Rescued Yes Bank Now Has Nearly 28% In Stressed Assets To Deal With
Prashant Kumar, chief executive officer of Yes Bank Ltd., poses for a photograph in Mumbai, India. (Photographer Dhiraj Singh/Bloomberg)

Rescued Yes Bank Now Has Nearly 28% In Stressed Assets To Deal With

Come March, it will be a year since the banking system, nudged by the Reserve Bank of India, mounted a rescue of Yes Bank Ltd. At the time, the bank had gross bad loans of 16.8% and stressed assets of 33%.

A year later, the lender finds itself dealing with another surge in bad loans, this time brought on by the Covid-19 crisis.

The pool of stressed assets at Yes Bank has risen to 28% of its net advances as of the quarter ended Dec. 31. This included bank’s reported gross non-performing assets, which make up 15.36% of advances or Rs 29,547 crore.

In addition, the bank has a stressed asset pool of Rs 18,551 crore.

Taken together, the bank’s total stressed assets are at Rs 48,000 crore or 28% of advances.

The stressed portfolio includes Rs 8,322 crore in loans which have not been tagged as NPAs because of the Supreme Court’s stay on asset classification. That takes the pro forma gross NPA ratio to nearly 20%. The rest of the stressed asset pool is made up of loans overdue by more than 60 days and those restructured. Overall, across these categories, Rs 8,062 crore in loans has been restructured under the RBI’s one-time restructuring scheme.

Since March 31, 2020, Yes Bank has also written-off loans worth Rs 8,274 crore.

“We admit to this fact. When there is an overall contraction in the GDP (gross domestic product) of the country, it is beyond my comprehension to think that banks would not be impacted. The more important thing to consider is whether we were prepared for this or not,” Prashant Kumar, managing director and chief executive officer at Yes Bank, said in an interview with BloombergQuint.

According to the CEO, the bank holds a 77% provision coverage ratio against the recognised bad loans and an additional Rs 2,683 crore in Covid-related provisions available for future use. This, Kumar said, should cover for any potential losses arising out of the book.

“The new NPAs we are seeing due to Covid will not be as sticky as the older NPAs. We believe that the resolution of these assets will be much faster. We are prepared to make more provisions, if necessary,” Kumar said. Yes Bank is seeking regulatory approvals to set up an asset reconstruction company outside the bank to manage the stressed assets on its book, by collaborating with international distressed asset funds, he said.

On Friday, the bank also said its board had approved raising funds worth Rs 10,000 crore through various routes. In July 2020, the bank raised Rs 15,000 crore via a follow-on public offer.

“We will also go to the shareholders to get their approval for this fundraising plan. This is only an enabling provision. At this time the bank is very well capitalised and we do not foresee any need for capital immediately,” Kumar said.

As on Dec. 31, Yes Bank’s capital adequacy ratio stood at 19.6%, only marginally lower than 19.9% reported as on Sept. 30, 2020. At the end of the third quarter, the bank’s common equity Tier-1 capital stood at 13.1%, higher than the regulatory minimum requirement of 5.5%.

In a report released on Monday, Macquarie Research said stressed loans, as defined by all advances overdue by more than 30 days, are at about Rs 28,000 crore. Against this, Yes Bank has a provision coverage ratio of just about 10%.

“While all overdue loans of 30+dpd (days past due) and 60-90 dpd do not become NPLs (non-performing loans), we remain concerned on the size of the loan book that is overdue,” the report said. Macquarie Research estimated the bank’s net overdue loans at Rs 25,500 crore, which would be about 70% of the bank’s net worth of Rs 37,000 crore as of December 2020.

Kumar, however, said the situation is turning.

“There are a few indicators which help us understand that the stressed asset situation has now reached its peak. We have hit a collection efficiency of about 96% compared with 97% in the pre-Covid era. Even the cheque bounce rate has dropped from 18% to 9%,” Kumar said.

During the October-December quarter, the bank disbursed Rs 12,000 crore in retail and small business loans and about Rs 2,000 crore in corporate credit.

According to Kumar, the bank is expecting 10% aggregate loan growth in the next financial year, which will largely stem from retail and small and medium enterprises. The bank is also looking at growing its working capital financing business, rather than taking on large-term corporate loan exposures, he said.

As on Dec. 31, 2020, total advances stood at Rs 1.69 lakh crore, which included Rs 88,634 crore worth corporate loans, Rs 47,115 crore worth retail loans, Rs 13,448 crore toward medium enterprises and Rs 20,524 crore worth small and micro enterprises.

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