Say YES To Staying Invested In Yes Bank
![]()
Industry
The future of banking sector in India looks not only exciting at this time but also it is getting transformative in nature. Despite the somewhat difficult current operating environment, banks remain the largest financial sector intermediary present in the country. With the revival of investment climate in the country and improving macro-economic picture is adding value to this already strong narrative of banking sector being one of the strong pillars of our economic progress.
Reforms like Insolvency and Bankruptcy Code will go a long way in helping the sector to get back on strong footing. In near future, technology will play a major role as markets and financial instruments continue to evolve and expand into newer avenues.
At the current juncture, stressed assets in banks’ credit portfolios have constrained credit delivery. But the situation is gradually improving with many initiatives being under taken by the lender and the RBI (Reserve Bank of India) in order to clean out the banks’ balance sheets.
Amongst the 25 private sector banks operating in the country, Yes Bank has been a bright spot compared to its bigger rivals given its strong balance sheet and aggressive expansion push.
About Company
Yes Bank, India’s fifth largest private sector bank with a pan India presence across 29 states is the outcome of strong professional and commitment of its top level management team, to establish a high quality, customer centric, service driven, private Indian Bank catering to the future businesses in India. Yes Bank has been at the forefront of delivering highest standards of service quality and offering comprehensive banking solutions to all its customers.
A new generation private-sector bank had received a green field banking license from the Reserve Bank of India (RBI) and launched its operations in 2004 and since then it has grown by leaps and bound to become a banking force to reckon with. Yes Bank turned around amidst the global financial crisis of 2008-09 when the bank rapidly expanded its corporate loan book and built a strong corporate banking unit. Since then, it has focused on developing its capacity to cross-sell a wide range of corporate products, while growing its retail and SME sized customer platforms. Over the last few years, Yes Bank has focused on building its branch network and its retail banking franchise. The bank's main growth mantra has been to build a diversified corporate loan book, targeting high-quality corporate credits across a range of industries.
Credit Rating
For the past five years (FY ended March 2012 - March 2016), Yes Bank has increased its loan book at a compound annual growth rate (CAGR) of 27 per cent, while maintaining one of the lowest non-performing loans (NPL) ratio among the Indian banks. Despite a greater dominance of corporate loans (about 65 per cent of the bank's total loan book), Yes Bank's asset quality has remained fairly stable over the past years compared to other private peers.
Yes Bank’s higher reliance on corporate deposits relative to its peers creates risks in volatile markets. While the bank's current level of CASA deposits remains below the domestic peer average, it has been building up its deposit base by virtue of increasing its branch network. CASA ratio has improved to 28 per cent in FY2016 but still lags the industry average of 35 per cent.
Global rating major Moody’s Services has provided a ‘stable’ outlook with ‘Baa3’ rating allotted to Yes Bank. Moody’s sighted adequate capitalisation, rapid loan growth and bank’s ability to withstand further asset quality weakness being the strengths. On a flip side dominance of corporate loan book and higher dependence on corporate deposits relative to peers remains a challenge for Yes Bank.
Mutual Fund
Yes Bank will soon become the 44th Mutual Company in India with the private lender receiving an in principle approval from the Securities & Exchange Board of India (SEBI) to sponsor and setup an Asset Management Company (AMC). The AMC will channelise the savings of retail, corporate and institutional investors in the financial markets by leveraging Yes Bank’s banking expertise.
In the past, the bank has been in the market looking to acquire some of the existing AMCs to kick start its mutual fund operations. However, with the bank receiving green signal from the regulator helps leverage banks distribution network for customer acquisition and provide their existing customers a one stop destination for investment and savings solutions. With the starting of the AMC by the end of FY17, which will in turn start generating revenues for the bank in the future.
Credit Card
Yes Bank in partnership with Master Card recently became the latest entrant in the credit card space. Going ahead, the lender has planned an aggressive push as it aims to capture a market share of 17-18 per cent in the next five years. In order to grow the market share, unlike the other lenders who have been mainly focusing on the existing customer base, Yes Bank will be actively looking at giving cards to the non-bank customers. Company plans to use credit cards as an additional acquisition tool for its other loan products.
