of Manish Karwa from Axis Capital.

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Manish J. Karwa, Axis Capital Limited, Research Division - Executive Director of BFSI [26]

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So my question is on the cost front. Look our balance sheet now is -- now almost 60% of the total -- of the historical balance sheet, and it's unlikely that this number will grow in the near term. But our cost base has still grown this year. Apparently, for us to do any profitable business, it's very clear that our operating expenses need to be at least 30%, 40% lower in absolute numbers from here on. How do you see that playing out because a large part of your cost related to employees and branches will be fixed, and it may be a bit difficult? So I just wanted to have your thoughts about what are you thinking on rationalizing the cost as such.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [27]

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So Manish, like, if you see this from where -- a little different angle. The cost is one part, but the effect on the operating profit is also because we don't have that type of income. And most of the impact on the income side has happened because of the huge slippage, okay? So now I think the slippage part, I can't comment on what was the impact of the COVID or the slippage. But I think in the -- all the entire, say, slippage on the portfolio has been taken care, okay? So that way the income generation would not be adversely impacted. But at the same time, like I was sharing, not 30%, but definitely, we are targeting a reduction of cost to the extent of 10%. It will happen both on the, say, employee side as well as nonemployee. So what we are doing on the employee side, we are not going for any fresh hiring as there is a normal attrition. So you must have seen like our number of employees are coming down. So we are not going to, say, go for hiring and increase the number. So numbers are coming down, and that would happen. That is one part.

Second thing that our leadership team has taken a voluntary call for cut in the compensation, and we've cut in more in terms of converting from a fixed pay to a variable pay. That is one part. Second thing, there is a huge cost on the operation side. So we are moving on digital that would save cost. We are also looking for all our premises. And the premises, which are, say, not required in the current time, I think we are going to move from those premises to the, say, lower area as well as lower cost. So we are seeing the cost of the premises very actively. So I think basically, these are the -- some of the same players we would be able to achieve a cost reduction by at least 10%.

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Manish J. Karwa, Axis Capital Limited, Research Division - Executive Director of BFSI [28]

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So this 10% you are saying is would be on absolute cost?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [29]

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Yes.

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Operator [30]

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The next question is from the line of Jai Mundhra from BNP Securities.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [31]

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Sir, the question is you have a balance sheet -- I mean the loan book of INR 1.7 lakh provision, and deposit of INR 1,00,000 crore and a borrowing of also INR 1 trillion. Sir, just wanted to check, sir, how do you plan to sort of go ahead with this kind of a structure? Are there any assets which you think can monetize -- can be monetized in a fairly quick way? What is the thought process on this, sir?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [32]

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So basically, this issue has -- we need to, say, handle in 2 different way. We need to, say, ramp up our liability, and at the same time, we also need to see how we can reduce on the asset side. But there is a risk involved if we reduce on the asset side because it would impact your income generation capabilities, okay? So our focus is more on increasing the liabilities. And I think if you see the liabilities as of 30th September was INR 2,00,000 crore. If INR 2,00,000 crore liability can come down to INR 1,00,000 crores in 6 months, it can also go back to INR 2,00,000 crores if not in 6 months, but definitely in 1 year. So I think our approach would not be just to downsell on the asset size, okay, because it would impact your fee income. We would like to see what we can do on the stressed asset side because that is something which is not income generating itself. So that can come down, and at the same time, increasing the liability.

We are also working on having more CASA deposits and also reducing the pricing or the interest, which we see on the deposit. I think we have already started moving in the direction, 1st May, there was a cut of 25 basis points on our fixed deposits from 7.25% to 7%. So I think that will continue to go on. And gradually, our rate of interest on the market -- say, deposits would be almost in alignment with the market, but that would happen over a period of time. So it's a very, very -- I will be saying a calibrated way. There is no straightforward answer how the balance sheet will be managed, but we have to do in a very artistic way where we continue to increase the deposits and reduce the asset, which are not generating income for us or which are generating income, which is on the lower side. So we are talking to, say, banks, I think all the banks are supporting us. They are looking for our portfolio. So we have a target, we would be able to downsell something, we would be able to have the IBPC for certain things so that it can come back to us. So it's a multipronged approach.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [33]

