Yes Bank: YES Bank health check: Deposits depleting, capital limits breached, bad loans surging


NEW DELHI: A one-off adjustment might have helped YES Bank report a Rs 2,269 crore surprise profit for March quarter, but details of the earnings signal tougher days ahead for the lender.

A breach of capital adequacy requirement, plunging deposit rates, falling advances and problems of bad loans would continue to haunt the private lender. Bank’s auditor BSR & Co said as much in its earnings report.

The bank has breached RBI’s guidelines on maintaining the minimum CET 1 and Tier 1 capital ratios. These ratios indicate the position of capital adequacy of a bank. The breach, it said, is primarily on account of an increase in the provision for advances during the year ended March 31, 2020, as the lender has decided, on a prudent basis, to enhance its provision coverage ratio on its non-performing asset (NPA) loans over and above RBI’s minimum provisioning requirement.

The writeback of the AT 1 bonds on March 14 also resulted in a breach of Tier 1 capital ratio as of March 31, it said.

Excluding the extraordinary income, the lender reported a loss of Rs 3,668 crore, compared with a loss of Rs 1,507 crore reported for the year-ago period. The bank’s gross non-performing assets (NPAs) spiked to 16.80 per cent from 3.22 per cent a year ago. They were, however, better than the December quarter figure of 18.87 per cent.

The bank stock rallied as much as 20 per cent in early deal in a weak market on Thursday, but it later pared some of the gain to trade 8 per cent higher at Rs 28.45 around 2 pm (IST). BSE Sensex was down 260 points at that time.

The CET 1 ratio and the Tier 1 capital ratios for the bank as at March 31 stood at 6.3 per cent and 6.5 per cent, respectively, compared with the minimum requirements of 7.375 per cent and 8.875 per cent.

“This implies that the bank will have to take effective steps to augment its capital base in 2020-21. Further, in view of RBI norms relating to the breach of the aforesaid ratio, there is uncertainty around RBI’s potential action for such a breach,” BSR & Co said.

Another major concern for the lender is depleting deposits. The bank saw 54 per cent year-on-year drop in deposits to Rs 1.05 lakh crore at the end of March quarter from Rs 2.27 lakh crore in the year-ago period. Sequentially, deposits de-grew 36 per cent in March quarter.

This fall in deposit growth happened as an SBI-led consortium of lenders, in a confidence-boosting measure, bought a Rs 10,000 crore worth stake in the troubled bank in March.

Nevertheless, three of the new lenders booked part profits by selling permitted stakes in YES Bank shares, within two weeks of investing, shareholding data released later in April suggested.

The bank claims the deposit outflows have receded since March 31. But, this could also be due to the ongoing lockdown in the economy.

Under its new management led by CEO Prashant Kumar, the bank is looking to recover Rs 5,000-8,000 crore of bad loans this financial year. The CEO said the priority would be to get deposits back in the system.

YES Bank’s Q4 results also raised concerns over advances. The bank said its advances fell 29 per cent YoY to Rs 1.71 lakh crore in March quarter from Rs 2.41 lakh crore in the year-ago period.

It said asset downsizing was for a purpose and in line with its view to optimise capital and manage liquidity well. As much as 56 per cent of the bank’s total advances are corporate in nature. Retail advances, which is generally considered more stable, formed 24 per cent of total advances, while medium-sized enterprises (8 per cent) and SMEs (13 per cent) accounted for the rest.

The bank said about 15-20 per cent of corporate customers opted for the RBI moratorium. A total of 15-20 per cent MSMEs customers and 20-25 per cent of retail customers also did so. These customers have 35-45 per cent their loans outstanding in value terms. This was higher that what other private banks have reported for the quarter.

The bank said amid the ongoing lockdown, it has ensured availability of services in 95 per cent of all branches and ATMs. “We quickly ramped up remote access capability and were able to cover critical activities from Day 1. At this stage we deployed 10,000+ remote users working towards supporting business, using remote access systems with the ability of further expansion as needed,” it said.

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Written by sortiwa

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