Yes Bank, IndusInd see rise in bad loan provisions on exposure to Jaiprakash
Private sector lenders Yes Bank Ltd and IndusInd Bank Ltd on Wednesday reported a sharp rise in their quarterly bad loan provisioning, eroding profits, after the Reserve Bank of India (RBI) advised lenders to follow stricter standard asset provisioning and disclosure rules.
The additional provisioning pertains to their exposure to the Jaiprakash Associates Ltd cement assets that are being purchased by UltraTech Cement Ltd, said three people aware of the matter. Other banks which have the same exposure are also likely to report a jump in their provisions in the March quarter. However, these provisions are likely to be written back as the UltraTech-Jaiprakash deal will be completed by the end of this quarter, they said. UltraTech has agreed to buy Jaiprakash Associates’ cement assets for ₹16,189 crore.
Yes Bank reported a doubling of gross non-performing assets (NPAs) to ₹2,018 crore in the March quarter, as it had to set aside an additional ₹228 crore to cover potential loan losses. Yes Bank’s gross NPAs were at 1.52% at the end of the March quarter and net NPAs were at 0.81%.
“The increase in NPA and consequent provision is in conformity with the divergences observed by the RBI as per its compliance process” mentioned in the RBI circular on Tuesday, a Yes Bank statement said. According to the RBI circular, banks have to make disclosures if their asset classification and provisioning diverge from the central bank norms.
“As of March 31 2017, the impact of divergences overall is at ₹1,040 crore on which we have made 25% provisioning. This includes one borrower exposure of ₹911 crore towards a Delhibased cement firm. However, this is a performing asset which has been servicing interest regularly. We expect to recover the amount in the near term,” said Rana Kapoor, MD and CEO, Yes Bank.
Despite the higher provisions, Yes Bank’s net profit for the quarter ended March 31 rose 30% to ₹914 crore from a year ago. Net interest income, or the income that a bank earns by giving loans, rose 32% to ₹1,639.70 crore. This comes on the heels of a strong loan book growth of 34.7% and deposit growth of 28% during the quarter.
IndusInd Bank reported a 21% rise in net profit to ₹751 crore during the quarter, even as it saw its provisions double to ₹430 crore on account of RBI’s latest disclosure and provisioning norms.
Gross NPAs rose 8.57% to ₹1,054.87 crore at the end of the March quarter from ₹971.62 crore in the preceding quarter.
“We have provided ₹122 crore against a M&A (mergers and acquisitions) case in the cement sector on advice from the RBI. The repayment is due in June 2017, which we are sure is going to happen,” said Romesh Sobti, MD and CEO, IndusInd Bank.