Yes Bank’s Q1FY20 NII has improved by 2.8% yoy to Rs2,281cr. The NIMs for Q1FY20 were down by 30bps qoq at 2.8%. The bank’s net profit declined 91% yoy, which was below consensus estimates primarily driven by higher provisioning and weak revenue growth. Its GNPA for Q1FY20 came at 5.01% against 3.22% qoq, an increase of 179bps. NNPA for the quarter came at 2.91% against 1.86% qoq, which has increased by 105bps.
NII growth was extremely weak, primarily owing to a slowdown in loan growth and a sharp sequential contraction in margins. Decline in margins, both yoy and qoq, was due to an interest reversal of Rs223cr in 1QFY20 on slippages into NPLs as well as an increase in cost of funds (50bps yoy and 10bps qoq).
Yes Bank had made contingent provisions of Rs2,100cr in 4QFY19; of this, it used Rs1,400cr to make specific loan loss provisions in 1QFY20 (balance of Rs700cr remains un-used so far). Provisions also included a one-off impact of Rs1,109cr of the MTM provision, led by rating downgrades of investments in companies of two financial services groups.
Loan growth came in at 10.1% yoy and declined 2.2% qoq to Rs2.36 lakh cr.
Retail advances grew 43.3% yoy and 7.2% sequentially to 18.3% of advances from 14% last year. Retail advances growth accounted for 60.5% of incremental yoy growth in advances.
Key drivers for NIMs decline: Substantial decline in CASA ratio which has led to a 130bps yoy increase in cost of funds (calculated), while yield on advances (calculated) has declined 46bps yoy (impacted by an interest reversal of Rs223cr in 1QFY20).
Other income: Declined 25% yoy/up 139% qoq. Core fee income would have come off sharply yoy driven by the change in method of recognition in corporate fees to amortization vs. upfront recognition earlier.
Deposits grew by 5.9% yoy to Rs2.26 lakh cr. CASA deposits decline 9% yoy, CASA deposit ratio 30.2% in 1QFY20 (33.1% in 4QFY19), TD growth 14% yoy.
Operating expenses grew 9.3% yoy to Rs1,594cr in Q1FY20.
Cost-to-income ratio: At 44.9%, up 760bps yoy down 1156bps qoq. Operating expenses grew 9% yoy while revenue declined 9% yoy.
PCR remained unchanged qoq at 43.1%.
Gross slippages for the quarter were elevated at Rs6,232cr and recoveries and upgrades came in at Rs1,678cr. slippage ratio for 1QFY20 was 11.6% (6.8% in 4QFY19). Net corporate slippages were entirely from the accounts classified as BB & below, as of 4QFY19. Stressed asset ratio increased 380bps qoq to 18.6%.
Yes Bank had made contingent provisions of Rs2,100cr in 4QFY19; of this it has used Rs1,400cr to make specific loan loss provisions in 1QFY20.
Credit cost was 32bps during Q1FY20. The Bank maintains the credit cost guidance of up to 125bps for FY20E.
Net profit at ~Rs114cr for Q1FY20 despite absorbing one-off impact from MTM provisions of Rs1,109cr. This was led by rating downgrades of investments in companies of 2 financial services groups.
Capital position has depleted further despite a slowdown in growth. Total CRAR at 15.7% with Tier-I ratio at 10.7%. Tier 1 CAR decreased by 60bps qoq, driven by: (1) increase in risk weight on unrated assets to 150% (20bps), (2) impact of downgrades in two financial services groups (16bps) and (3) impact of capital charge for operational risk (10bps).
Risk-weighted assets stood at 3.2 lakh cr.
One NPA account with exposure of Rs411cr sold to ARC in Q1FY20.
Key takeaways from the earnings call
Management stated that 1QFY20 was a quarter of consolidation, including (1) completion of management transition, (2) capital optimisation and (3) macro headwinds in the financial sector.
SA deposits declined 7% yoy in 1QFY20, driven by movement into retail TDs, which grew 38% yoy.
Core margins for the bank stood at 3.3% that, however, are being impacted by interest reversals on slippages into GNPLs. Management expects the cost of funds to decrease going forward, as CASA ratio improves; this would support margins.
Lower corporate banking fees were on account of (1) change in method of fee income recognition to amortisation as against upfront recognition earlier and (2) lack of large underwriting in the quarter. Management expects corporate fee intensity to pick-up post a capital raise.
Capital raising: Management expects a capital raise to take place in 2QFY20. Capital raised would be used for growth rather than improving provisioning on stressed loans. CET-1 ratio stood at 8%, as of 1QFY20, which is just equal to the regulatory minimum.
Average yields in the corporate segment stood at 9.75-10% (7- 8% for AAA and 12-13% for structured finance/real estate). Average yields in the retail segment stood at 10.25-10.75%, while in the SME segment yields stood at 10.0-10.5%. Asset quality:
The overall BB & below pool increased to 9.4% of loans from 7.1% of loans in 4QFY19, primarily due to the deterioration in credit ratings of investments (largely bonds) in companies of two financial services groups. The bank does not see further slippages into this pool.
Of the watch-list of Rs10,000cr declared in 4QFY19, Rs2,500cr slipped into GNPLs in 1QFY20 (balance is Rs7,500cr). This watch-list is a subset of the BB & below pool of loans.
Of the net slippages of Rs4,500cr, ~Rs2,500cr came from the identified stressed book of Rs10,000cr and the balance Rs2,100cr came from the BB & below pool of loans. Retail and SME slippages stood at ~Rs100cr.
The bank has a real estate exposure of ~Rs24,000cr. Of this, 25% is either part of the BB & below book or already part of GNPLs. Of the balance 75%, management expects minimal slippages. SMA-2 loans in this portfolio stood at Rs200cr.
Management reiterated its credit cost guidance of 125bps for FY20.
Management intends to significantly strengthen PCR going forward and take it to ~60% eventually, but would maintain PCR at current levels of ~43% in FY20.
The bank has sold one account with exposure of Rs410cr to an ARC in 1QFY20.
SMA-2 book on the corporate portfolio stood at Rs404cr.
IL&FS exposure (as of FY19): Exposure of Rs2,617cr (1.1% of loans/9.9% of net worth). No exposure to the parent/ NBFC/ financial services entity. Exposure to the roads and energy subsidiaries stood at ~Rs1,910cr (classified as NPL in 3QFY19). A further exposure of Rs530cr has also been classified as NPL. Balance exposure of Rs86cr remained classified as standard.
Yes Bank Ltd ended at Rs. 98.45, down by 5.45 points or 5.25% from its previous closing of Rs. 103.90 on the BSE.
The scrip opened at Rs. 108.25 and touched a high and low of Rs. 108.40 and Rs. 97.55 respectively. A total of 25,39,32,791 (NSE+BSE) shares were traded on the counter. The stock traded above its 200 DMA.
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