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Yes Bank’s Bad Loans Double In March Quarter

Yes Bank reported a 30% growth in net profit but bad loans surged as well.



A guard stands outside a Yes Bank Ltd. branch in Jaipur, Rajasthan, India. (Photograph: Sanjit Das/Bloomberg)
A guard stands outside a Yes Bank Ltd. branch in Jaipur, Rajasthan, India. (Photograph: Sanjit Das/Bloomberg)

Yes Bank Ltd. reported a surge in the quantum of bad loans during the January-March quarter as the lender was prompted by the regulator to recognise one large account as a non-performing asset. The disclosure came in the notes to accounts following a new rule introduced by the Reserve Bank of India (RBI) which asks banks to disclose any large divergence between their assessment of bad loans and the regulator’s.

The bank’s gross non-performing assets (NPAs) in absolute terms doubled to Rs 2,018.56 crore compared to Rs 1,005.9 crore in the previous quarter. In percentage terms, the gross NPA figure stood at 1.52 percent of the loan book compared to 0.85 percent last quarter. Net NPAs for the bank stood at 0.81 percent compared to 0.29 percent sequentially.

Yes Bank added that the increase in NPAs was on account of one borrower to which it has a gross exposure of Rs 911.5 crore.

Provisions for the quarter jumped nearly three-fold to Rs 309.73 crore from Rs 115.4 crore in the previous quarter. Out of this, Rs 228 crore was on account of the above mentioned account.

Yes Bank’s Bad Loans Double In March Quarter

The bank did not specify the name of the company which had led to the jump in bad loans. However, in a press conference following the following the earnings release, Rana Kapoor, chief executive officer of the bank said that the account was of a large cement company from North India. The bank added that it expects this account to recover in the near term.

“Lately, visible performance has been noticed [on this account]. Interest is being serviced regularly on this account so we have taken this up in the light of compliance for a very brief period, hopefully,” Kapoor said.

But for this account, the bank would have reported a net NPAs of 0.29 percent and a gross NPA of 0.83 percent, Kapoor added.

Yes Bank’s Bad Loans Double In March Quarter
Yes Bank’s Bad Loans Double In March Quarter

Hit From Telecom?

Yes Bank, which has been an active lender to the telecom industry, may also face some pressure to increase provisions against loans to that sector. On Tuesday, the RBI advised banks to review provisions made against standard accounts in stressed sectors. In particular, the regulator asked banks to review and monitor exposure to the telecom sector where the interest coverage ratio has fallen below one.

Kapoor said there is “no real necessity to create further provisioning on telecoms.”

He added that the bank has been trying to derisk and cut down its exposure to the sector in recent months. Yes Bank’s exposure to the telecom sector is about 4.9 percent of its total loan book.

Strong Profit Growth

Despite the surprise jump in bad loans, the bank reported strong profit growth.

Net profit for the private lender was at Rs 914.1 crore, a jump of 30.2 percent compared to Rs 702.1 crore in the corresponding quarter last year. The number beat the consensus estimate of analysts tracked by Bloomberg, which stood at Rs 825 crore.

Net interest income rose 32.1 percent year-on-year in the fourth quarter to Rs 1,639.7 crore compared to Rs 1,241.4 crore in the year ago period. The number was slightly above analyst estimates of Rs 1,603.9 crore.

Net Interest Margin (NIM) for the bank rose marginally to 3.6 percent during the quarter as compared to 3.4 percent last year.

Advances grew at 34.7 percent over the corresponding quarter last year. The bank saw its corporate banking book rise to 67.7 percent of all advances while retail banking receded to 32.3 percent. The total corporate banking book now stands at Rs 89,541.8 crore.

Non-interest income also rose 56.6 percent y-o-y in the fourth quarter to Rs 1257.4 crore. This led to a rise of 41.7 percent in total net income.

Commenting on the bank’s earnings, Siddharth Purohit, senior equity research analyst at Angel Broking said that while business growth has been strong, the sharp rise in NPAs is a worry.

“...While the management expects the account will be recovered in the near term, the fact that there is a visible sign of stress in the balance sheet and this could weigh on the stock in the near term,” said Purohit.