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Yes Bank under-reported bad loans in March 2016, says annual report disclosure

Mumbai: Private sector lender Yes Bank on Friday reported that its non-performing asset (NPA) classification varied with the Reserve Bank of India’s to the tune of Rs4,176 crore at the end of March 2016.

Yes Bank had reported gross bad loans of Rs748.98 crore at the end of March 2016 compared to Rs4,925 crore assessed by the central bank.

Yes Bank shares fell by 3.5% after the lender disclosed this information in its annual report for fiscal year 2017 released on Friday.

A higher bad loan classification would have necessitated higher provisions. The bank’s actual provisions of Rs464.5 crore fell short of the RBI’s calculation of Rs1,322. 5 crore.

Adjusted for provisions, Yes Bank’s net profit for fiscal year 2016 would have been Rs1,978.3 crore instead of Rs2,539.4 crore.

For fiscal year 2017, the bank reported a net profit of Rs3,330.1 crore and said that the number “duly incorporates the current impact of divergences observed recently by RBI”.

“With ongoing remedial actions undertaken by the Bank during FY 16-17, there have been several reductions/exits/improvement in account conduct,” and the impact of the divergence is Rs1,040 crore, said the annual report.

This includes Rs911 crore exposure which the bank didn’t name. It refers to Yes Bank’s exposure to Jaiprakash Associates Ltd cement assets that are being purchased by UltraTech Cement Ltd, three people aware of the matter told Mint when the bank declared its March quarter earnings on 19 January.

Yes Bank is the first to report this divergence after RBI increased disclosure norms for banks since it noted instances of divergences in banks’ asset classification and the provisioning required as per RBI norms.

The regulator told banks to make a disclosure in the “notes to accounts” if the additional provisioning requirement assessed by RBI exceeds 15% of their net profit. Banks also had to make additional disclosures if the additional gross NPAs identified by RBI under its asset quality review were greater than 15% of the incremental gross NPAs reported.

“We expect investors to be closely tracking this data at all banks, and would also be concerned about potential divergence in F17 (fiscal 2017) results as well (will be disclosed a year later),” wrote Morgan Stanley analysts in a note to clients on Friday.