Image: Cathal McNaughton/Reuters
In one of the first and probably alarming incidences of its type, private lender Yes Bank has under reported its non-performing assets as on March 2016, compared to what the Reserve Bank of India (RBI) has estimated for the same period, as part of the regulator’s annual supervisory action.
According to Yes Bank’s latest annual report of 2016-17, the divergence is for an amount of Rs 4,176.7 crore, revealed under the head “divergence in asset classification and provisions in NPAs”. The bank has disclosed that Gross NPAs as reported by it on March 31, 2016 were Rs 748.98 crore, which is vastly lower than the Rs 4,925.68 crore as assessed by the RBI.
The net NPAs for Yes Bank were also under reported to the extent of Rs 3,318.67 crore. Net NPAs for the bank were calculated at Rs 284.47 crore, as on March 2016, as against Rs 3,603.14 assessed by the RBI.
This under reporting has caused investors to flee the stock, with Yes Bank falling 6.04 percent or Rs 95.04 rupees to Rs 1,483.85 at the BSE. The stock has fallen 8.9 percent in the past five trading days.
Similarly, provisioning for bad loans by Yes Bank was also lower. The bank had reported a provision of Rs 464.50 crore as on March 31, 2016, compared to Rs 1,322.53 crore as estimated by the RBI. The adjusted (notional) net profit for the year ended March 31, 2016 after taking into account the divergence in provisioning is Rs 1,978.38 crore. The bank had at that time reported a higher net profit of Rs 2,539.44 crore for the full year.
Yes Bank has clarified on the BSE that the divergence was for the financial year FY2015-16.
“With ongoing remedial actions undertaken by the bank during FY16-17, there have been several reductions/ exits/ partial sales to ARCs/ improvements in accounts conduct which significantly reduced the overall gross NPA outstanding to Rs 1,039.9 crore as on March 31, 2017.
“The outstanding GNPA as on March 31, 2017 includes one borrower with an exposure of Rs 911.5 crore (88 percent) which is expected to be recovered in the near term. Specific provisions held in this account was Rs 227.9 crore,” the bank added in its statement.
Yes Bank has assessed that there is “no carry forward impact of the divergence by the RBI, in FY17-18.
But analysts have already sounded the alarm bells. Ashish Gupta and Kush Shah of Credit Suisse, in a latest note to clients say: “Given these large divergences, FY17 RBI audit results will be keenly awaited, and narrowing of these divergences will be key for contraction in their valuation gap to the private consumer banks.”
The two analysts also said that according to the RBI, NPAs of Axis Bank were higher at 4.5 percent of loans (vs 1.78 percent reported) and at ICICI Bank they were at 7.0 percent (vs 5.85 percent). Axis Bank had reported Cross NPAs of Rs 6,087 crore in FY2016, against an RBI assessment of Rs 15,565 crore, resulting in a divergence of Rs 9,478 crore,
according to the analysts' note.