Yes Bank shares fall nearly 4% on rising bad loan provisions

Yes Bank shares touched a low of Rs1,501 on the BSE and fell as much as 6.5%, their steepest fall since 9 November


The fall in Yes Bank shares on Thursday was the maximum in five months. Photo: Bloomberg
The fall in Yes Bank shares on Thursday was the maximum in five months. Photo: Bloomberg

Mumbai: Shares of Yes Bank Ltd on Thursday fell as much as 6.5%, its steepest fall in five months, after the company reported a sharp rise in its bad loan provisions, following Reserve bank of India’s new asset quality rules and exposure to Jaiprakash Associates.

The scrip touched a low of Rs1,501 on the BSE and fell as much as 6.5%, its steepest fall since 9 November 2016. The stock fell for the fifth consecutive session and declined 8% in this period. So far this year, it has gained 33.6%.

The scrip, however, erased some of the early losses and closed down 3.76% at Rs1,545.10.

Shares of ICICI Bank Ltd and Axis Bank Ltd, too, fell 3.3% and 1.9%, respectively, as analysts expect that the provisions of these banks could rise as Jaypee Group has a huge exposure to these banks. IndusInd Bank fell 0.2% to Rs1,420, while India’s benchmark Sensex Index rose 0.12% to 29,372.78 points.

Yes Bank made an additional Rs228 crore while IndusInd Bank made Rs122 crore to cover potential loan losses towards its exposure to Jaiprakash Associates, Mint reported. Yes Bank reported a doubling of gross non-performing assets (NPAs) to Rs2,018 crore in the March quarter. Yes Bank’s gross NPAs were at 1.52% at the end of the March quarter and net NPAs at 0.81%.

However, analysts believe that these provisions are likely to get back once the Jaiprakash Associates completes the sale of the cement business. In July last year, UltraTech agreed to buy Jaiprakash Associates’s cement assets for Rs16,189 crore.

“A conservative approach would be to treat both the gross slippages of Rs900 crore in the cement account and Rs800 crore of ARC sales as divergence in Yes Bank’s asset quality recognition vs RBI requirements. While this highlights the concentration risk in Yes Bank’s corporate portfolio, these exposures are well collateralised and management expects no/negligible LGD on these assets leading to low/no credit cost impact,” said Nomura Research in a note to its investors .

“With 2% of overall exposure (2.5-3.0% of loans) being <BBB rated, we cannot rule out the possibility of lumpy slippages in FY18F, but past experience suggests that some part of these lumpy exposures are better collateralised by the bank and some part of the risk may play out as well,” the report added.

Despite the higher provisions, Yes Bank’s net profit for the quarter ended 31 March rose 30% to Rs914 crore from a year ago. Net interest income, or the income that a bank earns by giving loans, increased 32% to Rs1,639.70 crore. This comes on the heels of a strong loan book growth of 34.7% and deposit growth of 28% during the quarter.

“Asset quality metrics deteriorated sharply even excluding the known one-off cement exposure. Clawing back the one-off provision, comfort around asset quality along with steady improvement in retail asset and liability remains key to further re-rating of the stock,” said Jefferies India, in a note to investors.

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