For investors in the crisis-hit YES Bank that was bailed out by a clutch of banks about two months ago, the bank’s March quarter results has understandably been on the top of their radar. Given that the previous December quarter results (declared after much delay) threw up some nasty surprises on bad loans and worrisome trends on liquidity and capital position, whether the bank continued to see deposit outflows after the restrictions were lifted on March 18, and if the medley of banks bringing in Rs 10,000 crore of capital was adequate to revive the bank—have been questions lingering in the minds of depositors and investors.
The bank’s March quarter results, sadly, do not allay any of these fears.
The steady withdrawal of deposits even after the restrictions were lifted (Rs 32,000 crore between March 18 and March 31), capital and liquidity ratios slipping below the regulatory requirement and the evolving risks owing to Covid-led disruption, throw up grave concerns on the bank’s ability to continue as a going concern.
The independent auditor’s review report (B S R & Co. LLP) points out that “assumption of going concern is dependent on the bank’s ability to achieve improvements in liquidity, asset quality and solvency ratios and mitigate the impact of Covid-19 and thus a material uncertainty exists that may cast a significant doubt on the bank’s ability to continue as a going concern.”
As of March 31, the bank’s CET 1 ratio and Tier 1 capital ratio slipped to 6.3 per cent (regulatory requirement of 7.375 per cent) and 6.5 per cent (regulatory 8.875 per cent), despite Rs 10,000 crore capital infusion by various lenders and the writing down of AT 1 bonds amounting to Rs 8,415 crore. While bank’s results suggest that the breach in capital ratios has been on account of its decision to increase its provision cover (only marginally to 73.8 per cent from 72.7 per cent in December quarter), the quantum of provisions made in light of the increasing risk on account of the pandemic, appear inadequate.
The bank has made provisions of Rs 238 crore (against moratorium NPA standstill accounts of Rs 2,713 crore). But a sizeable portion of loans falling under the moratorium (35-45 per cent across MSME, corporate, and retail) and sharp downgrades likely in the corporate book (SMA 1 currently at Rs 10,781 crore) going ahead, suggest that the bank’s provisions could go up sharply in the coming quarter.
The bank’s bare bones capital would not be enough to absorb future losses. The RBI placing the bank under ‘Prompt Corrective Action’ (PCA) on breach of CET ratio could make matters worse and throw up more challenges in the already long drawn revival plan of the bank.
Hence the critical question is whether, SBI (alone having infused Rs 6050 crore) and the other seven lenders, that came to the rescue of YES Bank, would be able to pump in more…