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Informist, Saturday, Oct. 18, 2025

By Aaryan Khanna and Madhu Kumar

NEW DELHI/MUMBAI – YES Bank Ltd. aims to expand its net interest margin sharply in the next 12-18 months to deliver a 1% return-on-assets in 2026-27 (Apr-Mar). The bank remains on track to deliver on that target, after posting a 0.7% return on assets in Apr-Sept, its management said Saturday in a post-earnings analyst call.

Going ahead, the management said margins have bottomed out if there are no further interest rate cuts. YES Bank's net interest margin was 2.5% in both the June and September quarters. Another key drag has been the large quantum of low-margin Rural Infrastructure Development Fund deposits lying with the bank.

"...(RIDF deposits) contribute around 8% of stock, but had seen a peak of about 11% of our total assets," the bank's management said. "Now that book, as it continues to run down, will start accreting margin – some of the benefits have been seen over the last one year - but clearly there is still a large part of the run down to play out. That is going to be one critical driver over the next one to two years..."

The bank ran off its excess Liquidity Coverage Ratio assets by over 10 percentage points to average 125.1% in the September quarter to protect its net interest margin falling below the 2.5% mark. In Jul-Sept, most banks are expected to see a contraction in margins. The RBI's Monetary Policy Committee cut the policy repo rate by 100 basis points between February and June, which typically leads to a quicker repricing of loans than deposits. YES Bank's yield on advances fell 40 basis points sequentially to 9.5%, while cost of deposits fell 30 bps to 6.0%.

The management said the current margin was not the "optimal" position to be at. It has already cut down its deposit rates aggressively, bringing down savings account rates by over 150 basis points on a blended basis since the RBI's interest rate cuts began, the management said. Term deposits are likely to reprice lower later in the financial year and aid margins further, they said. 

The bank still on track to increase its current account savings account ratio despite the reduction in deposit rates. The ratio improved to 33.7% of total deposits at the end of September, up 170 basis points on year and 90 bps on quarter. The confidence to do this came from Sumitomo Mitsui Banking Corp.'s recent stake purchase in YES Bank, the management said. The Japanese financial house bought a 24.2% stake of the private-sector lender and became its largest shareholder as of September-end. It has RBI permission to increase its stake to 24.99%.

The investment gives YES Bank more levers to grow both its low cost deposit base as well as leverage the Japanese multinational's portfolio of large corporate clients, the management told investors. In its media call earlier, the management said there are no plans to change the business strategy. However, the bank sees an opportunity especially in verticals like supply chain finance, which Sumitomo Mitsui's Indian branch could not cater to earlier, the management said. This included loans to small and medium-enterprises in the large corporates' supply chain.

"Since there is no overlap and it's a complementary structure, I think with this relationship, we would definitely explore in terms of how we can cater to their large corporates, in terms of the transaction banking, providing them the transaction banking services, providing them the digital services, and also offering the retail liabilities and retail asset products to their employees," YES Bank's management said. 

It said annual loan growth was likely to hit double-digits in 2025-26 (Apr-Mar) and then improve in FY27. The bank's loans rose to INR 2.50 trillion as on Sept. 30, up 6.4% on year and 3.8% on quarter. In this mix, the bank had been consciously running down its retail asset book due to stressed assets in the past. Retail loan growth will only be 4-5% on year in FY26, the management said.

The pace of retail loan growth will pick up in the next four to six quarters as the prior loans are taken off the book and repaid, the management said. It expects to see fresh disbursement in the space to be robust, which should reflect in net loan volumes in a year's time, the management said. YES Bank's retail disbursements were up nearly 20% on quarter to INR 140.77 billion, its investor presentation said. 

Earlier Saturday, YES Bank declared its September quarter results. The bank's net profit rose 18% on year but was down 18% on quarter at INR 6.54 billion. Total income fell 1.3% on year to INR 90.23 billion in the September quarter, a first on-year fall in 15 quarters. Shares of the bank ended 3.8% at INR 22.25 on the National Stock Exchange Friday.  End

Edited by Vandana Hingorani

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