Home / Markets / Mark To Market /  Back from the brink, Yes Bank reinstates its deposit base but loans flounder

After an end to a tumultuous year that marked a near collapse, Yes Bank has managed to restore its deposit base. But loan growth is another matter given the onset of an unexpected pandemic.

The bank reported a 54.2% increase in its deposits for FY21 to 1.62 trillion as of March. To put this jump in perspective, we should note that Yes Bank’s deposit base had more than halved during FY20 in the aftermath of a crisis. Imprudent decisions by the former promoters, at times involving fraudulent activities had brought the bank on the brink of collapse. A rescue package put together by the regulator that involved a new management and capital infusion has put it on the path of recovery. Ergo, the lender has turned around its deposit base with trust coming back to the bank. That said, Yes Bank’s low cost deposits form just 27% of total deposits. In short, the bank ended up missing the big household savings inflow into bank deposits in the wake of the pandemic. Most of the lender’s peers have witnessed a sharp surge in deposits. For instance, Federal Bank showed an increase in the proportion of current and savings accounts deposits to 33.8%. Large peers such as ICICI Bank and HDFC Bank are expected to report even bigger ratios.

The pandemic may have been a blessing on liabilities but the bank is floundering on loan growth because of it. Yes Bank’s loan book hardly grew during FY21 although its retail disbursements have more than doubled. In all likelihood, the decayed corporate loan book may still show a sharp contraction for the year. Then there is asset quality, the nemesis of the bank that brought about its near collapse in the first place. Investors need to watch the pace at which the bank reduces stress on its books. For the December quarter, the bank had reported a gross bad loan ratio of 15.6%, but the actual could be higher because of judicial standstill on asset recognition at that time.

Yes Bank’s shares have dropped 9% over the past one year, indicating that concerns over asset quality continue to keep investors wary. For the lender to see a breakthrough in valuation, fixing its dud assets is crucial.

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