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We met the management of Yes Bank to gauge the impact of savings rate deregulation, sense its business potential and to
comprehend its future growth strategy. Yes Bank is among the fastest-growing private sector banks in the country, having a
branch network of 331 branches as of Dec 11. Yes Bank has a balance sheet of INR 711 bn, deposits of INR 469 bn and advances
of INR 359 bn, with Gross NPA of less than 0.20%. Given below are key takeaways from the visit:-
Moving in-line with Version 2.0 targets
Yes Bank unveiled a plan, named Version 2.0, on 29th April 2010,
wherein, it aimed to grow its Balance Sheet, Advances and Deposits
at a CAGR of 32%, 35% and 36% over FY10-15 to INR 1500 bn, INR
1000 bn and INR 1250 bn respectively. As of Dec 2011, it has been
able to grow the same at a CAGR of 45%, 32% and 38% to INR 711 bn,
INR 359 bn and INR 469 bn respectively from FY10.
In the near term, the management is focussing more on asset quality
and margin maintenance over growth. It aims to grow 500-750 bps
higher than the system growth rates over the next couple of years
aided by expanding distribution base and gaining market share.
One of the biggest beneficiaries of savings rate deregulation
Banking on the savings rate deregulation, Yes Bank was among
the first banks to raise interest rates on savings accounts to 6%
initially and later to 7%, resulting in 99.2% YoY and 40.0% QoQ
growth in savings deposits in Q3FY12 (leading to 160 bps QoQ
improvement in CASA ratio to 12.6%). It has successfully tapped
several salary accounts and the account opening rate has grown
by ~4x the pre-deregulation regime (earlier it was attracting ~6000-
7000 customers a month, now it is almost at ~25,000 a month).
The management remains confident on the traction that it has
been witnessing on CASA mobilization and aims to improve its
CASA ratio by ~1-1.5% each quarter for the next few quarters. The
company is targeting a CASA ratio of 30% by FY15.
Change in lending mix to improve yields
Yes Bank is looking to increase its presence in high yielding segment
by targeting to tab more mid-sized corporate and SME/retail. It is
aiming to change the proportion of large corporate, mid-sized
corporate and SME/retail from 63%, 21% and 16% in Dec 11 to 40%,
30% and 30% of its total advances book in FY15. This would lead to
improvement in yields, as yields in the mid-corporate and SME
segment are higher by ~75 bps and ~150 bps respectively than
large corporate yields.
NIMs to improve in long term
Yes bank expects NIMs to improve to ~3.6% by FY15 from 2.8% in
Dec 11. This will be aided by improvement in yield on advances
led by increased penetration in the mid corporate & retail
segments and reduction in cost of deposits helped by rapid branch
expansion (from 331 in Dec 11 to 750 by Mar 15) and sharp
mobilization of low cost CASA deposits.
Outlook & Valuation
Yes Bank has superlative asset quality and well diversified balance
sheet mix. It has a strong track record of consistently delivering superior
returns. The main focus areas of Yes Bank at this point of time are
driving CASA deposits, growing fee income and branch expansion.
Currently the stock is trading at 2.9x its TTM BV of INR 129.5, which is
reasonable for a bank that has grown its NII & Profit at a CAGR of
56% & 54% respectively over FY08-11. Asset quality of Yes Bank
remains among the best in the industry with gross NPA of 0.20% and
also has one of the best return ratios (RoA of 1.5% and RoE of 23.0%).
Best asset quality
Asset quality of Yes Bank remains among the best in the industry, with
gross NPA of 0.20% & net NPA of 0.04% and provision coverage ratio
of 80%. The management indicated that there is no immediate stress
on asset quality and it does not expect significant pressure in coming
quarters. It is stressing on asset quality and is closely monitoring its
book in order to avoid any spikes. As of Dec 11, the bank's restructured
pool stood at a mere 0.49% of advances, which is one of the lowest in
the industry. It has also not been a part of any CDR till date.
Insulated from exposure to stress sectors
Yes Bank has a well diversified and de-risked loan book with
exposure to stressed sectors (such as Power, Iron and steel,
Textiles and Engineering) at only around 10%. Most of the bank's
corporate book is working capital as opposed to project finance.
Total project finance exposure is only ~ 5%, but pure thermal
power project finance is only ~0.50% of total exposure. Exposure
to new 2G /3G telecom players is nil while that to the troubled
aviation sector is 0.15%.
