 "Rana Kapoor")
If one looks at YES Bank’s numbers, it will appear that there is no problem with the Indian banking sector. YES Bank’s FY16 numbers show that the bank has come out unscathed from issues that are plaguing other public and private sector banks. This is reflected in the performance of the bank in the markets. YES Bank is among the few banking stocks that are trading close to its all-time highs.
For the March 2016 quarter, the bank reported 30 per cent YoY growth in total revenue, led by healthy growth in NII at 27 per cent YoY. Non-interest income posted a higher growth of 36 per cent resulting in an operating profit increase of 30.7 per cent.
Advances growth at 30 per cent overshot deposit growth which increased by 22.5 per cent. The biggest spike was visible in CASA (current account saving account) deposits which has grown from 23.1 per cent to 28.1 per cent. Strong growth in savings deposit at 62 per cent was the reason for a strong CASA growth.
These factors resulted in the cost of funds for the bank coming down to 7.2 per cent as compared to 8.2 per cent last year. As a result, YES Bank managed to post a strong net interest margin of 3.4 per cent.
While these numbers are appreciable, what is noteworthy in the bank’s handling of non-performing assets (NPAs). Gross NPAs for the bank stood at 0.76 per cent while net NPAs at 0.29 per cent. These numbers have been arrived at after implementing RBI’s AQR (Asset Quality Review) which resulted in a 34 per cent rise in gross NPAs and 52 per cent rise in net NPAs.
So how did the bank come out clean through this financial turmoil?
Explaining it's strong asset quality Rana Kapoor, managing director and CEO of the bank in an interview with CNBC TV18 said that the trick is in identifying the problem early. YES Bank has created a structure which red flags a problem early. Kapoor says that banking is not a commoditised business. Each industry sector needs a specialist and has to be handled according to the issue in the sector. Yes Bank has focussed on working on this specialisation.
YES Bank has also diversified its book well in terms of sectors. Despite 65 per cent of its loan book in the corporate sector, as compared to retail dominating the loan book of most private banks, YES Bank has managed to keep its NPAs low, which is credit worthy.
There is another reason why YES Bank has come out relatively unscathed. Most of the pain in the banking sector is on account of loans given in 2008-09 period – at the peak of the global financial meltdown; which the previous government allowed to roll over. YES Bank during that period was a relatively small player.
YES Bank is a 12 year old bank.Their balance sheet has increased from Rs 4,160 crore in FY06 to Rs 1.65 lakh crore. In 2008, its balance sheet was merely Rs 17,000 crore and was not lending much to the bigger corporates who are the ones currently facing problems.
Any banker will tell you there are three ways to reduce your NPA on a percentage basis. One is to work with the account holder and hand-hold it to recovery. Second is to sell it at an early stage to a willing buyer. And third is to increase the loan book size to such an extent that NPAs overtime look smaller. YES Bank has increased its loan book size considerably over the years which have helped in its NPAs look small. Yet on an absolute basis, its net NPAs are only Rs 285 crores.
Lesson to be learnt from YES Bank is to red flag the problem at an early stage and take corrective steps immediately. Wonder why other banks have not learnt this trick.
