Yes Bank turns tide on bad loans, powered by one account
With asset quality normalizing, Yes Bank’s strong core growth will be the focus and here the lender has fired on all cylinders
The power of one is often underestimated but Yes Bank Ltd would know what one account can do to a lender’s performance. The fourth-largest private sector bank’s bad loan metrics showed an impressive turnaround in the June quarter, with both gross and net bad loan ratios improving significantly.
That the Yes Bank stock surged by more than 6% to a record high on bourses showed that investors have already forgotten the awful numbers of the previous quarter, taking comfort from the lender’s growth story.
Gross non-performing asset (NPA) ratio slipped to 0.97% from 1.52% in the previous quarter while its net NPA ratio fell to 0.39% from 0.81% the quarter before.
Moreover, the stock of bad loans too reduced sequentially by Rs654 crore. All this was possible because of one major account (Jaiprakash Associates Ltd) getting upgraded and the lender pocketing 60% of value, as recoveries.
The bank’s management has assured that further recoveries will be made in the ensuing quarters. The account was labelled as stressed in all lenders’ books, and Yes Bank’s exposure was around Rs900 crore.
Recall that in June, Aditya Birla Group arm UltraTech Cement Ltd acquired Jaiprakash Associates’ cement plants, the proceeds of which Jaiprakash Associates utilized to pay off its lenders.
Earlier this year, the Reserve Bank of India (RBI) had asked banks to disclose the divergence between the bad loans detailed by them as of March 2016 and what the central bank termed bad. The above account along with others had resulted in corporate lenders such as ICICI Bank Ltd, Axis Bank Ltd and Yes Bank reporting a surge in their provisions and bad loans. Yes Bank investors were stung badly by the 169% rise in its gross NPAs in the previous quarter and the fact that the disclosures came after the lender concluded its qualified institutional placement, hurt more.
Yes Bank seems to have done more than damage control in the June quarter. The bank has assured investors that it is retaining the provisions made for the cement account even though it has been upgraded to standard. Further, the lender also said that it has only Rs343.3 crore as exposure to two of the dozen accounts that RBI has asked banks to refer for insolvency proceedings under the Insolvency and Bankruptcy Code.
With asset quality normalizing, Yes Bank’s strong core growth will be the focus and here the lender has fired on all cylinders.
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