Mumbai: Yes Bank Ltd’s net profit in the March quarter rose 33% from a year ago to 362 crore, led by growth in both interest as well as non-interest income. Earnings per share improved to 10.1 from 7.7.

The profit was higher than the 353 crore estimate of 33 analysts surveyed by Bloomberg.

For 2012-13, Yes Bank’s net profit rose 33% to 1,301 crore.

Net interest income (NII) in the January-March period increased 42% to 640 crore and non-interest income rose 42% to 379 crore, led by fees from advisory, trade and transactions and selling loans and investments to individuals.

Net interest margin (NIM)—the difference between interest expended and earned on loans and a key measure of a bank’s profitability—widened to 3% from 2.8% last year.

Managing director and chief executive Rana Kapoor said he expects the bank’s NIM to improve by 15 to 20 basis points (bps) if interest rates soften this fiscal year. One bps is 0.01 percentage point.

Yes Bank shares rose 2.18% to 479 apiece on BSE on Wednesday, while the benchmark 30-share Sensex index ended 0.07% lower at 18,731 points.

The bank set aside 97.53 crore as provision in the March quarter, much higher than the 28.48 crore it provisioned a year ago and the 56.34 crore it set aside in the quarter ended December.

“The increase in provision is a long-term strategy to create buffers to tackle any unknown problems going forward. The economic circumstances are challenging for banks, which means we have to be proactive," Kapoor said.

Yes Bank added 20 crore to its gross non-performing assets (NPAs) in the March quarter, taking total NPAs to 96 crore or 0.20% of its loan book, from 0.17% of the loan book in December.

Kapoor said the bank sold its loan exposure in Deccan Chronicle Holdings Ltd for 54 crore to an asset reconstruction company during the quarter. Yes Bank was one of the 14 lenders that had given loans to the Hyderabad-based media company, which has been facing a financial crunch the past few months.

The bank had a total exposure of 120 crore to Deccan Chronicle Holdings at its peak, which was fully provided for and written off earlier in the year.

Rajiv Mehta, research analyst at India Infoline Ltd, said the brisk pace in balance sheet growth was a positive for banks, but more clarity was needed on the latest additions to NPAs.

“The last time they increased provisions was before they declared Deccan Chronicle as a NPA, so we may expect some company loan to go bad the next few quarters and are providing early to smoothen the balance sheet," Mehta said.

Yes Bank’s balance sheet increased 34.6% to 99,104 crore. Deposit growth at 36% was much quicker than the 24% loan growth.

The high deposit growth pushed down the bank’s overall credit deposit ratio to 70%. But Dhananjay Sinha, co-head institutional research, Emkay Global Financial Services Ltd, said such steep rises in the credit and deposit rate ratios can be considered as year-end clustering phenomenon, when lenders try to garner more deposits and loans in their balance sheets.

Besides loans, Yes Bank also buys corporate bonds, the proposition of which has increased in its balance sheet since last year. From 8,131 crore of corporate bonds or 18% of customer assets in 2011-12, Yes Bank bought 13,356 crore or 22% of customer assets as bonds in 2012-13.

Such credit substitutes contributed 17-18% to Yes bank’s total NII, Kapoor said.

Kapoor defended the bank’s investments in corporate bonds though analysts have frowned upon it. “These are AAA rated long term bonds of companies which want to build their non convertible debt book. As interest rates soften we also plan to monetize some of them," he said.