Exposure to a single cement company made a Rs 350 crore dent in the net profits of IndusInd Bank and Yes Bank, private lenders otherwise known to have better control on asset quality.
IndusInd Bank and Yes Bank had to make provisions of Rs 122 crore and Rs 227.9 crore, respectively, towards their exposure to this account in compliance with a Reserve Bank notification yesterday.
Both the banks stressed the reverses are temporary in nature, underlining that the cement company in question is all set to be acquired by a better performing city-based company soon and once the deal fructifies, there will be a write back.
Even though the bank managements did not name the company, sources said this relates to the exposure to Jaypee Cements, which is all set to be acquired by UltraTech in a Rs 16,200-crore deal.
To ensure greater transparency and promote better discipline, the RBI yesterday said it will be flagging divergences in asset recognition to the bank, ask them to make extra provisions or re-classification of the account and instructed lenders to disclose the same in quarterly statements, starting with that for FY2016-17.
Interestingly, stating that the account in question is servicing interest Yes Bank identified it as a non-performing asset, while IndusInd Bank continued to treat it as a standard asset but increased the provisioning.
"This is a cement company from the North and to the best of our knowledge there is a binding agreement to buy out a certain cement assets by a leading corporate house based in Mumbai. But to be conservative and to meet this new circular we are complying with it but I am quite certain that there will be significant recovery very very soon," Yes Bank Managing Director and Chief Executive Rana Kapoor said.
IndusInd Bank MD and CEO Ramesh Sobti said the cement company exposure is standard and performing, but the RBI has asked it to provide more because the company's parent is showing stress and has been recognised as sub-standard.
Sobti informed that the cement asset is all set to be acquired by a city-based group and there will be a write-back of the provision in the near term once the deal is completed.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)