Yes Bank’s Q4FY19 NII improved by 16.3% yoy to Rs2,506cr. The NIM for Q4FY19 was flat qoq at 3.1%. The bank has reported net loss of Rs1,506.6cr against the consensus estimates of profit of Rs1,050cr. The miss in estimates is largely due to spike in provisions. Provisions jumped to Rs3,661.7cr in Q4FY19 from Rs399.6cr yoy. Its GNPA for Q4FY19 came at 3.22% vs. 2.1% qoq, an increase of 112bps. NNPA for the quarter came in at 1.86% against 1.18% qoq, an increase of 68bps.
NII growth was far weaker than expected (lowest in 19 quarters), 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 Rs100cr in 4QFY19 on slippages into NPLs as well as an increase in cost of funds (70bps yoy and 20bps qoq).
Loan growth slowed across segments, to 19% yoy (42% yoy in 3QFY19), with commercial banking witnessing a 6% yoy decline. Retail loans were the most resilient, growing 62% yoy, off a smaller base. Share of retail banking loans continued to increase and stood at 16.7% of total loans.Total assets grew 21.9% yoy and 1.8% sequentially to Rs3.80 lakh cr.
Deposits grew 13.4% yoy and 2.2% sequentially to Rs2.27 lakh cr.
Retail and corporate TDs grew by 40.2% and 16.1% yoy respectively and 8.3% and 4.2% sequentially.
CASA ratio at 33.1%; CASA + retail FDs at 58.8% of Total Deposits.
Advances grew by 18.7% yoy and reduced 1.0% sequentially to Rs2.4 lakh cr.
Retail banking advances grew 62.3% yoy to 16.7% of advances.
Total Capital Adequacy came at 16.5% for the quarter.
Risk Weighted Assets stood at Rs3.05 lakh cr. RWA/Total Assets at 80.2% as at Q4FY19 end.
Gross Slippages were at Rs3,481cr in Q4FY19.
Provisions included Rs2,100cr (92bps of credit cost) of contingency provisions towards stressed standard accounts, with an exposure of Rs10,000cr, mainly in the real estate, media & entertainment and infrastructure sectors. A further ~Rs3,000cr of provisions is likely in FY20.
Asset quality deteriorated sequentially driven by slippages of Rs550cr on Jet Airways and Rs530cr on the IL&FS Group. Slippages for the quarter were elevated at Rs3,480cr; slippage ratio for 4QFY19 was 6.8% (5.4% in 3QFY19). SMA-2 loans increased sharply, from 0.19% of loans in 3QFY19 to 0.98% of loans in 4QFY19 (reflected in stressed assets). No disclosure was required with regards to the Divergence Report for FY18, since the divergence was within RBI specified thresholds.
Key takeaways from the earnings call
Management has promised more conservatism and focus on corporate governance in the bank’s functioning.
Retail banking requires further investments in terms of manpower and branches. YES will likely hire aggressively over FY19-22E.
It ruled out large scale changes at the top management level.
It indicated that the watch-list of Rs10,000cr would have a low LGD, but YES is currently making high provisions. However, it did not rule out the possibility of an increase in this pool. The overall BB & below pool is 7.1% of loans.
The bank would primarily remain a corporate bank and leverage its strengths there. However, the way in which banking is carried out will change. There will be more adherence to risk management, less focus on fees, focus on working capital loans to higher rated entities, transaction banking, etc.
The bank would deliver 1% RoA by FY22E and maintain 20-25% growth.
Exposure of Rs2,617cr (1.1% of loans/9.7% of net worth). No exposure to the parent/ NBFC/ financial services entity. Exposure to the roads and energy subsidiaries stood at ~Rs1,910cr, all of which was classified as NPL in 3QFY19. A further exposure of Rs530cr was classified as NPL in 4QFY19 (prior to the NCLAT order of February 25, 2019 requiring the NCLAT approval before classifying such exposure as NPL). Balance exposure of Rs86cr remains classified as standard (though it would be classified as NPL as per IRAC norms).
Loan growth will moderate, from historical levels to 22-24% in FY20. This would be primarily driven by retail loans, which are likely to grow 30-40%. However, management stated that it was not changing its strategy and that corporate loans would continue to be the mainstay over the medium term.
The current share of retail and SME loans stands at ~27% as of FY19, with corporate and commercial banking comprising the balance ~73%. By FY25, the target is to scale-up retail and SME loans to 50% of the overall loan mix.
Liabilities remain a high priority. The earlier team structure was largely centralised; going forward, there would be a greater delegation of power to lower levels. Focus will also be on cross-sell that was being neglected due to the stronger focus on fee income.
The net reversal in corporate fees of Rs110cr was owing to: i) withdrawal of previously underwritten sanctions, and ii) provisions created for fees to be paid out to incoming lenders on loans to be syndicated henceforth.
Management expects the cost of funds to decrease by ~50bps in the near-to-medium term; this would support margins.
YES has renewed an approval from the Board to raise up to US$1bn of equity capital; however, the timing is uncertain at this point.
Yes Bank Ltd ended at Rs. 237.40, down by 0.3 points or 0.13% from its previous closing of Rs. 237.70 on the BSE.
The scrip opened at Rs. 240.10 and touched a high and low of Rs. 240.35 and Rs. 232 respectively. A total of 5,21,85,763 (NSE+BSE) shares were traded on the counter. The stock traded above its 200 DMA.
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