Banks with lower NPA ratios are perceived as more robust and reputable. They have a stronger loan portfolio and a lower chance of default, which is critical for financial stability. Such banks are typically more appealing to investors because they provide greater regularity and protection for their investments.

However, a lower NPA percentage does not always imply that a bank is completely risk-free. Market conditions, economic slowdowns, and changes in legislation from the government can all have an influence on a bank’s financial health. 

Listed below are 3 stocks that reported a lower NPA in March FY23. 

Here are a few important metrics that you should know before analysing a stock:

Non-performing assets(NPA): Loan or advance for which the principal or interest payment has remained overdue for a period of time, usually 90 days or more.

Net interest Margin(NIM): It measures the difference between the interest income earned on loans and the interest paid on deposits, A higher NIM generally indicates better profitability for the bank.

Yes bank Ltd

The shares of Yes Bank Ltd were trading at a price of  Rs 15.90 on Monday. Bank has reduced 79.7 percent NPA from Rs 8,204  Crores or 4.53  percent in FY22 to Rs 1,658 crores or  0.83  percent in FY23, and the Net interest margin is on an upward trajectory from 2.03  percent to 2.22  percent in the same timeframe period.

 The Strategies applied by the Bank to reduce NPA are as follows.

• Sale of NPA portfolio: YES Bank signed a binding term sheet with JCF Asset reconstruction company and JC Flowers Asset reconstruction company for the sale of identified stressed loans of the bank. The NPA sale of Rs 48,000 crore was vital for the bank to clean up the books and reduce its gross non-performing loans significantly.
• Digital lending and fintech: YES Bank has changed the context of SME financing by utilising fintech and digital loans. One of the significant changes was the extra exemption from the NPA classification offered to bankers for distressed MSME businesses.
• Restructuring: Yes Bank has restructured its books to reduce NPA. The bank has also evaluated the level of NPA and controlling measures.
• Banks focused more on retail lending as retail lending is generally considered less risky than corporate lending, and can also provide more stable, long-term returns.

Yes Bank Limited is a private sector bank. The Bank is engaged in providing banking services, including corporate and institutional banking, financial markets, investment banking, corporate finance, branch banking, business and transaction banking, and wealth management.

The stock has experienced positive movement over the year with a return of 25.20  percent, The bank has a market capitalization of ₹ 45,720 Cr.

As per Consolidated financials of the previous quarter, their interest earned has increased 5.87 percent from ₹ 5,873  crores in Q3 to ₹ 6,218 crores in Q4. Similarly, the net profit significantly increased from ₹  55  crores to ₹ 206  crores in Q4.

IDFC First Bank Ltd

The shares of IDFC First Bank Ltd were trading at Rs 66.55 on Monday, reaching a 52-week high of Rs 66.65. 

Bank has reduced 27.87 percent NPA from Rs 1,808 crores or  1.53 percent in FY22 to  Rs 1,304 crores or  0.86  percent in FY23 and the Net interest margin has increased from 5.10 percent to 5.26  percent in the same timeframe period.

The Strategies applied by the Bank to reduce NPA are as follows.

• Loan Diversification: The bank Focused to reduce its loan portfolio to corporate and infrastructure loans from 19% in FY19 to 3% in FY23 and focused more on retail and commercial finance.
• Restructuring: Bank has restructured the quality of its assets and also evaluated the level of NPA and controlling measures.
• The Bank has reduced the net stressed assets by 59% from FY22 to FY23, both in absolute value and total assets.
• The cost-to-income ratio has reduced from 95% to 72% in the last 4 years, because of the strong incremental unit economics at the bank.

IDFC First Bank Ltd is a banking company that was formed with the merger between erstwhile Capital First and erstwhile IDFC Bank. The Bank’s segments include treasury, corporate/wholesale banking, retail banking, and other banking business.

The stock has experienced positive movement over the 1-month with a return of 23.24 percent, over the last fiscal year it has given 92.76 percent. The bank has a market capitalization of ₹ 44,083 Cr.

As per Consolidated financials of the previous quarter, their operating revenues have increased 8.67  percent from ₹5,911 crores in Q3 to ₹ 6,424 crores in Q4. Similarly,  the net profit significantly increased from ₹  616 crores to ₹ 816 crores for the same time period.

IDBI Bank Ltd

The shares of IDFC First Bank Ltd were trading at Rs 53.10 on Monday, 

Bank has reduced 19.80 percent NPA from Rs 1,863 crores or  1.36 percent in FY22 to  Rs 1,494 crores or 0.92 percent in FY23 and the Net interest margin has increased from 2.86 percent to 3.45 percent in the same timeframe period.

The Strategies applied by the Bank to reduce NPA are as follows.

• Focused and aggressive approach: The bank has adopted a focused and aggressive approach towards resolution and recovery with account-specific resolution strategies.
• Implementing the Insolvency and Bankruptcy Code (IBC): Strategies have been developed to ensure that NPAs are decreased in a systematic way using the Insolvency and Bankruptcy Code (IBC) and other measures.

• Account-specific resolution methods: To address NPAs, the bank has implemented account-specific resolution strategies by organising an NPA management committee to close the monitoring of the accounts.
•  Efficient recovery: The bank has been trying to recover debts in an effective and efficient manner in order to keep them from becoming NPAs.

IDBI Bank is engaged in the business of Monetary intermediation of commercial banks, saving banks, postal savings banks, and discount houses.

Over the last fiscal year, the bank has given a 46.9 percent return, and the bank has a market capitalization of ₹ 57,041 Cr.

As per Consolidated financials of the previous quarter, their interest earned has increased 8.72  percent from ₹ 5,229  crores in Q3 to ₹ 5,729  crores in Q4. Similarly, the net profit significantly increased from ₹  939  crores to ₹ 1,206  crores in Q4.

Written By Omkar C

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