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Sure, sir. Sure. And sir, just a continuation to this. So I just wanted to confirm, the bank would be making all payments, which are, let us say, due on interbank purpose, interbank LC, BG, right? Do you see any challenge on that front or that kind of a systemic problem has been completely taken care of?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [34]

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That has been taken care of. You must have feel like since the day moratorium has been lifted, not for a single day, single transaction, single customer, there was any default connected to that.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [35]

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Sure, sir. And sir, just 2 things also. In this press release, you have mentioned that the slippages came from IBU, International Business Unit because probably the moratorium was not allowed there.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [36]

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Yes.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [37]

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So I think the entities, which are working in IBU, they are part of Indian corporate, right, which have some offices or some linking with the other domestic corporates. So how would you -- I mean what led to that slippages, right? Because these are not stand-alone entities. They have their parents or sister concerns operating elsewhere. So how to read that? And is there any sort of sector concentration there?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [38]

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No. Basically, these were the assets which were in overseas location, okay? And there is no, say, connection between the domestic corporate and those entities. So whatever has been slipped it's exclusive overseas asset, okay? And since there is no, say, guidelines applicable for the overseas assets, so we have not extended the moratorium.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [39]

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Sure, sir. And last thing, sir, I mean, we have disclosed a lot of things in this presentation also. You have given the rating-wise breakup of this corporate book. If you have the rating-wise breakup of the advances, that would be most helpful.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [40]

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So what we are doing, we are -- like, Jai, you must have seen from our earlier practice, we are giving the SMA-1 and the SMA-2 numbers. Yes. Rating has no meaning in the current times.

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Operator [41]

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Fifth question from the line of M.B. Mahesh from Kotak Securities.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [42]

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Just a couple of questions, sir. Could you just tell us so what would be the expected loan book

(technical difficulty)

And second, on the deposit side, if you could tell us what has been the kind of renewal that you are able to do of your existing customers who are there -- out there who have still not redeemed, what has been the response there?

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Unidentified Company Representative, [43]

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Is this the first question?

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [44]

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Sir, the -- first question was a simple one. You have a loan book -- I just wanted to understand how much do you think you can reduce over the next 12 months based on the customer flows and whatever dues that is -- that will be contracted to be disbursed?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [45]

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Right. And what is the second question?

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [46]

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On the deposit book. If you could just give us some color of the existing customer base, you have got the deposits on the retail and corporate side? What has been the kind of rollovers that you have been able to do on that particular customer book?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [47]

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Sure. Sure. So basically, like, giving answer to the simple question first. On the loan book side, what we are seeing on the corporate, there will be a reduction, say, to the extent of INR 7,000 crores to INR 8,000 crores. But we would like to grow at least 20% on the retail side. So our loan book is expected to grow in overall terms by almost 10%.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [48]

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Okay.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [49]

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Okay. And on the, say, deposit side, if we see the deposit as on 31st of March or even if I can give you numbers on the 2nd of May, out of almost like INR 1,03,000 crores of deposits, it's INR 40,000 crores was corporate and almost INR 53,000 crores of the retail. So what is happening on the retail side there is a -- basically, the corporates who wanted to withdraw have already withdrawn. So now what we are seeing as we are coming back to the whole situation where the rollover is more than the 50%. So it's a normalized thing. Earlier, the rollover has come down to 20% in that postmoratorium period. So that has stabilized.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [50]

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Perfect. And my last question, you have now had more time to sit on the loan book. Are you making any -- more changes to your estimates on the NPL line as we speak? Either sides, positively or negatively.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [51]

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Again, I think this is not -- I think there are some -- can you just please repeat, Mahesh.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [52]

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Sir, the question is simple. Now that you have had more time to sit through the book, are you making any changes to your estimates on the expected slippages during the course of this year, so (inaudible) 5% to 6% in one place and about 9% in the other? So just wanted to just understand like that.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [53]

