Bad Loans At Yes Bank Double As Regulator Detects Under-Reporting

Yes Bank’s asset quality saw a sharp deterioration in the July-September quarter.

Women walk by a Yes Bank Ltd. automated teller machine (ATM) branch in Mumbai. (Photographer: Kuni Takahashi/Bloomberg)
Women walk by a Yes Bank Ltd. automated teller machine (ATM) branch in Mumbai. (Photographer: Kuni Takahashi/Bloomberg)

Private sector lender Yes Bank Ltd. on Thursday reported a jump in bad loans as it adjusted for accounts that the regulator thought should be tagged as non performing. This is the second consecutive year that Yes Bank has reported a sharp divergence in the assessment of bad loans between the lender and the regulator.

Gross non-performing assets more than doubled and stood at 1.82 percent of the loan book at the end of the September quarter. This compares to 0.92 percent at the end of the June quarter and 0.39 percent in the year-ago quarter.

In absolute terms, gross NPAs stood at Rs 2720.34 crore compared to Rs 1364.38 crore at the end of the previous quarter. During the quarter, the bank set aside Rs 447 crore in terms of provisions compared to Rs 285.78 crore last year.

As part of its earnings, the bank disclosed a significant divergence in the assessment of bad loans between the lender and the Reserve Bank of India. According to the disclosure, at the end of FY17, the RBI judged gross NPAs at Rs 8,373.8 crore. The bank, however, had reported gross NPAs at Rs 2,018 crore. The consequent divergence was at Rs 6,355 crore or three times the reported amount.

At a press conference, the bank’s top management said that 47 percent of the divergence amount had been upgraded in the first half of the year. Another 27 percent of that amount was repaid, while 19 percent was classified as NPA at the end of the September quarter. Much of the remaining amount was sold to asset reconstruction companies.

Watch Yes Bank’s Rana Kapoor detail its second quarter earnings.

The divergence was even larger in terms of net NPAs. The bank had declared net NPAs at Rs 1,072.3 crore at the end of FY 17 but the RBI pegged this at Rs 5,891.6 crore.

In FY16, the bank reported just a sixth of the bad loans assessed by the regulator. According to its latest annual report, the bank had reported gross NPAs worth Rs 748.9 crore as on March 31, 2016, while the RBI had asked the lender to report gross NPAs worth Rs 4,925.6 crore.

When asked why the bank had faced repeat instances of divergence in NPA classification, Managing Director and Chief Executive Officer Rana Kapoor blamed the lack of time between the two divergences for adequate preparation.

The last divergence was communicated to us in March 2017, which was a review for the period ended March 2016. This review was practically a few months later and there was not enough curing time...We are certain that divergences should not be a recurring item on the balance sheet.
Rana Kapoor, MD And CEO Yes Bank

The RBI identified 19 accounts in its review of the bank’s finances for financial year 2016-17, of which, three had been sold to asset reconstruction companies, four continued on the balance sheet as NPAs and 12 had been upgraded to standard category, Kapoor said.

On Tuesday, the regulator said that it had penalised Yes Bank for “violations of various regulations issued by RBI in the assessment of non-performing assets.” The penalty of Rs 6 crore was imposed on account of asset classification issues and a delay in reporting a security incident across its ATM network last year.

Operational Performance

For the second quarter, the bank reported a net profit of Rs 1,000 crore, up 25 percent compared to Rs 801 crore in the same quarter last year. Net interest Income rose 13.4 percent to Rs 1,885 crore from Rs 1,412 crore year-on-year while the non interest income rose 35.4 percent compared a year ago.

The bank saw advances grow by 34.9 percent, largely led by its retail loan growth. The retail loan book contributed 32.6 percent to the total loan portfolio, as compared with 32 percent a year ago.

Deposits rose 23.4 percent year-on-year to Rs 1.58 lakh crore, led by growth in the retail deposits. Yes Bank’s current account savings account ratio as on September 30 stood at 37.2 percent. CASA and retail fixed deposits together contributed to 61.7 percent of total deposits of the bank.

The bank’s capital adequacy ratio at the end of the second quarter stood at 17.8 percent, as compared with 15 percent last year.