Yes Bank’s asset quality improves in March quarter
Gross non-performing assets decline 11% sequentially to `175 crore
Yes Bank Ltd shares gained 2% as its March quarter earnings were better than expected. Asset quality improved and loan slippages declined, although balance sheet growth continued to moderate.
Gross slippages in the March quarter almost halved to ₹ 48 crore compared with the December quarter on the back of aggressive recovery efforts. Gross non-performing assets (NPAs) declined 11% sequentially to ₹ 175 crore as it has been selling bad loans to asset restructuring companies (ARCs) and has deliberately reduced exposure to large companies that are under stress.
Yes Bank sold around ₹ 202 crore worth of bad loans to ARCs and recovered around ₹ 55 crore of loans in the past three quarters. More than half of these recoveries happened in the March quarter, indicating its recent aggression. Jaideep Iyer, deputy chief financial officer of Yes Bank, said, “Peak pressure on that asset quality front is behind us but we continue to remain cautious and expect FY15 to be similar to FY14 in terms of NPAs."
Total restructured assets were at ₹ 101 crore, at a two-year low and represented only 0.2% of the gross advances. There was a sharp increase in provisioning compared with the previous quarter but that was expected because the previous quarter included a one-time benefit of a reversal in provision for bonds.
The bank is gradually increasing its focus on micro, small and medium enterprise (MSME) portfolio and retail loans which accounted for 36.7% of the portfolio, while the rest came from large companies. Iyer said that the bank is cautious on large companies and is growing the MSME and retail loan book where there are more opportunities.
Advances grew at 18.4% year-on-year compared with 14.7% in the December quarter, buoyed by improvement in priority sector lending to the agriculture sector and momentum in retail and MSME loans. However, deposit growth halved to 10.8% sequentially because it utilized money raised from FCNR deposits (FCNR stands for foreign currency non-resident). As result, the bank’s net interest margin expanded 10 basis points to 3% sequentially.
Wholesale term deposits accounted for 26.2% of total deposits from 31.9% in December quarter, indicating a greater focus on retail deposits. Net interest income growth slowed further to 12.8% compared with the previous quarter on the back of slower balance sheet growth. Iyer expects net interest income to improve in the June quarter since the loan growth was back-ended. Yes Bank continues to improve its current account and saving account deposit ratio which rose to 22% from 20.9%.
Yes Bank shares have outperformed the S&P BSE Bankex index in the past three months and are trading at 1.8x prices to book and seem to have already discounted the improvement in asset quality.
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