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Okay. Okay. So basically, you are asking all the difficult question and saying they are simple. So Mahesh, basically, if you, say, think in terms of slippage, I think we have given a guidance of something around 5%. And at that point of time, the COVID factor was not there. We have done some analysis. And analysis was based on, say, 2, 3 scenario. One scenario was like if the moratorium or this lockdown is lifted, say, by April end, it has not happened. Second scenario was if the lockdown is, say, lifted at the May end, we need to see whether that happens or not. And the third scenario would be then if the lockdown is lifted, say, maybe June end or afterwards. So we are working for the second scenario where the lockdown may be lifted by, say, May end and our slippage may go beyond, say, almost 7% to 8%. And I don't want to say, yes, for the third situation where the lockdown would not be lifted even beyond June, then I think that would be very, very uncertain times. And I really don't know whether we will be there to answer that.

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M.B. Mahesh, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [54]

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Just a follow-up. Which part of the loan book kind of moved so dramatically in the -- in this case because the SMA book so far has not seen that threat, retail is seasonally low on contribution? So is it the corporate side, which is kind of moving the needle?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [55]

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Look, when we are talking of the, say, slippage, we are basically seeing from the SMA-1 and SMA-2 sides. That is one part. Second estimate is that what type of industries are infected most because of the COVID. So what is our exposure in this. So there is no SMA-1 or 2 not portfolios. But since then the likelihood of impact on those industry segments because of the COVID, that's why how we are estimating that, that could be the slippage in the worst-case scenario.

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Operator [56]

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The next question is from the line of Marukh Adajania from Elara (sic) [IDFC Securities Limited].

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [57]

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Sir, I had just had a couple of questions. You said in your presentation, you talked about loans under moratorium and you said that the overdue loans were INR 148 billion, of which the NPL classification freeze was on INR 27 billion of loans. So how to that INR 148 billion tie in with your SMA figures?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [58]

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So basically, what happened, if you see the regulatory guidelines, it was about if the RBI dispensation has not come, then what would be that book, which would have slipped by 31st of March. So INR 27 billion is the number which we have slipped to NPAs on 31st March due to the RBI dispensation has not come out of the other portfolio.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [59]

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But the INR 148 billion would then be a 0, 1 plus 2, is it?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [60]

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Yes. Yes. Whichever is overseas.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [61]

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Of the moratorium loans.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [62]

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Right, right.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [63]

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And you are expecting around 35% to 40% of your total domestic book to be under moratorium?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [64]

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So this is what people have opted, and we have given.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [65]

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Oh, you are -- okay, okay. And sir, how do you view your Tier 2 now? Your AT1 bonds have been written off. What's your view on Tier 2? Anyway just now it's capped at 2%. But...

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [66]

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But actually, we are adding 4.8%, okay. All in all, like, we were not able to meet the CET. So we could account for only 2%.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [67]

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Okay. But the Tier 2 stays as it is? And while sir Tier 1 extends.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [68]

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Yes. As well.

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Mahrukh Adajania, IDFC Securities Limited, Research Division - Director [69]

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Got it, sir. Okay, sir. And sir, one more thing, how much did you borrow from RBI? I think you mentioned that in the...

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [70]

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Let it be revealed within RBI and us.

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Operator [71]

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The next question is from the line of [Kabir Gulati] from [HL Capital].

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Unidentified Analyst, [72]

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Just trying to understand, yes, this quarter, you would have recognized any interest income on the loan account that you would have recognized as NPAs. Have you have received it in cash this quarter?

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Niranjan Banodkar, Yes Bank Limited - Senior President [73]

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The question was recognition of...

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Unidentified Analyst, [74]

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Interest on your GNPA book? Has there been any in this quarter?

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Niranjan Banodkar, Yes Bank Limited - Senior President [75]

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So there has been actually a reversal of interest in this quarter because of the NPAs and NPIs.

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Unidentified Analyst, [76]

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Okay.

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Niranjan Banodkar, Yes Bank Limited - Senior President [77]

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Yes, and that we had that in the quarter.

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Unidentified Analyst, [78]

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So that would be a net thing. But would there be any interest in cash that you're still receiving on this big NPA book that you have now?

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Niranjan Banodkar, Yes Bank Limited - Senior President [79]

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No. So -- because you will not have cash recovery that has not been part of the NII for the quarter.

