Yes Bank Q1 profit dented by higher costs, lower other income
Profitability would have taken a bigger hit if not for lower provisions which declined by 75.5% from a year ago
Yes Bank Ltd’s June quarter earnings disappointed as operating profit declined for the first time in at least four years, because of lower other income and higher costs. Operating profit fell 5.3% to ₹ 644.23 crore as last year’s comparable quarter included an extraordinary benefit of ₹ 100 crore, earned from the sale of corporate and government bonds at a time when yields dropped.
Non-interest income declined 3.7% to ₹ 426 crore from mark-to-market losses on interest rate swaps which the bank had taken as a hedge against the bonds. The bank’s branch opening plan and salary hikes led to higher costs; its cost-to-income ratio rose significantly to 45% from 41.6% in the March quarter.
Profitability would have taken a bigger hit if not for lower provisions for bad loans, which declined by 75.5% from a year ago to ₹ 23.7 crore. The provisioning coverage ratio dropped to 78.4%. Net profit grew at a slower pace of 9.6%, to ₹ 440 crore in the June quarter.
The company also played safe on the advances side due to slowing economic growth. Medium and small enterprise loans accounted for 16.8% of the loan book, down from 21.2% in the March quarter. Loans to large companies accounted for 68.7% of advances, with the rest contributed by mid-sized corporates where the bank remained cautious. Overall advances growth improved by 23% and deposits grew 17%, better than the previous quarter.
Unfavourable economic conditions have seen its gross non-performing assets (NPAs) almost double, from a year ago, to ₹ 198 crore. Gross NPAs as a percentage of overall advances rose to 0.33%, chiefly due to stress in loans given to the manufacturing and construction sectors.
The bank was able to maintain net interest margin (NIM) at 3%, helped by 13% growth in net interest income. The management expects margins to improve in the coming quarter after it successfully raised ₹ 2,942 crore last month, which pushed up the capital adequacy ratio to 18%.
This will reduce overall liability costs and boost NIM in the September quarter.
Yes Bank shares have outperformed the S&P BSE Bankex index in the past quarter and are trading at a rich 2.1x one-year forward price-to-book multiple, and unless net profit growth swings back above 20%, the stock is likely to remain under pressure. Its shares fell by 1.7% on Wednesday, as its results disappointed investors.
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