Exposure to a single cement company has made a Rs 350-crore dent in the net profits of IndusInd Bank and Yes Bank, private lenders otherwise known to have better control on asset quality.
IndusInd Bank and Yes Bank had to make provisions of Rs 122 crore and Rs 227.9 crore, respectively, towards their exposure to this account in compliance with a Reserve Bank notification. Both the banks stressed the reverses are "temporary" in nature, underlining that the cement company in question is all set to be acquired by a better performing city-based company soon and once the deal fructifies, there will be a write back.
Even though the bank managements did not name the company, sources said this relates to the exposure to Jaypee Cements, which is all set to be acquired by UltraTech in a Rs 16,200-crore deal.
To ensure greater transparency and promote better discipline, the RBI has said that it will be flagging divergences in asset recognition to the bank, ask them to make extra provisions or re-classification of the account and instructed lenders to disclose the same in quarterly statements, starting with that for FY2016-17.