In the September quarter, the bank’s gross non-performing loans increased by Rs.123 crore. Its bad loans ratio rose to 0.61% compared with 0.46% at the end of June. Photo: Abhijit Bhatlekar/Mint
The thrust in the September quarter earnings disclosures of Yes Bank Ltd has been to clear the air on asset quality. While the bank’s bad loans ratio has worsened, it reiterated its guidance for credit costs of 50-70 basis points this fiscal year. A basis point is one-hundredth of a percentage point.
In the September quarter, the bank’s gross non-performing loans increased by Rs.123 crore. Its bad loans ratio rose to 0.61% compared with 0.46% at the end of the June quarter. Provision coverage ratio decreased 3.3 percentage points since the last quarter to 67.7%. With restructured loans amounting to another 0.71%, overall stressed assets stand at 1.32% of advances. That number is still among the best in the industry.
What investors are worried about is further deterioration in asset quality at a time when corporate India is highly leveraged and earnings are under stress.
Yes Bank, which has a corporate sector exposure of 68.2%, the highest among the top five private sector banks in India, has been under investors’ lens ever since brokerage firm UBS Securities India Ltd questioned its asset quality numbers based on loan approvals over the last three years. It later termed UBS estimates as “exaggerated”.
The bank’s set of fresh disclosures tries to answer some queries. The lender said it has made no sales to asset reconstruction firms in the last four quarters or refinanced loans through the 5-25 scheme. It said that over 75% of its total corporate exposure had credit ratings of A and above. In sectors such as iron and steel, about 84% of its exposures are rated A or above.
Still, the fact that about a quarter of Yes Bank’s total loan book and trade finance exposure is to stressed industries such as electricity, iron and steel, and commercial real estate add to asset quality concerns and act as a drag on the stock price.
The lender has also cut down on overall corporate exposure and tried to diversify by increasing retail lending. There is also not much reason to complain about its operating performance. Operating profit grew 24.7% and net profit by 26.5%. Its low-cost current account and savings account deposits crossed 25% of overall deposits for the first time. A cut in the savings deposit rate should help boost net interest margin, which was stable at 3.3%, in the coming quarters as well.
It is this kind of margins and profit growth that has enabled the stock’s benchmark-beating returns this year.
The writer does not own shares in the above-mentioned companies.