YES Bank earnings: Bad loans a dampener in Q2 even as lender logs 25% rise in net profit

Private sector lender YES Bank's stock fell up to 10 percent in morning trade today after the bank reported a massive rise in net non-performing assets during its Q2 earnings.

Even as the bank reported a 25 percent rise in its net profit to Rs 1,002 crore, YES Bank's net NPAs rose nearly three-fold to Rs 1,543.26 crore in Q2FY2018 from Rs 545.31 crore in Q1FY2018 . The incremental outstanding net NPAs is almost equivalent to its reported net profit of Rs 1,002.73 crore in Q2 FY2018.

YES Bank's non-performing assets (NPA) ratio rose more than 100 percent to 1.82 per cent of total loans, wrecked by the RBI's risk based supervision (RBS) finding a divergence or under-reporting of Rs 6,355 crore of assets which should have been classified as NPAs.  For the third straight year, the regulator has found a divergence in the bank's NPA classification.

At 11:29 am, the stock was trading 8.23 percent or 27 points lower at 304.15 level on the BSE. It closed 7.39 percent or 24.50 points lower at 307.20 level on the BSE. The stock is down 73 percent on an year-to-date basis.

On an yearly basis, the YES Bank stock is down 75 percent. The bank's net interest income rose to Rs 1,890 crore in Q2. 

Investment management firm JM Financial in a note said YES Bank continues to report strong recovery capabilities considering that effective slippage is just 19% of FY17 divergent non performing loans (and 0.9% of loans). The divergence primarily emanates from non-consortium exposures and this, is key differentiating factor with respect to its strong recovery rates.

Some residual stress may persist on the book, divergences should reduce gradually for the bank going ahead. The firm maintains BUY on the stock with a target price of Rs 390 per share in 12 months.

Bank of America Merrill Lynch on YES Bank

Operating metrics continues to run full steam. Loan growth remains strong at 35% yoy driving market share gains. Margins were higher by 30bp yoy and flat qoq at 3.7%. Fee income grew by 40% yoy. CASA (current accounts/savings accounts) increased by 40bps qoq to 37.2% taking share of total retail deposits to 62%. YES Bank has added 33% of branches in the last two years, which we believe are yet to contribute to the liability franchise. Efficiency ratios continue to trend at 40% levels. The bank is well-capitalized, with Tier 1 at 13.2%.