Yes Bank Chief's recent commentary has lot of red flags

Yes Bank MD and CEO, Prashant Kumar has listed couple of factors across both the asset and liability side. Lets dissect those and let me call out the red-flags which continue to make the bank and management unattractive to investors like me :-

1. "Retail stress is attributed to aggressive unsecured lending." Two important fundas to focus here -  first is aggressive and second is unsecured. 

The unsecured lending space has been very attractive for all the market participants since last 2.5 years. Whether you ask Fin-techs, or tier-1 banks or newbie banks or the established NBFCs - all have been bullish about this space. This space is attractive because as the unsecured market is added, the lending TAM (Total Addressable Market) becomes very high but the flipside is - it is "unsecured" which means you have limited data for underwriting purposes

Add aggressive to this lending and it is a recipe for disaster because to earn in this sector you need to know who to chase and who would have to be written off

While Mr. Kumar is keen to callout "stress will normalize post September quarter", no concrete measures have been listed in terms of underwriting

    2. Slowing down the lending altogether in the retail space

As mentioned above, instead of boosting the underwriting capabilities and increasing the confidence level while lending, bank has resorted to slowing down the lending altogether. While it can be good for the short-run but it has a significant high opportunity cost and puts risk of significantly losing the market share. 

Another important aspect is - continued lending makes lending better. More lending implies more data and more data implies better underwriting and and thus better customer LTV, higher loyalty and lower NPAs

    3. Focusing on branch growth to expand deposit base instead of CX

As I write this I am reminded of my conversations with team at IDFC First Bank which is significantly scaling the deposit base through a mix of Digital first CX interventions (you would understand if you are their customer and use their app) along with better rate of returns. Instead of CX, which is crucial for next-gen app everything users who are not in favor of branch visits - the bank is looking to amp up the branch base.