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Barring YES Bank’s continuing stellar growth in loans, the bank’s September quarter results offer little cheer to investors.
A sharp rise in slippages and provisioning, staggering impact of marked-to-market (MTM) losses on bonds, and the bank’s notable exposure to Infrastructure and Financial Services Conglomerate (IL&FS), paint a not-so-rosy picture for the bank in the coming quarters.
YES Bank’s provisions in the latest September quarter have doubled from the levels seen in the same quarter last year; despite a healthy 28 per cent growth in net interest income, the sharp rise in provisioning has led to a 3.8 per cent fall in net profit for the bank.
Margins under pressure
Given the lacklustre growth within the industry, YES Bank’s 61 per cent growth in advances is no doubt noteworthy. This is due to the bank’s focus on retail which has been paying off. However, the bank, predominantly a corporate lender, continues to witness robust growth in the corporate segment, too – a growth of 63 per cent Y-o-Y in the September quarter.
While the bank’s loan growth has been strong, its net interest margin (NIM) has been falling over the past year. From 3.7 per cent in the September 2017 quarter, NIMs are now down to 3.3 per cent. A higher rise in cost of funds vis-à-vis yields on advances has impacted margins. While the bank has increased its benchmark lending rate – MCLR – by about 50 bps in the past six months, it is yet to see the benefits of this increase. The trend in NIMs may need monitoring in the coming quarters.
Rise in NPAs
YES Bank had reported sharp divergences in the September 2017 quarter (pertaining to FY17). While the FY18 risk-based supervision report is awaited by the RBI, the sharp rise in gross slippages in the latest September quarter has brought the focus back on the bank’s asset quality. From ₹380 crore in the March quarter, slippages had risen to ₹560 crore in the June quarter. In the latest September quarter, gross slippages have shot up to ₹1,631 crore.
The bank’s provisions have shot up from ₹399 crore in the March quarter to ₹625 crore in the June quarter to about ₹940 crore in the September quarter – of this, ₹409 crore has been for NPA provisioning and ₹252 crore for one-time MTM provisioning on corporate bonds, and ₹93 crore for MTM bond losses (allowed under RBI dispensation). Another ₹186 crore of MTM bond losses will be amortised in the ensuing quarters in FY19 under the RBI dispensation.
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