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YES Bank eyes acquisition of microfinance company in FY24
June 21, 2023
In an exclusive interview with business line, Prashant Kumar, MD and CEO of YES Bank, said the bank has started due diligence on a few non-banking financial companies in the microfinance space (NBFC-MFIs). “We have started exploring and doing diligence on some of the assets in the last two to three months,” he said, adding that the bank may close in on a deal this financial year.
For YES Bank, acquiring an MFI business is expected to solve two problems in one go meeting a specific priority-sector loans (PSL) requirement; and gaining entry into high-yielding asset book. “There is one subcategory (of PSL) small and marginal farmers where we are not meeting the target. We are trying to solve this problem organically and inorganically,” Kumar explained.
“Basically, this would take care of the drag on PSL and we would have an asset class which is the high-yielding. Currently we don’t have such a portfolio”.
To put things in context, MFI loans are categorised as unsecured and the rate of interest charged by banks could be 17–24 per cent, translating into gross yields upwards of 12 per cent.
To put things in context, MFI loans are categorised as unsecured and the rate of interest charged by banks could be 17–24 per cent, translating into gross yields upwards of 12 per cent.
For banks, the implication for their profitability or net interest margin (NIM) could be significant. RBL Bank, IDFC First Bank, and Kotak Mahindra Bank have 8-10 per cent exposure to MFI loans, which has helped them consistently outperform peers in terms of a 5-plus per cent NIM. IndusInd Bank has over 10 per cent exposure to MFI loans.
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