Yes Bank - Consolidation on cards; profitability intact; visit note; Buy :Edelweiss

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Yes Bank (YES IN, INR 232, Buy)

We recently met the Yes Bank management. Strategically, the bank maintains its stance of consolidating balance sheet growth (targeting ~30% growth for FY12-13 vis-à-vis 60% CAGR over FY09-11). Along with this, focus continues on garnering non-interest (fee based) income from loan syndication and other financial advisory activities and maintenance of NIMs. Accretion in savings account balances under the recently announced differential interest rate scheme (for deposits above INR0.1mn) will likely see uptick over the next 1-2 quarters while customer enquiries and new account openings continue at a rapid pace. Superior asset quality continues, although Q4FY12 may witness some restructurings. Management maintains that Yes Bank can manage without capital infusion for the next 12 months as pace of growth moderates, forex activity reduces (post RBI guidelines) and the bank steps up focus on getting higher proportion of the portfolio rated. We maintain ‘BUY’ with target price of INR 335.

Balance sheet growth: Consolidation ahead

Yes Bank is prioritising asset quality and margin maintenance over growth for the near term with guidance of 30% balance sheet growth for FY12-13. Within this, advances are likely to clock 20% plus growth; however, customer assets, i.e., advances and credit substitutes combined, are likely grow at 30% over FY12-13E. Within credit substitutes, primarily bonds is the instrument resorted to and not commercial papers. Also, off late, the bank is building duration in the portfolio (to ~2.5 years).

Savings account: 7% interest rate to reflect in increased balance

The bank’s recent hike in savings bank rate from 4% to 6% post deregulation to 7% recently for balances above INR0.1mn is leading to increased customer enquiries and interest. Consequently, rise in account balances is likely to follow suit although with a slight lag (1-2 quarter). Currently, the bank’s average savings account stands at INR45k-50k, with 7-8% of accounts at INR0.1mn and above as balance. The average balance appears on the higher side as Yes Bank primarily targets high profile customers who can be further tapped for other fee-based activities.