Ravneet Gill, YES Bank’s new MD & CEO, flagged the three-time sequential rise in BB & below-rated accounts even after massive slippages (loan accounts turning bad) of Rs 3,481 crore.
The bank has guided for Rs 10,000 crore of stressed asset pool. The history of some other private peers on stressed account pool has only created scepticism.
“We draw upon our learnings from how Axis Bank
handled its watch-list disclosures, and now built in a significantly more conservative slippage and credit cost estimate over FY20-22, more than double the management’s guidance,” analysts at Macquarie said in their Q4 update report.
The analysts downgraded the stock by two notches to ‘underperform’.
Axis’ size of watch-list (indicating potential non-performing assets or NPAs) eventually was re-stated and saw additions of around 1.2 times, the Macquarie’s report said. If YES Bank
demonstrates the same thing, it would hurt return on asset (RoA) of the bank due to lower earnings, caution analysts. Slippages lead to reversal of interest income accounted by a bank, besides an increase in loan provisioning.
Also, YES Bank’s provision coverage ratio or PCR, at 33 per cent of total stressed loans, is significantly lower than other Indian banks. The coverage includes existing provisions for NPLs, provisions for standard assets and contingent provisions for stressed assets, Moody’s said in a statement.
Some analysts are also sceptical of the management guidance of stressed pool given its exposure to stressed sectors.
Further, a change in accounting of fee income from booking it upfront (earlier) to now amortising (spreading) it over the life of loans and the management’s intension of rising non-corporate loan book could lead to lower overall revenue. For instance, Macquarie has lowered their core fee income estimates for FY20 and FY21 by 31 per cent each for Yes Bank.
This apart, the capital constrain with common equity tier-1 (CET-1) ratio of 8.4 per cent would pull back overall loan book growth. The bank’s plan to raise $1 billion would also be insufficient to meet its loan growth guidance of 20-25 per cent, according to analysts at Morgan Stanley. “Even if we assume CET-1 threshold of 9.5 per cent (as guided by management) and a $1 billion capital raising, this implies just 1 year of growth before the next capital raising,” Morgan Stanley’s analysts added.
Ravneet Gill, CEO, YES Bank
Although the bank is profitable on a full-year basis, its RoA was 0.5 per cent in FY19, way lower than 1.4 per cent in FY18.
Moody’s said, “There will be near-term weakness. Yet, the change in corporate behaviour under the new bank leadership will be credit positive after the de-risking is complete.”
Asutosh Mishra, head of research-institutional equity at Ashika Stock Broking echoes similar views. “Though the management’s strategy is positive from the long-term perspective, the early recognition of stress accounts and capital constrains would dampen short-term growth and earnings. This would pull down RoA of the bank,” he says.
In late January 2019, the bank appointed Ravneet Gill as its managing director and CEO, after the Reserve Bank of India restricted the bank's founder and long-time managing director and CEO, Rana Kapoor's term until January 2019. Ravneet Gill joined the bank on March 01, 2019.