In order to meet PSL (priority sector lending) targets by expanding into rural areas, YES Bank plans to acquire a microfinance institution (MFI) and open 150 branches in semi-urban and rural areas by the end of FY24
The bank opened 83 new branches in FY23, bringing the total number of branches to 1,192, with 450 in semi-urban and rural areas.
If the goal is not fulfilled, lenders are required to contribute to NABARD-run Rural Infrastructure Development Fund (RIDF) which funds agriculture and allied activities, social sector and rural connectivity projects. Deposits are hampered by the low-interest rates on RIDF funds.
Addressing RIDF/PSL drag through organic and inorganic solutions is one strategy to increasing operational profitability, according to Prashant Kumar, managing director and chief executive officer of YES Bank. The goal is to expand penetration in growing rural markets and establish agriculture as a priority area.
This would be accomplished through a range of activities that would include branch-based origination, co-lending, portfolio purchases from MFIs, and acquisition of MFI business. Kumar added that there is intent and that work to obtain an MFI has commenced. He, on the other hand, stayed away from specifics.
Several banks have acquired MFIs in order to extend their operations in rural and semi-urban markets. In February, Kotak Mahindra Bank announced the acquisition of Sonata Finance for Rs 1,903 crores. It boasts 900,000 consumers and 502 locations throughout 10 states.
Kumar indicated that its RIDF deposits were around Rs 30,000 crore, with yields lower than the cost of funds. The return on assets is reduced by more than 40 basis points.
The bank’s priority sector exposure is 48 per cent, which exceeds the legal limit of 40 per cent. The demand for RIDF deposits, on the other hand, comes when the lender fails to meet the target for a sub-category.
In terms of lending to small and marginal farmers, YES Bank falls short of the 10 per cent target. It is currently at roughly 1.5 per cent. It is in high demand, and the lender will make loans in this category through its branches. This, however, will only fulfil a portion of the requirements.
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