YES Bank: Bad-loan divergence overshadows strong core performance

Private banks that managed to escape the RBI’s asset quality review unscathed have had to deal with a new animal instead — the RBI’s annual ‘risk-based supervision’, succinctly named RBS.

YES Bank has, for the second time, fallen prey to the regulator’s RBS exercise — declaring sharp divergences in asset classification and provisioning from the RBI norms (pertaining to FY17), to the tune of ₹6,355 crore, in the latest September quarter.

This has led to gross non-performing assets as a per cent of loans spiking to 1.8 per cent in the September quarter from 0.97 per cent in the June quarter; provisions have grown nearly three-fold over the last year.

But thanks to the strong tractions in loans, which has led to a 33.5 per cent y-o-y growth in core net interest income, the bank still managed a 25 per cent growth in net profit in the September quarter.

Interestingly, private banks have been adding bad loans at a much faster pace than their public sector counterparts over the past several quarters.

Over the past four quarters, gross NPAs for private sector banks have been growing (on a year-on-year basis) at a scorching 50-100 per cent. For public sector banks (PSBs), on the other hand, after additions to bad loans peaked in the March-September 2016 period (after the RBI’s AQR exercise), growth in bad loans have moderated to 20-30 per cent in the last two quarters.

Aside from the two leading private banks — ICICI Bank and Axis Bank — that have seen sharp rise in slippages and divergences in asset classification and provisioning from the RBI norms, YES Bank also has been painting a somewhat gloomier asset quality picture in recent quarters.

The RBI had issued a circular in April which required banks to make disclosures, in instances of material divergences in banks’ asset classification and provisioning from the RBI norms.

YES Bank had reported GNPAs worth ₹748 crore in FY16. However, as per the RBI’s assessment, the bank’s bad loans were ₹4,925 crore — a divergence of ₹4,176 crore. This had been accounted for in FY17.

Now, the bank, in its September quarter results, has disclosed a much sharper divergence of ₹6,355 crore, pertaining to FY17. This has been taken into account in the latest September quarter results.

The bank’s provision cover has slipped to 43.3 per cent in the September quarter from 60 per cent levels in the June quarter.

YES Bank has a total exposure of ₹1,434 crore to accounts that have been referred to the NCLT under IBC.

YES Bank’s core performance continues to be on a strong footing. The loan growth stood at 34.9 per cent y-oy in the September quarter, far higher than the muted 5-6 per cent growth at the system level.

While the bank continues to score well on most metrics relating to core performance, the nasty surprise on the asset quality front, is likely to rankle investors. The uncertainty around bad loans and sporadic slippages will weigh on the stock in the coming quarters.

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