Yes Bank and IndusInd Bank's Q4 results showed surge in bad loans and provisions following RBI's new asset quality rules and exposure to Jaiprakash Associates
Mumbai: Private sector lenders Yes Bank Ltd and IndusInd Bank Ltd on Wednesday reported a sharp rise in their quarterly bad loan provisioning, eroding profits, after the Reserve Bank of India (RBI) advised lenders to follow stricter standard asset provisioning and disclosure rules.
The additional provisioning pertains to their exposure to the Jaiprakash Associates Ltd cement assets that are being purchased by UltraTech Cement Ltd, said three people aware of the matter. Other banks which have the same exposure are also likely to report a jump in their provisions in the March quarter. However, these provisions are likely to be written back as the UltraTech-Jaiprakash deal will be completed by the end of this quarter, they said. UltraTech has agreed to buy Jaiprakash Associates’ cement assets for Rs16,189 crore.
Yes Bank reported a doubling of gross non-performing assets (NPAs) to Rs2,018 crore in the March quarter, as it had to set aside an additional Rs228 crore to cover potential loan losses. Yes Bank’s gross NPAs were at 1.52% at the end of the March quarter and net NPAs were at 0.81%.
“The increase in NPA and consequent provision is in conformity with the divergences observed by the RBI as per its compliance process" mentioned in the RBI circular on Tuesday, a Yes Bank statement said. According to the RBI circular, banks have to make disclosures if their asset classification and provisioning diverge from the central bank norms.
“As of 31 March 2017, the impact of divergences overall is at Rs1,040 crore on which we have made 25% provisioning. This includes one borrower exposure of Rs911 crore towards a Delhi-based cement company. However, this is a performing asset which has been servicing interest regularly. We expect to recover the amount in the near term," said Rana Kapoor, managing director and chief executive officer, Yes Bank.
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.
“Yes Bank has negatively surprised by almost doubling on gross non-performing assets during Q4, which is likely to overshadow its strong operational performance and strong capital position. Thus, the sentiments are likely to turn weak in short term," said Lalitabh Shrivastawa, associate vice-president, research, for banking, financial services and insurance, at Sharekhan.
IndusInd Bank reported a 21% rise in net profit to Rs751 crore during the quarter, even as it saw its provisions double to Rs430 crore on account of RBI’s latest disclosure and provisioning norms. Gross NPAs rose 8.57% to Rs1,054.87 crore at the end of the March quarter from Rs971.62 crore in the preceding quarter.
“We have provided Rs122 crore against a M&A (mergers and acquisitions) case in the cement sector on advice from the RBI. The repayment is due in June 2017, which we are sure is going to happen," said Romesh Sobti, managing director and CEO, IndusInd Bank.
Yes Bank shares edged down 0.03% and IndusInd Bank shares fell 0.63% on a day the BSE’s benchmark Sensex inched up 0.06% to 29,336.57 points.
According to Sobti, the bank has closed its third three-year plan and is going to start on its fourth such plan, where it plans to double its presence as well as its profits by March 2020. The bank aims to have a microfinance portfolio of Rs10,000 crore and its rural finance business will contribute 10% of the overall earnings in this period.
“Our plan has not taken into account any inorganic play during this period. We are, however, open to inorganic growth as well. We are looking at various opportunities including microfinance," Sobti said.
“IndusInd Bank results were largely in line, and would have been termed strong if not for the one-off provision impact of Rs122 crore on a standard asset exposure. The ability to outperform industry growth as well as maintain less than 1% gross NPA is commendable, and with its strong management and performance delivery, the bank should be attractive for long-term investors," said Shrivastawa.
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