18 July 2019: Yes Bank Ltd on Wednesday reported a 91% drop in fiscal-first quarter profit on account of higher provisioning and lower other income. The management said the bank is looking to raise capital in the ongoing quarter.
The private sector lender posted a net profit of ₹113.76 crore for the quarter ended 30 June from ₹1,260.36 crore a year ago. Profit was lower than the ₹148 crore estimated by a Bloomberg survey of 13 analysts. The bank reported a loss of ₹1,507 crore in the preceding March quarter.
“I would say the first quarter was one of consolidation for the bank. The first and foremost part was the ongoing management transition, which I think is now complete. The second part was, given a common equity tier 1 (CET 1) ratio of 8.4%, it was a quarter for capital optimization. We will be looking to raise capital in the coming quarter,” said Ravneet Gill who took charge as managing director and chief executive officer on 1 March.
Asset quality deteriorated, with gross non-performing assets (NPAs) as a percentage of total loans rising to 5% as against 3.22% in the previous quarter. The bank saw an addition of fresh bad loans worth ₹6,230 crore in the quarter, even as it upgraded or recovered ₹1,680 crore and wrote off bad loans worth ₹340 crore. Of the net slippage of ₹4,500 crore, around ₹2,500 crore is from the book identified earlier.
On Wednesday, shares of Yes Bank lost 5.25% to close at ₹98.45 on BSE, while the benchmark Sensex gained 0.22% to close at 39,215.64 points.
The management clarified that the bank’s total real estate loans stood at ₹24,000 crore, of which 25% has been isolated as sub-investment grade (NPAs). The remaining 75% has minimal slippages, it said.
The higher slippages saw the bank’s provisions increase nearly three-fold to ₹1,784.11 crore during the quarter as against ₹625.65 crore the previous year. This includes a one-off mark-to-market provisioning of ₹1,110 crore due to rating downgrades of investments in companies of two financial services companies it did not name.
The management clarified that it does not expect any more major downgrades in the coming quarter, reiterating the credit cost guidance of 1.25% for fiscal year 2019-20.
On the operations side, the bank’s other income, which includes core fee income, dropped 25% to ₹1,272.66 crore in the quarter from ₹1,694.14 crore a year ago.
Net interest income, or the difference between interest earned on loans and that paid on deposits, increased 2.78% year-on-year (y-o-y) to ₹2,280.84 crore from ₹2,219.14 crore in the corresponding period last year. Net interest margin narrowed to 2.8% from 3.1% in the previous quarter on account of interest reversal. The bank’s loan book grew 18% y-o-y to ₹2.36 trillion, led by retail loans. Current and savings account ratio dropped to 30.2% of total deposits compared to 33.1% in the previous quarter while retail term deposits grew 37.7% y-o-y.
“The key issue with Yes Bank is capital constraints. The bank’s CET1 (Common Equity Tier 1 ratio) has reached 8%. Any further decline will attract problems for the bank. Hence, capital raising is the most important event for the bank,” said Ashutosh Mishra, head of research, Ashika Stock Broking.
The management said it has not identified any material implications on its financial statement from a whistle-blower complaint into alleged irregularities by its former managing director Rana Kapoor.
“The bank, at the direction of the audit committee and with the assistance of this external firm, is continuing to analyse the allegations in the whistle-blower complaint and work is currently ongoing,” it said.
Based on work done and findings till date, it said: “The bank has not identified any material financial statement implications and will consider the implications of ongoing work once the examination of this matter is completed.”
Amid concerns over Yes Bank’s weakening financial and operating performance, both foreign institutional investors (FIIs) and domestic institutional investors (DIIs) cut their stakes in the lender during the quarter, BSE data showed.
FII holding fell to 33.69%, down from 40.33% a quarter ago.
DIIs—mainly mutual funds and insurance companies—now hold a 6.59% stake, against 9.54% in the March quarter. DIIs have reduced their stake for the fourth consecutive quarter.
According to its shareholding pattern on BSE, “UTI along with its various schemes” has reduced exposure by nearly 30 basis points to 1.32% from 1.61% in March quarter.
The names of three investors—HDFC Trustee along with its various schemes, Jasmine Capital Investments Pte Ltd and Vontobel Fund MTX Sustainable Asian Leaders—are not reflected on the list of Yes Bank’s public shareholders as of June 2019. It could not be immediately ascertained if these entities have partly or entirely sold their stakes. Shareholding patterns on stock exchanges show entries only for holdings above 1%. HDFC Trustee along with its various schemes, Jasmine Capital Investments Pte Ltd and Vontobel Fund MTX Sustainable Asian Leaders held 1.05%, 2.12% and 1.05%, respectively in the March quarter.