For a bank that has seen its founder being arrested and probed for fraud, its board being superseded, CEO being fired, and banking activities being restricted, one would like to think Yes Bank has seen the worst. Question is: has it?

To an extent, with a new board, an RBI-appointed CEO and Rs 10,000 crore of capital infusion from the country’s largest financial institutions, a sense of calm has returned to the troubled lender. Now begins the hard part, to regain trust of all stakeholders and start re-building its book. All of this even as the banking sector as a whole is grappling with the economic crisis caused by the coronavirus pandemic.

Prashant Kumar, its newly appointed CEO, in a press conference on March 17 said that going forward, the focus of the bank would be to build on its retail franchises, shift focus from corporate to retail such that the portfolio mix is about 40 per cent corporate and 60 per cent retail.

Yes Bank had posted a record loss of Rs 18,564 crores for the quarter ended December due to a surge in bad loans. It posted an operating loss of Rs 6 crores for the quarter, compared to an operating profit of Rs 1,990 crores during the same quarter in FY19. Its gross bad loans rose to Rs 40,709 crores from Rs 17,134 crores in the previous quarter.

The bank is set to report its fourth quarter earnings for the financial year 2019-2020 on May 6, the quarter in which a lot of the damage was done, and subsequently undone.

How many customers have withdrawn deposits from the bank? Did the loan book grown in the quarter, before the COVID pandemic hit operations? Has all the stress been recognised upfront? Are there any more skeletons in the closet? Is Rs 10,000 crore capital infusion enough, how much would have to be raised, and how quickly?

It is in this context that Yes Bank’s fourth quarter earnings would have to be approached.

The bank said that it lost almost Rs 72,000 crore of deposits between October 1, 2019 to March 14, 2019. Tomorrow’s numbers will give a sense of whether the bank was able to stabilise the deposit outflow, or if it had bled further.

As for capital, the Rs 10,000 crore infusion from SBI and seven other financial institutions would take its Capital Adequacy Ratio to 13.6 percent from 4.2 percent in the December quarter, and also take its core CET-1 ratio to 7.6 percent, from 0.6 percent quarter-on-quarter.

“The current capital takes care of the regulatory capital requirement. The second round would partially take care of any shortage on the regulatory side, but will be used largely for growth,” Kumar had stated in March after the third quarter numbers.

However, analysts estimate that the bank would need to raise a similar amount to be able to meet its requirements on both provisioning and then some for business activities. With COVID-19 now hitting the banks, perhaps this capital requirement would be even higher.

A CNBC-TV18 poll of analysts found that the street is expecting another quarter of loss from the bank on the back of a de-growth in business and higher provisions for bad loans.

The bank is expected to post a loss of Rs 4,438 crores in Q4, compared to a loss of Rs 1506 crores in the same quarter last year.

Both deposits and advances, unsurprisingly, are expected to shrink, and gross bad loans, which were at 18.87 percent of the book in Q3, are expected to increase further, with fresh additions to bad loans, or slippages expected at Rs 6,500 crore for the quarter, if not more.

Kotak Institutional Equities in a note about bank earnings expectations last month said, “We expect outstanding loans to decline ~40 percent year-on-year and a similar trend on deposits. There is likely to be an increase in pressure on NIM (interest income de-recognition). Revenue pressure will be high also due to weak fee income (sharp decline). We expect asset quality ratios to see further deterioration (lumpy corporate exposure). Commentary from the management on capital raising, progress of 'below investment grade' and deposit profile would be key monitorables.”

DBS said it expects the bank to report a heavy loss in the March quarter, and expects to see elevated slippages as the bank may continue to recognize stress from its pool.

Yes Bank shares, which rallied from a low of Rs 5.65 to a high of Rs 87.30 between March 6 and March 18, have been hovering in a range of Rs 23-29 for more than a month now.

Also read: Three banks sell small stakes in Yes Bank within two weeks of investment

First Published:May 5, 2020 6:27 PM IST