Surprises on account of bad loan divergence and the potential impact of the RBI’s new framework for stressed assets released in February have kept investors of banking stocks on tenterhooks.

YES Bank’s March quarter results have allayed some of these concerns for investors in the stock for now.

YES Bank had been weighed down by the sharp bad loan divergence reported in the September quarter (pertaining to FY17).

In the past six months, a higher proportion of such accounts being repaid, or sold to ARCs, has reduced the overall impact to a mere ₹485 crore (classified as NPA).

This, and the fact that there has been minimal impact of the RBI’s February circular, has cheered investors. The robust core performance has been the icing on the cake.

The divergence story

When YES Bank declared sharp divergences in the September quarter, it had no doubt rankled investors. The bank had reported gross NPAs of ₹2,019 crore for 2016-17. But as assessed by the RBI, the gross NPAs should have been ₹8,373 crore for that year; this meant nearly 5 percentage points increase in its gross NPA ratio for 2016-17 than what was reported.

But given that most of the accounts were already repaid, sold to ARCs, or upgraded as standard on account of satisfactory account conduct, the overall impact of the divergence was reduced to ₹1,219 crore (classified as NPA) then.

In the March quarter, higher repayment on these accounts, or sales to ARCs, further watered down the impact to a much lower ₹485 crore.

YES Bank’s gross NPA ratio has fallen substantially to 1.28 per cent in the latest March quarter from 1.7 per cent in the December quarter.

However, a few points need to be noted. YES Bank had reported divergences of ₹4,176 crore for 2015-16 and ₹6,355 crore for 2016-17. It will be important to watch the RBI’s Annual Risk Based Supervision in the coming year.

Also, the 41 per cent of the divergence for 2016-17, or ₹2,632 crore, has been upgraded by the bank as standard on account of satisfactory account conduct. This will need monitoring in the coming quarters.

YES Bank has seen minimal impact of the RBI’s February circular, which is a positive. The RBI’s new framework for stressed assets essentially does away with all the old restructuring schemes.

In respect of accounts with aggregate exposure of ₹2,000 crore and above, lenders will have to draw up a resolution plan within 180 days from March 1, 2018 (or default date as the case may be), failing which banks will have to refer the case for insolvency under IBC.

YES Bank has seen no slippage during the March quarter from the restructured book on account of the February circular and no impact on the outstanding restructured book (0.16 per cent of gross advances) as of March 2018.

The potential impact where cases may get referred to IBC on failure of a resolution plan is also expected to be minimal.

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