Ghosh: Lending logic

Mumbai, June 27: Yes Bank expects its priority sector lending to continue to see zero defaults as well as yield positive margins.

According to the Reserve Bank of India, banks should extend at least 40 per cent credit to the priority sector, which includes agriculture, micro and small enterprises, education and housing. These sectors have huge potential, but defaults remain a big risk.

Somak Ghosh, group president (corporate finance and development banking), told The Telegraph the bank had consistently exceeded the levels set by the RBI for the priority sector in the past four years. Its non-performing assets (NPAs) in development banking has also been zero. The business is also expected to remain viable.

“We have one of the lowest NPA levels in the industry. In development banking or priority sector lending, our NPAs are zero and we expect to remain at that. Further, we will continue to make modest money (in the development banking business),’’ Ghosh said.

Net interest margin (NIM) of the bank is 3.2 per cent. NIM in priority sector lending is around 1.5 per cent. NIM is the difference between interest earned and interest paid.

Ghosh said risk management techniques and “business development process’’ contributed to the bank’s success in areas such as micro-financing and farm lending, despite its lack of a huge branch network. “We have followed a partner-led model which has two implications — it results in zero defaults and we are able to keep our costs low,’’ he said.

According to Ghosh, Yes Bank focused on development banking because of the huge potential it saw in the sector. “It’s just not about meeting the priority sector target or the regulatory norms. Close to 80 per cent of our rural households have no access to banking services. There is a huge potential in offering financial services to these under-banked households,’’ he said.

To meet priority sector lending targets, the bank has been working with channel partners that include micro-finance companies and others for origination, monitoring and collections.

Advances at Yes Bank for the year-ended March 2010 stood at over Rs 22,190 crore of which the micro-finance portfolio was Rs 500 crore. This included direct loans and loans to the end-consumer through micro-finance institutions. It is expected that micro-finance will continue to account for 10-12 per cent of the bank’s priority sector portfolio.