Yes Bank Q1 profit may fall sharply on muted loan growth, weak asset quality

Private sector lender Yes Bank is expected to see a sharp decline in Q1 profit on muted loan growth and weak asset quality. Brokerages expect profit to fall by more than 80 percent YoY in June quarter.

Exposure stressed pool of around Rs 10,000 crore is expected to keep provisions higher at around Rs 1,208 crore (credit cost of 48 bps) compared to the earlier run rate that is expected to keep the pressure on earnings. Hence, PAT is expected to fall 85 percent YoY to Rs 188 crore, ICICI Direct said.

Prabhudas Lilladher also expects 84 percent decline in profitability. It said the bank could continue to face a challenging quarter due to rising NPAs.

“Most business metrics should slow down as capital remains at critical levels. Increase in stress ratios could add to the uncertainty of earnings,” it added.

Pre-provision operating profit (PPoP) is expected to see a steep decline and net interest income growth could be in single-digit with pressure on margin in Q1.

Prabhudas Lilladher expects PPoP to fall 34 percent and Kotak sees the same declining 45 percent YoY.

“We expect loan growth to decelerate further to around 8 percent YoY. Revenue pressure will remain high due to weak fee income growth and NIM pressure. Asset quality ratios could further deteriorate,” Kotak said.

ICICI Direct also said pressure on asset quality is expected to persist due to continuance in recognition of stressed assets, hence GNPA ratio is expected to increase around 67 bps to 3.89 percent.

Commentary from the new MD & CEO would be crucial as there have been more than a few ‘stressed accounts’ where the bank has been exposed. The progress of “below investment grade” deposit profile and capital consumption would be a key monitorable.