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YES Bank’s fear of new bad loans nearly vanishes

Two years ago, YES Bank had nearly collapsed. Now, the bank says it has recovered big sums of money as loan repayments, which had seemed unlikely earlier. 

And, the fear of more bad loans has nearly vanished. Provision for bad loans, the money set aside from the profit to cover losses from unpaid loans in the future , has dropped 95 percent between January and March 2022. 

No wonder, the stock jumped as much as 5 percent on May 2 (Monday) before cooling down. 

The big lesson in YES Bank’s success may be a reinforcement of an old wisdom: it’s easier to recover money from small borrowers.

Prashant Kumar, Managing Director and Chief Executive Officer at YES Bank, told CNBC-TV18 that the lender had recovered Rs 13,000 crore worth of defaulted loans in the last two years and may recover another Rs 5,000 crore in the next 12 months. 

“Our net NPA ratio has come down to now 4.5 percent, so, this traction would continue and we have a very good handle now on the slippage. Fourth quarter slippage has been the lowest and we are expecting that in the worst case, even in the current financial year, we will be able to contain the slippage within 2 percent. And the kind of recoveries which we are seeing would definitely take care of our credit costs on account of slippage,” Kumar said in an interview.

Low slippage ratio indicates better asset quality of the bank. Slippage ratio is the rate at which good loans are turning bad.

YES Bank, share price, earnings

Lending more to retail borrowers has helped Yes Bank. For every three rupees lent to retail borrowers i.e. individuals and small borrowers, the bank lends two rupees to companies, Nirav Karkera, Head of Research at Fisdom, explained. 

The best part of cleaning up the bad loans and getting the money back is that the bank now be more aggressive in finding new borrowers.

This is already visible in the numbers for March 2022. The bank disbursed over Rs. 70,000 crore in the last one year, that’s a growth of 8 percent. Loans to individuals grew at nearly 4 times the speed, 31 percent.  

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