YES Bank’s robust growth in loans and earnings in the June quarter has failed to enthuse investors. The stock was down nearly 4 per cent after the results, though, not without reason.
For one, while the bank continued its stellar run on the lending front, a fall in net interest margin (NIM) took away some of the sheen. The current NIM, at 3.3 per cent, way off the management’s medium-term target of 4 per cent, appears to have irked investors somewhat.
Two, a notable increase in gross slippages, from the March quarter, also seems to have displeased the market. The bank’s provisions – aside from NPA provisioning – increased substantially on the back of marked-to-market (MTM) losses on bonds. This is despite the bank opting to use the RBI’s dispensation and spreading MTM losses.
On a tear
Given the lacklustre growth within the industry, YES Bank’s 53 per cent growth in advances is no doubt enviable. The bank’s focus on retail appears to be paying off, with the share of retail banking in the overall advances moving up sharply over the past year.
Nonetheless, the bank continues to be predominantly a corporate lender, with corporate banking still a significant 67 per cent of the overall portfolio.
The growth within this segment has been strong at 52 per cent y-o-y in the June quarter. A benign competitive environment – with PSBs constrained by capital out of the picture, increasing refinancing opportunities and active financing of assets under the IBC process – has led the bank’s growth within the corporate space.
But despite the strong growth in loans, the bank’s net interest income grew by a lower 22.7 per cent y-o-y in the June quarter. YES Bank’s NIM has been steadily falling over the past three quarters. From 3.7 per cent in the September 2017 quarter, it is now down to 3.3 per cent. A higher rise in cost of funds vis-à-vis yields on advances has impacted margins.
The bank has increased its MCLR by about 50 bps in the past six months. The benefit should trickle down in the next few quarters.
Concerns over YES Bank reporting sharp divergences in the September 2017 quarter have eased no doubt. But the notable rise in gross slippages in the latest June quarter has brought the focus back on the bank’s asset quality. From ₹380 crore in the March quarter, slippages have risen to ₹560 crore in the June quarter. While the management has guided for ₹314 crore recovery out of these slippages in the September quarter, how far it fructifies needs to be seen.