YES Bank: Spike in bad loans overshadows performance

Radhika Merwin | | | Updated on: Jan 15, 2018

The increase in NPAs pertains to one borrower with gross exposure of 0.69 per cent of loans (₹911.5 crore), which is expected to be recovered in the near term

But for the nasty surprise on the asset quality front, YES Bank’s March quarter results would have been business as usual.

The bank continued to report strong traction in loans, healthy deposit growth and stable margins in the latest March quarter. But its habitual well-rounded performance has been dampened by the sharp rise in gross non-performing assets (GNPAs) during the March quarter. GNPAs have doubled sequentially to around ₹2,000 crore as of March 2017.

YES Bank has up until now been able to keep bad loans under check. Over the past five years, the bank’s GNPAs have been under 1 per cent of loans. But as of March 2017, they have shot up to 1.5 per cent of loans.

What gives?

The RBI’s recent circular requires banks to make disclosures in instances of material divergences in banks’ asset classification and provisioning from the RBI norms. YES Bank’s sudden increase in NPAs is in accordance with the divergences observed by the RBI. The increase pertains to one borrower with gross exposure of 0.69 per cent of loans (₹911.5 crore), which is expected to be recovered in the near term.

The account pertains to the cement sector (possibly the same account that led to a one-off provisioning for IndusInd). Market reports suggest that the account could be Jaiprakash Associates that sold its cement units to Aditya Birla Nuvo controlled UltraTech Cement last year.

Strong core performance

For the full fiscal 2016-17, the bank reported a strong 35 per cent growth in loans. The MCLR framework has helped the bank compete better in the large corporate segment.

Improving the CASA (current account, savings account) ratio continues to aid margins. In 2016-17, the bank’s CASA deposits grew a robust 65 per cent year-on-year. Net interest margin has remained stable at 3.4 per cent.

Weighing down

Given the uncertainty surrounding the performance of ICICI Bank and Axis Bank over the past year, the one-off slippage in the case of YES Bank, could rankle investors.

During the December 2015 quarter, when the RBI’s AQR led to a sharp rise in bad loans for public sector banks, private lenders such as Axis and ICICI Bank remained more or less unaffected.

It was only in the beginning of FY17 that slippages started to rise. Uncertainty over YES Bank’s asset quality could offset the otherwise positive sentiment on the bank’s strong core performance.

During the March quarter YES Bank also sold assets worth ₹886 crore to ARCs, taking the share of security receipts to 0.7 per cent of loans from 0.2 per cent in the previous quarter.

Published on April 19, 2017
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