Cement Firm Drills Rs 350-cr Hole in IndusInd, YES Bank Profits

YES Bank's bad assets more than double

Exposure to a single cement company made a Rs 350-crore dent in the net profits of IndusInd Bank and YES Bank, private lenders otherwise known to have better control on asset quality.

IndusInd Bank and YES Bank had to make provisions of Rs 122 crore and Rs 228 crore, respectively, for their exposure to this account, in compliance with a Reserve Bank notification.

On Wednesday, YES Bank reported 30 per cent growth in the March quarter net at Rs 914 crore, though its exposure to the cement company led to a doubling of dud loans and jump in provisions. Its net profit for 2016-17 was Rs 3,330 crore, up 31.1 per cent over the year-ago period.

In a conference call with investors, the YES Bank management said it had made a Rs 228-crore provision towards this account (cement company). However, recovery prospects had improved for the account. If not for this, the gross non-performing asset ratio would have sequentially improved. The asset being taken over in a slump sale. Therefore, recovery is expected once the transaction concludes.

Doubling of provisions also restricted IndusInd Bank's March quarter net profit growth to 21 per cent at Rs 751.6 crore. Its net profit in FY17 grew 25 per cent to Rs 2,868 crore.

Both banks stressed the reverses were temporary in nature, underlining that the cement company in question was all set to be acquired by a better performing city-based company and once the deal fructified, there would be a writeback. Though the bank managements did not name the company, sources said the exposure was to Jaypee Cements, which is all set to be acquired by UltraTech in a Rs 16,200-crore deal.

To ensure greater transparency and promote discipline, RBI on Tuesday said it would be flagging divergences in asset recognition to a bank, ask them to make extra provisions or re-classification of such account and instructed lenders to disclose these in quarterly statements, starting with that for FY17. Interestingly, stating that the account in question was servicing interest, YES Bank identified it as a non-performing asset, but IndusInd Bank continued to treat it as a standard asset but increased the provisioning.

“This is a cement company from the north and to the best of our knowledge, there is a binding agreement to buy out a certain cement assets by a leading corporate house based in Mumbai. But, to be conservative and to meet this new circular, we are complying with it but I am quite certain there will be significant recovery very very soon,” YES Bank Managing Director and Chief Executive Officer  Rana Kapoor said.

IndusInd Bank MD and CEO Ramesh Sobti said the cement company loan exposure was standard and performing one, but RBI has asked it to provide more because the company’s parent was showing stress and recognised as sub-standard. Sobti said the cement asset was all set to be acquired by a city-based group and there would be a writeback of the provision in the near term, once the deal was completed.

Reference - http://www.business-standard.com/article/companies/cement-firm-drills-rs-350-cr-hole-in-indusind-yes-bank-profits-117042000046_1.html