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With a sharp erosion in its deposit base, YES Bank has requested the Reserve Bank of India to extend the short-term special liquidity window forone year, but the lender remains confident that it will be a going concern and that it will return to the path of profitability.
“The bank had also been granted a short-term special liquidity facility for 90 days (ending on June 16) from the RBI. The bank has written to the RBI for an extension of the same for a year,” noted the auditor’s note, which is part of its fourth quarter results.
YES Bank, on Wednesday, posted a net profit of ₹2,628.61 crore for the fourth quarter of last fiscal, but its deposit base halved to ₹1,05,364 crore as on March 31, 2020, from ₹2,27,610 crore a year ago.
YES Bank shares surged nearly 20 per cent in intra-day trade, and closed 6.83 per cent higher at ₹28.15 apiece on the BSE.
Prashant Kumar, Managing Director and CEO, said the exension will help the lender build up its liabilities. “Today, there is a gap between the loan book and the deposit book. It has been taken care partially by the RBI support,” he told BusinessLine.
“In addition, the deposit outflow in early October on account of a combination of events such as invocation of promoter’s pledged shares and IT glitches for YES Bank (and others) and problems arising from financial distress in Punjab and Maharashtra Cooperative Bank led to a continuing breach in Statutory Liquidity Ratio and Liquidity Coverage Ratio starting October 2019 and continues till date,” the bank noted, adding that it has raised certificate of deposits (CDs) of ₹7,200 crore as at March 31, 2020.
However, despite concerns over the reduction in deposit and uncertainty from the national lockdown and economic slowdown due to coronavirus, the bank’s new management and board are confident that it will be able to “tide over the current issues successfully”.
YES Bank’s management and board of directors have made an assessment of its ability to continue as a going concern based on the projected financial statements for the next three years, and are satisfied that the proposed capital infusion and the bank’s strong customer base and branch network will enable the bank to continue its business for the foreseeable future, so as to be able to realise its assets and discharge its liabilities in its normal course of business, the note said, adding: “This belief is reinforced by the pedigree of new investors of the bank (led by State Bank of India and other financial institutions).”
With the bank breaching the regulatory requirements for CET 1 ratio and Tier 1 capital ratio, it will have to take steps to augment its capital base this fiscal even as “there is uncertainty around RBI's potential action”, the auditor’s note said.
The auditor’s note also said “there is uncertainty around thr RBI’s potential action” as the lender has breached the regulatory requirements of the RBI regarding maintaining the minimum CET 1 and Tier 1 capital ratios, which indicate the position of capital adequacy of a bank.
The CET 1 ratio and the Tier 1 capital ratio for the bank as at March 31 stood at 6. per cent and 6.5 per cent when compared to the minimum requirements of 7.375 per cent and 8.875 per cent.
“The breach is primarily on account of the increase in the provision for advances during the year ended March 31, 2020,” it said, adding that the write back of the AT 1 bonds on March 14, also resulted in the breach of Tier 1 capital ratio as of March 31.
YES Bank said it is taking measures to improve deposit base and is also working on faster resolution of stressed assets.
The bank has set up a separate vertical for stressed asset resolution with a near 100-member team that will work to unlock value from the stressed assets pool. “Segregation of assets and management to facilitate strategic spin off of these assets to a separate legal entity or sale to ARC at a later stage,” it said in the investor presentation.
The bank’s gross non performing assets stood at 16.8 per cent of gross advances amounting to ₹32,878 crore as on March 31.
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