October 26, 2017 / 2:21 PM / a year ago

UPDATE 1-India's Yes Bank bad loans spike in Q2 on RBI action, profit up

* Net profit up 25 pct to 10.03 bln rupees vs 10.27 bln estimate

* Central bank asks lender to account for more bad loans (Adds CEO comment, details)

MUMBAI, Oct 26 (Reuters) - Yes Bank, India’s fifth-biggest private lender by assets, saw its bad loans spike in the second quarter after a central bank audit, although quarterly profit rose 25 percent, helped by higher interest and fee income.

The Reserve Bank of India asked the lender to account for 63.55 billion rupees ($980.3 million) more bad loans after a risk-based supervision exercise for the last financial year to March.

The action meant a 12.2 billion-rupee addition to the bank’s bad loans in the three months to Sept.30, as Chief Executive Rana Kapoor said they had already “resolved” 81 percent of the extra bad loans RBI had asked them to account for.

Kapoor called the rise in bad loans a “temporary setback”, adding there were steps “well under way to contain this number, to reduce this number.”

The regulator had earlier asked Yes Bank’s bigger rival Axis Bank to account for extra bad loans, while second-biggest lender HDFC Bank was also asked to reclassify one loan account as non-performing after the RBI’s directions.

Soured loans in India’s banking sector hit a record $145 billion at the end of June, but 21 state-owned banks account for majority of the stressed loans.

Yes Bank’s net profit in the September quarter rose to 10.03 billion rupees ($154.72 million), slightly lower than the 10.27 billion rupees on average expected by analysts.

Gross bad loans as a percentage of total loans jumped to 1.82 percent at end-September from 0.97 percent a quarter earlier and 0.83 percent in the year-ago period.

Loans grew almost 35 percent in the September quarter, Yes Bank said, at a much faster pace that the system loan growth of just about 7 percent.

Ahead of the results, Yes Bank shares closed 1.3 percent higher in a Mumbai market that gained 0.5 percent. The stock has risen about 43 percent so far in 2017. ($1 = 64.8250 Indian rupees) (Reporting by Devidutta Tripathy, Samantha Kareen Nair and Aby Jose Koilparambil; Editing by Adrian Croft)

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