India's Yes Bank profit slumps on higher provisions, asset quality hit

MUMBAI/BENGALURU: Indian lender Yes Bank Ltd posted a 91% drop in quarterly profit on Wednesday, due to a nearly three-fold rise in provisions for loan losses, while asset quality deteriorated sharply.

Net profit for the three months ended June 30 came in at 1.14 billion rupees ($16.57 million), compared with 12.60 billion rupees last year. Analysts, on average, were expecting it to earn 2.79 billion rupees during the period, according to Refinitiv data.

Provisions for loan losses surged to 17.84 billion rupees in the quarter.

Net interest margin, a key indicator of a bank's profitability, also slipped to 2.8% in quarter ended June compared to 3.3% in the same quarter, a year ago.

The private-sector lender shocked markets with its first-ever loss in the preceding quarter, as it set aside higher provisions and logged fresh bad loans to the tune of 34.81 billion rupees, some of which were on account of its exposure to a struggling airline and infrastructure conglomerate IL&FS.

Gross bad loans as a percentage of total loans, a measure of asset quality, spiked to 5.01% as of June-end, compared to 3.22% last quarter.

"Even though the bad loans have increased, the bank had already guided for it, which means that there is likely no incremental pain," said Asutosh Mishra, head of research of institutional equities at Ashika Stock Broking.

"At present, the new board is in repair mode and, therefore, loan growth is slower and bad loans have increased. I expect the pain to last for at least a couple of quarters more," he added.

This is Yes Bank's second quarter under new Managing Director and Chief Executive Officer Ravneet Gill, who took charge in March and is on a mission to clean up the bank's books.

Yes Bank saw its loan growth slow drastically in the quarter, with advances growing at only 10% versus 18.7% growth in the previous quarter. This also comes at a time when the credit growth for the industry is growing at a faster clip.

The financial stability report released by the central bank in June had said that credit growth for private banks had grown at 21% between September 2018 and March 2019.

Yes Bank shares, which had touched an intraday high of 4.5%, reversed course to close 5.3% lower ahead of the results.