YES Bank slumps after bad loans rise

YES Bank does not expect any further divergence between reported bad loan ratios and the central bank's assessment

Shares of YES Bank slumped 7.4 per cent after investors took fright at revised bad loan figures which were four times higher than those previously reported by the Mumbai-based lender.

Earlier this week, the Reserve Bank of India (RBI) had fined YES Bank, controlled by billionaire Rana Kapoor, for under-reporting its bad loans in audited results for the year to March 31. The bank also underestimated its soured loans in the preceding two fiscal years, according to previous filings.

“The level of divergence between asset-quality figures that the bank has been reporting for the last three years and what the regulator found in its assessments has been scary,” said Diksha Gera, a Bloomberg Intelligence analyst in Singapore. 

Gross non-performing assets (NPAs) were Rs 8,370 crore in the year to March 31, compared with the bank’s previously reported figure of Rs 2,020 crore.

YES Bank does not expect any further divergence between its reported bad loan ratios and the central bank’s assessment, Kapoor had said. Net income rose 25 per cent to Rs 1,000 crore in the September quarter, according to an exchange filing.

Bank of America Merrill Lynch cut its earnings estimates by five per cent and price target to Rs 475, from Rs 500 previously. 

“We run a stress scenario assuming doubling of new NPLs (slippages) from here on and credit costs rising to 1.1 per cent. With this, we still believe the bank, with its superior operating performance delivery, can absorb such a scenario, if it plays out and yet deliver about 25 per cent net profit growth in FY18/19. Such a scenario should still bring in 18-19 per cent return on equity in FY18/19 (versus 20 per cent estimated earlier),” said the brokerage in a note.