Yes Bank shares are currently at Rs 174.35, down by 26.60%. Shares of Yes Bank plunged 27 percent in the early trade on April 30 after company reported weak set of numbers for the quarter ended March 2019.
Ravneet Gill, the new CEO at Yes Bank wants to increase focus on compliance and governance, two critical areas in which his predecessor Rana Kapoor was found wanting to ensure that the bank is on the side of regulator.
It has been said that Gill is not only cleaning up the balance sheet which saw the fifth largest private sector lender announcing the first-ever loss of a whopping Rs 1,506 crore over the weekend, but also questionable governance practices, which led to the exit of Kapoor by the regulator earlier this year.
Among other discrepancies, the RBI had reportedly found huge lapses in governance and poor compliance culture at Yes Bank under Kapoor who was a co-promoter and chief executive, whom Gill succeeded in March after RBI asked to leave by end January due to a regulatory discomfort.
Addressing analysts hours after shocking with a Rs 1,506-crore loss in the March quarter, Gill cited a recent meeting with a large MNC to cite perception issues.
The multinational, which banks with a foreign lender, wanted to undertake a large remittance transaction and came to Yes Bank to check if it can get the job done without the hassle of going through the RBI, something which the foreign lender insisted on.
This is the perception that exists but we want to get away from that. We want to send out a very clear messaging to the market that we want to be very closely aligned with the regulator, by being on the side of the regulator and the regulator should be able to validate that, Gill said.
On lines with governance too, he said the new leadership is very serious about confirming to the highest standards of governance and also set new industry benchmarks.
Over a period of time, they attracted lots of regulatory scrutiny which were not in their best interest and admitted reasoning the need for a cultural change at the lender.
Gill added that there could be an issue where the market may stop trusting the numbers put out by the bank, and said he wants to set in greater transparency by moving to conservative and sincere accounting.
The move to take a Rs 2,100 crore contingency provision for the March quarter, the prime reason for the maiden loss shown by the bank, is the same and not kitchen sinking, Gill said.
Gill, who previously worked as the country head of German lender Deutsche Bank, said it was high time they worked on their transparency.
In its communications before curtailing Kapoors term, RBI had reportedly said there is persistent governance and compliance failure reflected by yes Bank’s highly irregular credit management practices, serious deficiencies in governance and poor compliance culture.
When it came to operations, Gill said that there has been a lot of centralisation on the market approach, especially on the retail side, and said this is something he would work on to deliver better returns.
Gill added that only 30 percent of its 1,100 branches are profitable and it has initiated a branch-wise review that compiles detailed key performance indicators and the business to be targeted.
The aim is to make 80 percent of branches profitable by 2023 and make it 100 percent by 2025, he added.
It may have seemed like a departure from the extreme focus on retail under Kapoor, however Gill said corporate lending will now become the calling card for the lender and the attempt is to only diversify the loan book.
He also admitted that the bank lacks the needed focus on cross-selling and transaction banking, which will now be a key focus area.
Speaking of the same, Gill said the banks revenue at present is limited to interest income and some fees as it focuses merely on loan underwriting, but a cross-sell strategy can deliver better credit commissions, forex fees, guarantee commissions etc and can help the bank bridge the gap with its peers from a fund-cost perspective, which is adrift at high 125-150 bps now.
It must be noted that many lenders, especially those focused on corporates and wanting to grow their retail play, have lately adopted a cross-selling strategy, making it feel like a trend.
Gill said though the Yes Banks retail book may be small, it has grown two-fold and is one of the best in industry.
Analysts have downgraded the shares of YES Bank following the announcement of its March quarter results, where it reported a net loss of Rs 1,506 crore. Analysts have cut their 12-month price target by as much as 40 per cent and scaled back their earnings growth forecasts by up to 45 per cent for FY20 and also FY21. Large stressed pool, aggressive accounting practices and weakness in the retail franchise are among the reasons cited by analysts for their bearish stance.
