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YES BANK – Cheering Stellar Loan Growth


While the divergence related issues has pushed the Yes Bank to back foot in recent times, we believe continued stellar loan growth performance will help the bank to come out of its tough time. Yes Bank once again posted healthy balance sheet growth of 36% with granularity in its loan book.

Yes Bank has been continuously beating the street expectation of loan growth on the back of healthy traction in its corporate portfolio. Nevertheless more than 75% of the corporate portfolio is rated ‘A’ and above A which gives us stable assets quality outlook going forward. The liability franchise of Yes Bank has remained robust with CASA ratio at 38%. Healthy growth in CASA (1/3rd CA) and scope of cut in saving deposits rates are the key driver for NIM guidance of 4% by FY19. Apart from CASA, bank is also focusing on growing PSL organically and increasing share of consumer loans which will support the margins further.

With all levers set we believe Yes Bank is well poised to post more than 30% loan CAGR over FY17-20. However we believe Yes Bank has to raise fund in FY19 to support this kind of growth.

We believe majorly assets quality issue for Yes Bank is behind and incremental slippages will be in comfort zone as per balance sheet growth. Management is very much hopeful for the significant recovery in RBI related divergence account within 2 quarters. Strong resolution capability of management as demonstrated earlier gives us comfort. However we continue to build higher credit cost in our model to factor recent NPA issue as well as on outstanding Security Receipt book.

On the expansion front management has changed their strategy and reduced their target of 2500 branches to 1800 branches till FY20. Focus of management has shifted towards digitalization which we expect will help in increased productivity and cost reduction going forward.

Granularity in fee income continues to provide healthy growth in non interest income. Factoring controlled opex, stability in NIM, healthy fee income and loan growth, we expect Yes Bank to register 29% earning CAGR over FY17-20. We build RoE/RoA of 22%/1.8% for FY20 respectively. We value Yes Bank at Rs 428 (2.8x BVPS FY20e) and recommend BUY.


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Deepak Kumar@Narnolia

Author: Deepak Kumar@Narnolia

Deepak Kumar is a fundamental research analyst, responsible for covering financial sector at Narnolia Research. He has excellence in financial modelling of banks and has analytical coverage of macro and micro financial research data. He is post graduate in Finance From Birla Institute of technology, Mesra.

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