Sometimes, saying no makes all the difference. Private lender Yes Bank Ltd has a ₹2,600 crore exposure to Infrastructure Leasing and Financial Services Ltd (IL&FS). The fact that it is 1% of its loan book and the exposure is currently standard on the bank’s books could be tempting to write it off as negligible. But there is no guarantee that it would remain standard for long.
Yes Bank’s asset quality trips in second quarter; IL&FS exposure may bite
The lender may have to get ready for a big provisioning impact in the coming quarters. IL&FS has been defaulting on every repayment to different stakeholders over the last three months. Without a fix, the company is unlikely to pay off its dues to banks. A 90-day overdue would mean Yes Bank will have to make a provisioning of 15% on its exposure.
The IL&FS story needs a happy ending, else Yes Bank would begin wishing fervently that it had said no to the infrastructure behemoth. The lender also has 3.2% of its loan book exposed to housing finance companies and 2.6% to non-banking finance companies (NBFCs). While finance companies are currently suffering from a liquidity crunch, they are not risky enough to become bad debt.
Besides, Yes Bank also saw trouble emerge on other parts of its loan book. Its slippages tripled to ₹1,631 crore in the September quarter, resulting in an increase of 110% in provisioning against bad loans. Given that its mark-to-market hit on the bond portfolio was large, the bank has decided to spread the provisions of ₹186.9 crore over the next two quarters.
Its toxic loan pile as a percentage of loans is still at 1.6%, enviable compared with other banks. What made this possible was the 61% scorching growth in its loan book. But, it will be hard for investors to ignore the jump in slippages and the 42% increase in the stock of bad loans.
What is more worrying is that Yes Bank has not made adequate provisioning. Its provision coverage ratio dropped to 47.8% from 55.3% in the previous quarter.
The management said that of the total slippages, exposure of ₹631 crore is likely to be upgraded as it expects prepayments. It also said that the exposure to NBFCs and housing finance companies are to those rated AA and above.
Beyond the asset quality, the bank’s core performance remained robust. Its margins remained intact and its core income grew at a healthy 28.2%.
The stock has lost a massive 38% ever since it became clear that the Reserve Bank of India does not want the bank’s founder and head Rana Kapoor to continue in his position beyond January 2019. The weak results are likely to add to the ire of investors. The stock trades at a multiple of 1.26 times its estimated book value for FY20.