Yes Bank plays down bad loan worries after broker report

MUMBAI (Reuters) - Yes Bank Ltd, India's fifth-biggest private sector lender by assets, said on Wednesday it was lending prudently and did not expect a spike in bad loans, brushing off a warning from analysts at investment bank UBS that sent its shares tumbling.

Wednesday's fall of as much as 8.1 percent in Yes Bank stock highlighted concerns among investors that even as India's dominant public sector lenders pull back on lending and grapple with bad loans, the problem is growing among the country's private lenders, as they expand their market share.

Yes Bank's finance chief, Rajat Monga, agreeing with the findings of a financial stability report published by the central bank last month, said he expected bad loans of private sector banks to rise in coming years as a result of that push.

India's banking sector is dominated by more than two dozen state-run lenders, who account for over 70 percent of assets. The state lenders also account for the lion's share of bad loans, a burden which is touching the highest level in a decade as slower growth hurts companies' ability to service loans.

UBS, in research published on Tuesday, said loan approvals to stressed companies had risen 85 percent in three years to March 2015, adding Yes Bank had shown the biggest rise.

UBS said Yes Bank was "most vulnerable to a large corporate default", downgrading its stock to "sell" from "buy" and sharply reducing its target price.

The lender challenged the report, which the brokerage said was based on research from regulatory documents.

"The source of the information is not current, is my point number one. It exaggerates, is my point number two," said Monga.

He said in some cases the parent of the group to which Yes Bank had lent might be seen as stressed, but the bank's exposure was to profitable units.

"There is a method behind how we are structuring our lending to some of these groups, if we are doing the lending, because we know there are issues in those groups," Monga said.

Yes Bank shares closed down 7.5 percent on Wednesday, underperforming a 1.8 percent fall in the banking sector.

(Reporting by Abhishek Vishnoi and Devidutta Tripathy; Editing by Clara Ferreira Marques and David Holmes)