Yes Bank under-reported bad loans in FY2016, says annual report disclosure
Yes Bank on Friday reported that its non-performing asset (NPA) classification varied with the Reserve Bank of India’s to the tune of ₹4,176 crore at the end of March 2016.
Yes Bank had reported gross bad loans of ₹748.98 crore at the end of fiscal year 2016 as compared to ₹4,925 crore assessed by the central bank.
Yes Bank shares fell by 3.5% after the lender disclosed this information in its annual report for FY2017, released on Friday.
A higher bad loan classification would have necessitated higher provisions. The bank’s actual provisions of ₹464.5 crore fell short of the RBI’s calculation of ₹1,322. 5 crore. Adjusted for provisions, Yes Bank’s net profit for FY2016 would have been ₹1,978.3 crore instead of ₹2,539.4 crore.
For FY2017, the bank reported a net profit of ₹3,330.1 crore and said that the number “duly incorporates the current impact of divergences observed recently by the RBI”.
“With ongoing remedial actions undertaken by the Bank during FY 2016-17, there have been several reductions/exits/ improvement in account conduct,” and the impact of the divergence is ₹1,040 crore, said the annual report.
This includes ₹911 crore exposure that the bank didn’t name. It refers to Yes Bank’s exposure to Jaiprakash Associates Ltd cement assets that are being purchased by UltraTech Cement Ltd, three people aware of the matter told earlier.
“The bank reiterates that there is no carry forward impact of the divergence observed by the RBI in FY 2017-18,” it said in a notification issued on the stock exchange.
Yes Bank is the first to report this divergence after RBI increased disclosure norms for banks, since it noted instances of divergences in banks’ asset classification and the provisioning required as per RBI norms.
The regulator told banks to make a disclosure in the “notes to accounts” if the additional provisioning requirement assessed by RBI exceeds 15% of their net profit.
Banks also had to make additional disclosures if the additional gross NPAs identified by the RBI under its asset quality review were greater than 15% of the incremental gross NPAs reported.
“We expect investors to be closely tracking this data at all banks, and would also be concerned about potential divergence in FY17 results as well (will be disclosed a year later),” wrote Morgan Stanley analysts in a note to clients on Friday.
“The asset quality problem is greater than what the bank was trying to sell to investors. It will be interesting to see divergence of other banks who have high corporate book,” said Asutosh Mishra, banking analyst at Reliance Securities.