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Yes Bank Q1: Worst is behind for the lender, but a likely asset quality shock lies ahead

The biggest take away is the growth in deposits from March-quarter which indicates some confidence is returning to the bank after a tumultuous phase.

July 28, 2020 / 06:14 PM IST
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From the brink of collapse, Yes Bank is slowly inching back to health. Survival is no longer the main concern now. Yes Bank's first quarter numbers indicate improvement across key parameters and the worst is behind for the bank. Much needed capital has finally come, deposits have grown on a quarter-on-quarter basis and asset quality has remained stable in the June quarter.

Confidence returns

The biggest take away is the growth in deposits from March-quarter which indicates some confidence is returning to the bank after a tumultuous past. Deposits at Rs 1,17,360 crores grew 11.4 per cent on quarter aided by 26.4 per cent QoQ growth in current account deposits and 12.6 percent in term deposits. With this, the CASA ratio (cheaper deposits) is at 25.8 percent in Q1FY21.

Also Read: Yes Bank Q1 net profit falls 60% YoY 

This is important. After a massive bailout and a crisis-ridden past, the big task for Yes Bank in Q1 was to win back customer trust. It is on the right path here. The bank has done a lot of work to win back mandates and accelerate customer acquisition. A 4 percent decline in loan book on quarter isn’t surprising in the present environment given that the challenge was to clean up the book, not to grow.


The bad loan levels have stabilized with gross Gross NPAs as at end June, 17.3 per cent a tad higher than 16.8 per cent in the previous quarter. In absolute terms, the GNPAs have declined to Rs 32703 crore from Rs 32878 crore in the previous quarter. Net NPAs have declined

The bank has raised over Rs 14,000 crore in the follow on public offer against the target of Rs 15000 crore. As on June 30, 2020, the Common Equity Tier-l ratio of the Bank was 6.5 per cent and Tier l Ratio was 6.6 per cent. Considering the capital infusion, proforma CETl ratio of the Bank as at June 30, 2020, stands at 13.3 per cent and total Capital Adequacy Ratio as at June at 20.0 per cent. These are all good signs.

The bank has shrunk its loan book over the previous quarter and is focusing more on deposit mobilization and improvement in capital ratios. It has availed a special liquidity facility (SLF) from the Reserve Bank of India (RBI) to survive. Yes Bank is now compliant with its minimum regulatory LCR requirements with LCR ratio of 114  per cent as at June 30, 2020.

What lies ahead?

Having said that, challenges aren’t over yet for the bank. The performance of moratorium loans going ahead is key. At end-March, Yes Bank had about 33 per cent of the book under moratorium. It is not clear whether this chunk has declined in Q1.

The backing of half of the banking industry and RBI support have given a chance to the bank to return to life. But, promoters can't handhold the bank forever. It will have to find a path on its own. The main challenge from this point is to grow the business and manage the quality of the book. The COVID impact will be visible only beginning the third quarter when the 90-days repayment period after the moratorium gets over.

The good part is that  Yes Bank is now in a much better position to face the challenges given the recently reinforced capital buffers, the improvement in liquidity position in QI. “The Bank believes that the previously highlighted material uncertainties regarding going concern have been substantially addressed,” the bank said in the result notes.

As on June 30, 2020, the Bank has recognised a 10 percent provision on loans on which moratorium has been granted. It has made COVID provisions of Rs 642 crore that makes a total provision of Rs 1,087 crore. Will this be enough to withstand the post-moratorium asset quality shock? Only time will tell.
Dinesh Unnikrishnan
first published: Jul 28, 2020 06:14 pm
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