Strong loan growth, steady improvement in margins and no nasty surprises on the asset quality front, best describes YES Bank’s performance through the 2016 fiscal. The bank’s gross non-performing assets as a per cent of loans came in at 0.76 per cent as of March 2016, marginally up from 0.66 per cent in the December quarter. Unlike its peers such as ICICI Bank and Axis Bank, which have been feeling the heat of the ongoing corporate slowdown and the RBI’s review of banks’ stressed accounts, YES Bank has been able to maintain its loan quality, despite its corporate exposure (65 per cent of loans). The bank posted a strong 27 per cent growth in net profit during the March quarter, backed by a robust 30 per cent growth in loans.
For the full year 2015-16, the bank posted a growth of 26.6 per cent in net profit, higher than the 24 per cent jump recorded in the previous year. Healthy loan growth aside, a notable improvement in margins has led to a stronger operational performance. The net interest margins went up to 3.4 per cent in 2015-16, an increase of 20 basis points over the last year. Despite cuts in lending rates, YES Bank was able to bolster margins on the back of strong growth in low-cost deposits and a cut in its savings deposit rate.
YES Bank’s steady increase in share of current account savings account (CASA) deposits has been driving margins in the last couple of years. The bank has been able to grow its CASA deposits at 44 per cent annually over the last five years. From 10.3 per cent in 2010-11, CASA deposits accounted for 28.1 per cent of deposits in the latest March quarter. Continuing to grow its retail deposit base, the bank grew its CASA by 48.7 per cent as of March 2016.
The bank also recently (effective November) lowered its interest on savings account from 7 per cent to 6 per cent, which has helped margins.
Stable asset quality
The RBI asking banks to recognise certain loans as non-performing assets (NPAs), as part of its review of stressed accounts, has kept investors anxious, particularly in the case of banks with higher corporate exposure. But YES Bank has so far not seen a sharp increase in bad loans. The bank also did not restructure any account under the 5:25 scheme or undertake any strategic debt restructuring during the FY16 fiscal.
The bank’s current restructured book has remained steady at about 0.53 per cent of loans in the March quarter. It does not expect any notable slippages in its restructured book. During the quarter the bank sold one account to an asset reconstruction company and also recovered its entire exposure from one account that was sold to ARC in the past.
YES Bank’s exposure to the power and electricity segment stood at 8.7 per cent in the March quarter. Of this, 2.5 per cent pertains to the renewable energy space, where the execution risk is much lower. In the non-renewable space, its entire exposure (3.6 per cent) is operational. The bank has no project finance exposure to conventional power projects and state electricity boards (SEBs).