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Operator [80]

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Mr. [Vikas Rungta], your line is in the talk mode.

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Unidentified Analyst, [81]

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Just wanted to understand that you have reported earlier that there was a covenant breach in foreign loans. So what is the status of the foreign loans, sir, as of now?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [82]

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So you must have seen it has come down. So earlier, like, if you see this overseas borrowing, it was, say, INR 23,000 crores as on 31st December, which has come down to INR 9,474 crores as on 31st March.

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Unidentified Analyst, [83]

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And like we are repaying them or we are getting extension? What is the strategy of the management as of so now?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [84]

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So like we would be happy to retain them, okay? But wherever if there is any demand or any requirement, we immediately meet our commitment on the figure.

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Unidentified Analyst, [85]

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Okay. Sir, other part, sir, in one of your interview after the results, even you have said that moratorium can be declared if 5.5% is a breach, right? That's a very strong statement. Though I know that the management is planning to raise capital, but getting into a moratorium again will definitely, let's say, seek the confidence of the depositors. So what is your view on...

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [86]

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No. I think I have not made this statement. What I have told that if we breach the CET below 5.5%, then only there is a possibility of having a moratorium. But we have not breached 5.5%. So what the question which was asked from me that what would be the implication when we are not meeting the CET requirement. So basically, I have answered, there would be only one thing. It could be only like as per the current regulation, bank can be put under PCE, okay? But in our, say, conversations with the RBI, we are not getting any such stance or any such indication. (inaudible) let us take the possibility of putting under moratorium, I'll say that would happen only if we breach below 5.5%.

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Unidentified Analyst, [87]

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Right. But there's not much gap left as of now.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [88]

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Still there is a gap of 80 basis point. And 80 basis points converts into almost INR 2,000 crores.

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Unidentified Analyst, [89]

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Okay. Sure, sir. Other thing I wanted to know, in terms of like your rank have been successfully able to raise CDs in the market. So what is the CD outstanding in the market as of 31st March or the latest number?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [90]

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So 31st March is something around INR 7,000 crores.

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Operator [91]

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We move to the next question. That is from the line of Manish Shukla from Citi Group.

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Manish B. Shukla, Citigroup Inc, Research Division - Director & Lead Analyst [92]

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So first question on the capital side, do you have any comfort from SBI and other banks which participated that if there were to be a shortfall going forward that they will come back again?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [93]

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So other banks are quite confident that we will be able to raise capital as per our requirement. And another thing is that our strategy is to broad base our investor, okay? So I think we will be able to do that. But since State Bank of India and other several private sector banks, they've already put in their money, so I don't see any possibility that they would not support us.

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Manish B. Shukla, Citigroup Inc, Research Division - Director & Lead Analyst [94]

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Okay. Secondly, there are -- besides capital, there are a few other points where you are in breach of regulatory norms. So is there any agreed milestones with RBI, which we need to meet in absence of which the regulator might take some action -- regulatory action?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [95]

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So I think there is only one breach. That is in terms of SBI. And SBI is well aware of it, okay? And silence from RBI is more than (inaudible).

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Manish B. Shukla, Citigroup Inc, Research Division - Director & Lead Analyst [96]

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But question really is that how long does that silence last?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [97]

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So I think we need to, say, read the silence, okay? And regulator silence is always read in this way.

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Manish B. Shukla, Citigroup Inc, Research Division - Director & Lead Analyst [98]

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Fair point, sir. Last question, you said that at 74% coverage, your assessment is that this would kind of cover for LGD. As we know in the past, a lot of the lending on the wholesale side has happened on asset back rather than cash flow back. And given the lockdown, all the economic assumptions that we were working with 2 months back have gone for a toss. Do you still believe that those LGD, you would be comfortable with that 74% kind of a coverage number?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [99]

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No. I think the worst-case scenario is 74% requirement may go up to 80%, but it depends, again, on the individual cases. There are certain assets where we have made 74% provisions, but recovery probably be -- would be almost 40% to 45%. So it's a mix of pool. So in some places, we would be able to recover more than what we have provided. And within some of the assets, we need to make some additional provision. But on the pool basis, I think it would be a variation of 2% to 3%, not more than that.

