Yes Bank aims to provide for 60% of NPAs by June; sees IBC unlocking pent up credit demand

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Mid-sized private sector lender Yes Bank expects to increase its provision coverage ratio (PCR) to 60 percent by end of June this year, in order to beef up its protection against risk associated with bad loans.

At present, Yes Bank’s PCR stands at 46.3 percent, as against 66.0 percent a year ago. The number was slightly higher than the 43.3 percent recorded in the September quarter.

Announcing the bank’s results for the December quarter, Rana Kapoor, CEO and Managing Director of Yes Bank said: “We want to get to a PCR of 60 percent as soon as June 2018… Our credit costs stand at 64 basis points and increased by 18 bps in the third quarter…credit costs are tapering and we will see another 10-15 bps addition in Q4 with a total of 75 bps.”

The bank’s provisions jumped 265 percent compared to the same quarter last year to Rs 421 crore. But this was around 6 percent lower than its provisions in the previous quarter.

Provision coverage ratio is the percentage of bad assets that the bank has to provide for or set aside money for from their own funds. The money for the provisions is usually taken from the bank’s profits.

“PCR is an accumulative provision made by the bank on the outstanding gross non-performing assets (NPAs). In the last two quarters for Yes Bank, the incremental slippages were higher but provisions were lesser… Sometimes banks do not make adequate provisions in anticipation of recoveries,” said a senior analyst.

However, it is always prudent for any bank to have enough cushioning, and a reasonable provision coverage ratio is one of around 60 percent, the analyst said.

The country’s biggest lender State Bank of India has a PCR of 65.10 percent, while the largest private lender, ICICI bank, has a PCR of 59.3 percent.

Confident about the bank’s growth prospects in the coming quarters, Kapoor said he expected new opportunities to meet a lot of already-accumulated demand for credit.

The MD added that with overall cost of credit coming down, the insolvency and bankruptcy code (IBC) is also seen unlocking a lot of suppressed demand.

Yes Bank made provisions of 51 percent and 43 percent, respectively, on its aggregate funded exposure to companies on the Reserve Bank of India’s first and second list of NPAs being referred to the NCLT (national company law tribunal).

The bank reported profit growth of 22 percent at Rs 1,076.87 crore driven by non-interest income and robust loan growth of 46 percent.

“Interestingly, in the loan market unlike the bond markets, a lot more transmission is happening. The benefit of the MCLR, the credit appetite is somewhat coming back in the system and the loan pricing is contrarian to the yield curves. So transmission is becoming very quick, new loans happening at competitive rates and as IBC impact unlocks lot of productive capital back in the system means more credit demand around the corner,” Kapoor said.

He added that other than telecom and a few other sectors, growth was returning to construction, steel and almost all core sectors. “We are seeing (this) also in new age infrastructure, transportation, logistics and railways,” he said.moneycontrol