Q2 Results: Yes Bank’s Profit Misses Estimates On Higher Provisions

Yes Bank Ltd.’s profit missed estimates in the July-September quarter on higher provisions. The bank, which continued to show rapid growth in its loan portfolio, reported higher non-performing assets and also set aside a lower proportion of funds to cover for bad loans.

Net profit fell 4 percent year-on-year to Rs 965 crore, according to its exchange filing. That’s lower than the Rs 1,280 crore estimated by analysts tracked by Bloomberg.

Net interest income, or the core income from operations, rose 27 percent to Rs 2,407 crore, higher than the Rs 2,390 crore estimate. The growth was backed by a 61.2 percent increase in advances, with retail advances doubling over last year. Net interest margin for the quarter was stable at 3.3 percent.

The second-quarter earnings were reported amid uncertainty over the bank’s top management. Rana Kapoor, co-founder and chief executive officer, has been asked to step down by the end of January 2019 after the RBI denied him another three-year term. The process of finding a new CEO is underway.

Asset Quality Weakens

Yes Bank saw the quality of its book weaken.

Gross non performing assets rose 37 percent in absolute terms on a quarter-on-quarter basis. As a percentage of total assets, the gross NPA ratio stood at 1.6 percent compared with 1.31 percent in the previous quarter. The net NPA ratio was at 0.84 percent compared with 0.59 percent.

Slippages during the quarter jumped to Rs 1,631.6 crore, which included a single account of Rs 631 crore. Rajat Monga, senior group president at Yes Bank, said that the jump in slippages was because of a one-off and the bank expects an “imminent” upgrade.

The bank disclosed an exposure of Rs 2,600 crore to the Infrastructure Leasing & Financial Services Ltd. group. The account is currently standard, said Monga, adding that no additional provisions have been made against this exposure. Monga said the exposure is to special purpose vehicles of the group and not to the parent firm.

Provisions rose 50 percent from the previous quarter to Rs 940 crore because of mark-to-market losses on its bond portfolio. Despite that, the bank’s provision coverage ratio fell 700 basis points to 48 percent. Explaining the low provision coverage ratio, Monga said the bank had chosen not to provide against the one large corporate account that slipped since they expect it to recover soon. If that happens, the provision coverage ratio will improve in the next quarter.

The bank also reiterated its credit cost guidance. For the quarter, credit costs were at 18 basis points for the quarter and 34 basis points for the half year ended Sept. 30, 2018.

Rapid Loan Growth

The bank continued to see rapid loan growth in the second quarter.

Advances growth during the quarter was at 61.2 percent. This is the third consecutive quarter that the bank has seen more than 50 percent year-on-year growth. Monga said the bank sees strong growth opportunities, including those emerging from the recent turmoil in the NBFC sector. While the bank did not purchase any NBFC portfolios this quarter, Monga said that the bank intends to do so in the third quarter.

Total deposits grew 41 percent. The bank’s current account and savings account ratio stood at 33.8 percent.

The bank, which was planned to raise capital via a qualified institutional placement, will restart the process once there is greater clarity about the management transition.

Shares of Yes Bank closed 2.77 percent lower ahead of the earnings announcement. The stock has dropped more than 34 percent in 2018 so far compared with a 2.5 percent decline in the NSE Nifty Bank Index.