Mumbai, April 30 (IANS) The balance sheet cleanup will strain Yes Bank’s profitability in the next 12-18 months as it provides for the stressed assets, a Moody’s report said on Tuesday.
Yes Bank, India’s fourth largest private sector lender, last week reported a net loss of Rs 1.5 crore for the quarter ended March 2019, the first financial loss since its inception in 2004.
Yes Bank finished nearly 30 per cent lower on the BSE as the private lender reported its first ever loss, for the fourth quarter, on account of a spike in bad loans.
The loss was driven by higher credit costs for non-performing loans (NPLs) and the creation of a contingent provision against a pool of identified stressed assets.
The bank has identified about 4 per cent of its gross loans, representing 50 per cent of the total loans in the BB-and-below rating category, based on its internal credit rating scale as a source of future NPLs.
“As a contingency, the bank has made a loan loss provision of about 20 per cent against those loans in the quarter ended March 2019 and will gradually increase the level in the next year. We estimate that the bank’s overall stressed assets are about 8 per cent of its gross loans, taking into account this new disclosure,” Moody’s said.A
“This includes the reported NPLs of 3.2 per cent of gross loans, net standard restructured loans and security receipts of 0.8 per cent of gross loans, and the classified BB-and-below rated exposure of about 4 per cent of gross loans,” it added.
In late January 2019, the bank appointed Ravneet Gill as its Managing Director (MD) and Chief Executive Officer (CEO), after the Reserve Bank of India (RBI) restricted the bank’s founder and long-time MD and CEO Rana Kapoor’s term until January 2019.
Besides, Moody’s noted that in the next three years, Yes Bank will slow loan growth to about 20-25 per cent annually compared to the average loan growth of 34 per cent annually between fiscal 2014 and 2019.
Furthermore, the bank will increase the focus on the retail segment and small and medium-sized enterprises and reduce dependence on corporate lending. A reduction in loan concentration to large corporate groups will be credit positive as these types of loans have lent volatility to the bank’s asset performance in recent years.