YES Bank, which is struggling to meet priority sector lending (PSL) targets, plans to acquire a microfinance institution (MFI) in 18 months and open 150 branches in semi-urban and rural areas in FY24.
The bank added 83 new branches in FY23, taking the branch count to 1,192, including 450 in semi-urban and rural areas.
Lenders are required to put money into rural infrastructure development funds (RIDF) to plug the shortfall on meeting the target. The interest rates on RIDF money is low, creating a drag on deposits.
Prashant Kumar, managing director and chief executive officer of YES Bank, said that addressing RIDF/PSL drag through organic and inorganic solutions was one of the steps to improve operational profitability. The aim is to deepen the penetration in emerging rural markets and generate agriculture priority sector.
This would be done through a combination of steps, such as branch-based origination, co-lending, purchasing portfolio from MFIs, and acquisition of MFI entity. There is intention, and the work has started to acquire a MFI, Kumar said. He, however, did not dwell on specifics.
Several banks have taken the MFI acquisition route as such transactions give them an opportunity to scale up operations in the rural and semi-urban markets. In February, Kotak Mahindra Bank announced acquisition of Sonata Finance with assets under management of Rs 1,903 crore. It has a customer base of 900,000 and 502 branches across 10 states.
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Kumar said its deposits in RIDF were about Rs 30,000 crore and the returns were below the cost of funds. There is a drag of almost 40 basis points on the return on assets.
The bank’s priority sector exposure is 48 per cent, higher than the regulatory requirement of 40 per cent. But the need for making RIDF deposits also comes when the lender does not meet the target for a sub-category.
YES Bank’s lending falls short of the target of 10 per cent in the category of lending to small and marginal farmers. At present, it is about 1.5 per cent.
It is a large requirement and the lender will originate loans from branches for this category. But this will meet only part of the requirements.
Yes Bank
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