Financials
On financial front, Yes Bank has been a rank outperformer on a consistent basis. Considering latest quarter result, Yes Bank reported a net profit growth of 32.8 per cent to Rs 731.8 crore as against Rs 551.8 crore achieved in same period of the previous fiscal. Profits for the quarter grew despite spike in provisions. Net Interest Income (NII) the difference between interest earned and interest expended, increased by 6.1 per cent to Rs 1241.4 crore. Non – interest income also saw a healthy growth of 12.2 per cent courtesy revenue from securities business and fee income.
On a yearly basis, NII showed a growth of 24.2 per cent to 1316.6 crore in Q1FY17 as compared to Rs 1059.8 crore in the same period of the previous fiscal. Net Interest Margin (NIM) for the quarter ending 30th June stood flat at 3.4 per cent. Non-interest income as a ratio to total income came in at 40.6 per cent against 34 per cent in the corresponding quarter of FY16. Bank has seen a consistent growth in operating profit coupled with improving margins and spreads.
Gross non-performing assets (NPAs) of Yes Bank rose 13 per cent to Rs 844.56 crore at the end of June quarter from Rs 748.98 crore in the March quarter. As a percentage of total loans, gross NPAs stood at 0.79 per cent at the end of the June quarter as compared to 0.76 per cent in the previous quarter and 0.46 per cent in the year-ago quarter. Provisions and contingencies rose by 11 per cent to Rs 206.63 crore in the quarter from Rs 186.46 crore a quarter ago.
Provisions more than doubled from Rs 97.96 crore in the year earlier quarter. Net NPAs were at 0.29 per cent in the June quarter compared to 0.29 per cent in the previous quarter and 0.13 per cent in the same quarter last year.
In Q1FY17, the credit book increased strongly by 33 per cent Y-O-Y to Rs 1,05,942 crore, mainly after witnessing an uptick in the SME and retail segment growth on a yearly basis. As on Q1FY17, large corporate constituted 67.5 per cent while SME/retail constitute 32.5 per cent. Deposits also saw a growth of 28.6 per cent Y-O-Y. Out of the total disbursed loan, 75 per cent of the exposure too corporate was rated A or above.
Qualified Institutional Placement (QIP)
After receiving the CCEA approval for raising FDI limit from 49 per cent to 74 per cent the bank was all set to launch its biggest ever fund raising exercise when the lightning struck and Yes Bank had to defer its QIP plans for future. Even after a proven track record in raising fresh equity both domestically and internationally, as demonstrated by its QIP in FY15 and issuance of Basel III compliant Tier II bonds in FY2016 the bank faltered, subsequently led to a drastic decline in the share price which correct by nearly 15 per cent in few days in September.
Digital (Yes Pay)
Joining the Digital Bandwagon, Yes Bank recently launched its digital wallet named ‘’ Yes Pay’’. The bank plans to provide customers with convenient banking services for transactions and payments. Digital Platforms will help Yes Bank acquire customers and empower sales channels. It plans to offer banking and payments on social media & wearable devices.
According to RBI, the value of mobile banking transactions in December 2015 increased four times year-on-year and jumped by 46 per cent over the previous month to Rs 49,029 crore (US$ 7.34 billion). With ever increasing penetration of the Internet and mobile connectivity will permit delivery of an ever-widening suite of services ‘on the move.’
Conclusion
Yes Bank is well capitalised with Total CRAR at 15.5 per cent and Tier I ratio at 10.3 per cent. With strong ROEs allow healthy internally funded growth for the bank. Yes Bank currently has a market share of close to 1 per cent in the Indian banking industry and with a planned, steady growth rate of approximately 25 per cent over the next five years, the bank aims to garner a 2.5 per cent market share in India. In anticipation of this growth, many leading global financial institutions have reposed their commitment in Yes Bank.
With the Indian economy on the cusp of a major transformations, with several policy initiatives set to be implemented shortly. Positive business sentiments, improved consumer confidence and more controlled inflation are likely to prop-up the country’s the economic recovery.
Proposed mechanisms for asset resolution, including the Bankruptcy Code, will help speedier recovery. Enhanced spending on the part of government in infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth prospects. All these factors suggest that India’s banking sector is also poised for robust growth as the rapidly growing business would turn to banks for their credit requirements and Yes Bank would be a key player riding this growth wave. Therefore, our view on the stock is ‘HOLD’.