Yes Bank’s Ranveet Gill did what was expected of the bank’s first non-founder CEO: eliminating all uncomfortable elements in the way. Last week, the private sector lender shocked analysts posting its largest quarterly loss at Rs 1,507 crore, courtesy high provisions worth Rs 3,661 crore, to cover for toxic loans arising out of airline, infrastructure and real estate accounts. Not just that, Gill also toned down high growth projections made by the previous management under co-founder Rana Kapoor, and instead opted to forecast a prudent 25 per cent rise in the bank’s business.
Predictably, brokerages made a beeline to downgrade Yes’ stock fearing further provisions. “Significant worry comes from collapse of fee income in near term, higher credit costs if more risks arise from unidentified stress and risks of NIMs going down on higher interest reversals if stress book falls into NPA, leading to an infinite loop of lower return ratios in medium term,” noted brokerage Prabhudhas Lilladher. It added that capital was another immediate concern with CET-I at 8.4 per cent.
Worryingly, stress levels may spike from different sectors including real estate, entertainment infrastructure. The bank had already identified Rs 10,000 crore worth stressed assets within these sectors, implying that provisions could go up in case of loan payments fall behind schedule. Analysts fear the possibility of higher stress considering the weak cash flows and liquidity issues lurking among infrastructure and entertainment firms.
On its part, the bank made Rs 2,100 crore contingent provisions on the stressed identified accounts, but the trouble is BB-rated & Below exposures sequentially jumped to 8 per cent from 3 per cent of loans and if the trend continues, it could affect the bank’s profitability and margins. In an analyst interaction last week, Gill and team further hinted that risky assets can further emanate from the balance sheet, especially within real estate and infrastructure. Gill’s strategy to improve compliance, and adherence to regulatory standards may win market confidence, but continuity will depend on his execution skills and measures meant to stabilize revenue.