Back from the brink, Yes Bank restores its deposit base but loans are slipping

The bank reported a 54.2% increase in its deposits for fiscal year 21 to ₹1.62 trillion in March. To put this jump into perspective, it should be noted that Yes Bank’s deposit base fell by more than half in FY20 following a crisis. Reckless decisions by former promoters, sometimes involving fraudulent activity, had brought the bank to the brink of collapse. A rescue plan put in place by the regulator which involved new management and an injection of capital put it on the road to recovery. Ergo, the lender changed its deposit base with the trust going to the bank. That said, Yes Bank’s low cost deposits only represent 27% of total deposits. In short, the bank ended up missing the large influx of household savings into bank deposits in the wake of the pandemic. Most of the lender’s peers have witnessed a surge in deposits. For example, the Federal Bank showed an increase in the proportion of deposits from current accounts and savings accounts to 33.8%. Large peers such as ICICI Bank and HDFC Bank are expected to post even higher ratios.

The pandemic may have been a blessing for the liabilities, but the bank is floundering on loan growth because of it. Yes Bank’s loan portfolio increased little in FY21, although its retail disbursements more than doubled. In all likelihood, the dilapidated business loan portfolio could still show a sharp contraction for the year. Then there’s the quality of assets, the nemesis of the bank that caused its near collapse in the first place. Investors need to watch the rate at which the bank is reducing stress on its books. For the December quarter, the bank reported a gross bad debt rate of 15.6%, but the actual could be higher due to the judicial shutdown of asset recognition at that time.

Shares of Yes Bank have fallen 9% in the past year, indicating that concerns over asset quality continue to keep investors wary. For the lender to see a breakthrough in valuation, fixing its failed assets is crucial.