Yes Bank Q4 Results: Net Profit At Rs 2,629 Crore On AT-1 Bond Write-Down

Private lender Yes Bank Ltd. returned to profitability in the January-March quarter after the bank wrote-down additional tier-1 bonds as part of its planned reconstruction scheme, leading to a one-time gain.

The lender was placed under a moratorium by the Reserve Bank of India in March, following which a new management and board was appointed as part of a rescue plan.

In the fourth quarter, Yes Bank reported a net profit Rs 2,628.6 crore. In the October-December quarter, the bank had reported its largest ever net loss of Rs 18,560 crore.

In the notes accompanying the earnings release, the bank said that AT-1 bonds amounting to Rs 8,415 crore were been fully written down permanently on March 14, 2020 and has been disclosed as an extraordinary item. Net of taxes, the extraordinary item stood at Rs 6,296 crore.

Net interest income rose 19.6 percent year-on-year to Rs 1,274 crore.

The bank continued to remain in breach of regulatory requirements despite the capital infusion by a group of lenders led by State Bank of India. The bank’s core equity tier-1 or CET-1 ratio and Tier-1 ratio stood at 6.3 percent and 6.5 percent respectively.

The bank also breached the RBI’s statutory liquidity ratio and liquidity coverage ratio requirements, leading to a penalty of Rs 334 crore.

Bad Loans Remain Elevated

In the December quarter, Yes Bank had reported a significant rise in its bad loans at over Rs 40,000 crore, after the new management downgraded the asset classification of a large number of stressed accounts.

During the March quarter gross non-performing assets fell 19 percent quarter-on-quarter to Rs 32,878 crore, mostly on account of write-offs. Gross NPAs as a share of gross advances stood at 16.8 percent compared with 18.87 percent in the December quarter.

Total provisions during the March-ended quarter stood at Rs 4,872 crore compared to Rs 24,766 crore in the December quarter. As a result, the net NPA ratio fell to 5.03 percent at the end of the fourth quarter compared to 5.97 percent at the end of the previous quarter.

Other key indicators of asset quality remained weak:

• During the quarter, the bank saw slippages worth Rs 439 crore, mainly arising from its international banking unit.
• Recoveries and upgrades in the January-March period stood at Rs 1,903 crore, while technical write-offs were at Rs 6,358 crore.
• According to the bank’s investor presentation, about 63 percent of its investments in corporate debt securities were classified as non-performing investments.
• This included Rs 3,980 crore invested in papers issued by Dewan Housing Finance Corporation Ltd, where the bank has fully provided against its exposure. The non-performing investments also included Rs 5,127 crore invested in securities issued by various entities of a diversified conglomerate, where the bank has made 53 percent provisions.

Deposits, Advances Fall Further

One of the key questions facing the bank was whether it would see large deposit outflows once the RBI-imposed moratorium was lifted.

The bank has seen its deposit base deplete from Rs 2.09 lakh crore on Sep. 30 to Rs 1.37 lakh crore, as on Mar. 5, when the moratorium was announced. Deposits fell to Rs 1.05 lakh crore as of March-end and further to Rs 1.02 lakh crore as of May 2.

During the moratorium period, between March 5 and March 18, withdrawals were capped at Rs 50,000.

• The bank’s current account savings account (CASA) ratio stood at 26.6 percent in the fourth quarter, compared with 33.1 percent a year ago.
• Retail term deposits dropped to Rs 39,000 crore from Rs 58,500 crore last year, while corporate term deposits fell to Rs 31,400 crore from Rs 92,300 crore a year ago.

The bank has also been shrinking its loan book. Total advances fell 8 percent quarter-on-quarter to Rs 1.71 crore. Advances stood at Rs 2.24 lakh crore as of Sep.30.

• The bank said that a number of its borrowers took benefit of the three month moratorium announced by the RBI to counter the impact of the national lockdown in the wake of the COVID-19 pandemic.
• According to the bank, 15-20 percent of its corporate and micro, small and medium enterprises (MSME) borrowers, by number, opted for the moratorium. In case of retail borrowers, the number was higher at 20-25 percent.

Investigations Against Rana Kapoor

The Enforcement Directorate has launched an investigation into some aspects of transactions of the founder and former MD & CEO Rana Kapoor and his alleged links with certain borrower groups. On Wednesday, PTI reported that a chargesheet has been filed in the case.

“The ED is investigating allegations of money laundering, fraud and nexus between the founder and former MD & CEO and certain loan transactions,” the lender said. The bank is in the process of evaluating all of the above reports and concluding if any of the findings have a material impact on financial statements/ processes and require further investigation, it added.

The lender also disclosed that it is looking into various whistleblower complaints including one from its former audit committee chairman. “A preliminary report has been received by the board. While most of the allegations are unsubstantiated, the board has requested the external firm for detailed recommendations highlighting areas where corporate governance can be further strengthened,” it said.

New-Look Yes Bank

Yes Bank is now owned by a collective of India’s largest financial institutions and headed by a former State Bank of India executive.

As part of a rescue plan, the SBI invested Rs 6,050 crore in Yes Bank and holds 49 percent. Private sector lenders such as ICICI Bank Ltd., Axis Bank Ltd., Housing Development Finance Corporation Ltd., Kotak Mahindra Bank Ltd., Bandhan Bank Ltd. and Federal Bank Ltd. also bought into the bank as part of the rescue plan.

Both HDFC and ICICI Bank invested Rs 1,000 crore each in the troubled lender while Axis Bank invested Rs 600 crore and Kotak Mahindra Bank invested Rs 500 crore. Bandhan Bank and Federal Bank put in Rs 300 crore each.

According to the reconstruction plan, the investors can’t sell 75 percent of the shares issued for a period of three years.