Exposure to a single cement company burned a Rs 350-crore hole in the net profits of IndusInd Bank and YES Bank, both private banks otherwise known to have better asset quality controls. In compliance to a Reserve Bank notification, IndusInd Bank and YES Bank made provisions of Rs 122 crore and Rs 228 crore respectively, for their exposure to this cement company.
On Wednesday YES Bank had reported the March quarter profit at Rs 914 crore, a 30.2 percent growth, but its exposure to the cement company led to a doubling of its bad loans and the provisions made for them. Its net profit for FY17 was Rs 3,330 crore, up 31.1 percent over the year-ago period. Similar doubling of provisions also restricted IndusInd Bank’s March quarter net profit growth to 21 percent at Rs 751.6 crore. Its net profit in FY17 grew 25 percent to Rs 2,868 crore.
Interestingly, YES Bank identified this account as a non-performing asset, whereas IndusInd Bank continued to treat it as a standard asset but increased the provisioning for the account.
Both banks stressed the provisions were temporary in nature as the cement company in question is all set to be acquired by a better performing company and once the deal fructified, there would be a writeback of the provisions.
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Though the bank managements did not name the company, PTI reported quoting sources that the exposure was to Jaypee Cements, which is all set to be acquired by UltraTech in a Rs 16,200-crore deal.
“This is a cement company from the north and to the best of our knowledge, there is a binding agreement to buy out a certain cement assets by a leading corporate house based in Mumbai. But, to be conservative and to meet this new circular, we are complying with it but I am quite certain there will be significant recovery very very soon,” YES Bank Managing Director and Chief Executive Officer Rana Kapoor told PTI.
IndusInd Bank MD and CEO Ramesh Sobti speaking to PTI said that the cement company’s loan exposure was standard and performing one, but RBI has asked it (IndusInd Bank) to provide more because the company’s parent (company) was showing stress and recognised as sub-standard. Sobti further said that the cement asset was all set to be acquired and there would be a writeback of the provision in the near term, once the deal was completed.