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Manish B. Shukla, Citigroup Inc, Research Division - Director & Lead Analyst [100]

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Sure. Sorry, one last question. While wholesale book has been contracting at the same time, the RWA density of the balance sheet continues to go up driven by the rating downwards, which you are seeing. So what can be done to erase that? I mean is asset sales an option? Or is there anything else which you can work on to improve that?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [101]

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So it would be a combination of asset sales and also originating those loans where the risk weight could be lower, okay? So it would be the combined strategy, and it will gradually, we will be able to bring it up.

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Operator [102]

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The next question is from the line of Nilanjan Karfa from IDFC.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [103]

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Have you given out the rating split of the loan book, sir?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [104]

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So we don't give the ratings of the loan book. We are giving the position of SMA-1 and SMA-2.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [105]

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Right. And -- okay. Could you help me tie in this SMA-1 and 2, which is about INR 11,000 crores with the standstill figure that we have given, which is the, I think, INR 14,900-odd crores less INR 2,713 crores which is the NPA?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [106]

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So basically -- Niranjan can you (inaudible).

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Niranjan Banodkar, Yes Bank Limited - Senior President [107]

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So at this time we are talking about is actually all overdues as of 29 Feb, which will include SMA-0, 1 and 2, whereas what gets reported as SMA-1 and 2 is as per the RBI currency database where it is reported SMA-1 and 2. And there is also a small difference in the number of days calculation to the size, which has resulted into -- for example, you see INR 2,700 crores as a standstill NPA as of March 31, but that actually was part of the SMA-1 as on 29 Feb. So what you will see is the standstill appearing in SMA-1 when we reported in our resolution slide. But it's just a number of days reconciliation issue.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [108]

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Maybe I'll take it off-line with you. And sir, I barely heard a question on Tier 2. Did you mention anything about any potential write-down in Tier 2 as well or...

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Niranjan Banodkar, Yes Bank Limited - Senior President [109]

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No. No. No. (inaudible) why we are considering 2%.

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Nilanjan Karfa, Jefferies LLC, Research Division - Equity Analyst [110]

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Okay. Okay. Okay. And the AT1 continues to be there. And based on -- should we -- will be based on the court decision, is that the broad understanding?

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Niranjan Banodkar, Yes Bank Limited - Senior President [111]

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Certainly.

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Operator [112]

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The next question from the line of Bhavin Shah from BNP Securities.

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Bhavin Shah, [113]

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Sir, even after write-off, AT1 stands at 0.2%. So just wanted to understand the (inaudible) is it exactly.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [114]

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So basically, these were the AT1 bonds, which were bonds like -- Basel III compliant, okay? So they will not be written off.

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Bhavin Shah, [115]

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Okay. So these are non-Basel compliant AT1 bonds, which are not written off?

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [116]

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Yes.

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Bhavin Shah, [117]

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And sir, our fee income -- corporate fee income, I understand there was a change in accounting in fourth quarter '19. But in fourth quarter '20, we still have it negative, why so?

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Niranjan Banodkar, Yes Bank Limited - Senior President [118]

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So it was an account of a sell-down fee that we had to pay for the loans.

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Bhavin Shah, [119]

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Sell-down fee that we had to pay for the loans.

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Niranjan Banodkar, Yes Bank Limited - Senior President [120]

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So there was no -- there was not gross booking of fees that we had in the corporate banking line, but there was sell-down of loans that happened through that, which got netted against the corporate banking fees.

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Operator [121]

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Ladies and gentlemen, that is the last question. I now hand the conference over to management for the closing comments.

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Prashant Kumar, Yes Bank Limited - CEO, MD & Director [122]

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So thank you very much, and we really appreciate the time taken by you and asking these clarification. But I think you would have seen like we have been very, very careful and trying to, say, disclose almost everything through our presentation. And we would be very happy if there is still any question, you can always come off-line, talk to our team. We would be very happy to respond to all your queries. And we would also like to have your suggestion if you can give in further improving our disclosures in our quarterly or annual direction, which will be helpful. So again, thank you very much.

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Operator [123]

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Thank you. Ladies and gentlemen, on behalf of YES Bank Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.