Non-interest income to grow at more than 25%
The company has well diversified non-interest income base,
which includes Financial markets (FX sales, Debt Capital
Markets and trading income: 19%), Financial advisory
(Investment Banking, Corporate Finance advisory and other
advisory income: 44% ), Retail (Branch banking & other fees: 8%)
and Transaction banking (28%). It is expecting a growth of more
than 25% in NII aided by higher growth in Transaction Banking
Segment, as the bank continues to deepen its relationship with
the corporate segment. Financial advisory business would also
grow at a healthy pace due to possible revival in capital markets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We met the management of Yes Bank to gauge the impact of savings rate deregulation, sense its business potential and to
comprehend its future growth strategy. Yes Bank is among the fastest-growing private sector banks in the country, having a
branch network of 331 branches as of Dec 11. Yes Bank has a balance sheet of INR 711 bn, deposits of INR 469 bn and advances
of INR 359 bn, with Gross NPA of less than 0.20%. Given below are key takeaways from the visit:-
Moving in-line with Version 2.0 targets
Yes Bank unveiled a plan, named Version 2.0, on 29th April 2010,
wherein, it aimed to grow its Balance Sheet, Advances and Deposits
at a CAGR of 32%, 35% and 36% over FY10-15 to INR 1500 bn, INR
1000 bn and INR 1250 bn respectively. As of Dec 2011, it has been
able to grow the same at a CAGR of 45%, 32% and 38% to INR 711 bn,
INR 359 bn and INR 469 bn respectively from FY10.
In the near term, the management is focussing more on asset quality
and margin maintenance over growth. It aims to grow 500-750 bps
higher than the system growth rates over the next couple of years
aided by expanding distribution base and gaining market share.
One of the biggest beneficiaries of savings rate deregulation
Banking on the savings rate deregulation, Yes Bank was among
the first banks to raise interest rates on savings accounts to 6%
initially and later to 7%, resulting in 99.2% YoY and 40.0% QoQ
growth in savings deposits in Q3FY12 (leading to 160 bps QoQ
improvement in CASA ratio to 12.6%). It has successfully tapped
several salary accounts and the account opening rate has grown
by ~4x the pre-deregulation regime (earlier it was attracting ~6000-
7000 customers a month, now it is almost at ~25,000 a month).
The management remains confident on the traction that it has
been witnessing on CASA mobilization and aims to improve its
CASA ratio by ~1-1.5% each quarter for the next few quarters. The
company is targeting a CASA ratio of 30% by FY15.
Change in lending mix to improve yields
Yes Bank is looking to increase its presence in high yielding segment
by targeting to tab more mid-sized corporate and SME/retail. It is
aiming to change the proportion of large corporate, mid-sized
corporate and SME/retail from 63%, 21% and 16% in Dec 11 to 40%,
30% and 30% of its total advances book in FY15. This would lead to
improvement in yields, as yields in the mid-corporate and SME
segment are higher by ~75 bps and ~150 bps respectively than
large corporate yields.
NIMs to improve in long term
Yes bank expects NIMs to improve to ~3.6% by FY15 from 2.8% in
Dec 11. This will be aided by improvement in yield on advances
led by increased penetration in the mid corporate & retail
segments and reduction in cost of deposits helped by rapid branch
expansion (from 331 in Dec 11 to 750 by Mar 15) and sharp
mobilization of low cost CASA deposits.
Outlook & Valuation
Yes Bank has superlative asset quality and well diversified balance
sheet mix. It has a strong track record of consistently delivering superior
returns. The main focus areas of Yes Bank at this point of time are
driving CASA deposits, growing fee income and branch expansion.
Currently the stock is trading at 2.9x its TTM BV of INR 129.5, which is
reasonable for a bank that has grown its NII & Profit at a CAGR of
56% & 54% respectively over FY08-11. Asset quality of Yes Bank
remains among the best in the industry with gross NPA of 0.20% and
also has one of the best return ratios (RoA of 1.5% and RoE of 23.0%).
Best asset quality
Asset quality of Yes Bank remains among the best in the industry, with
gross NPA of 0.20% & net NPA of 0.04% and provision coverage ratio
of 80%. The management indicated that there is no immediate stress
on asset quality and it does not expect significant pressure in coming
quarters. It is stressing on asset quality and is closely monitoring its
book in order to avoid any spikes. As of Dec 11, the bank's restructured
pool stood at a mere 0.49% of advances, which is one of the lowest in
the industry. It has also not been a part of any CDR till date.
Insulated from exposure to stress sectors
Yes Bank has a well diversified and de-risked loan book with
exposure to stressed sectors (such as Power, Iron and steel,
Textiles and Engineering) at only around 10%. Most of the bank's
corporate book is working capital as opposed to project finance.
Total project finance exposure is only ~ 5%, but pure thermal
power project finance is only ~0.50% of total exposure. Exposure
to new 2G /3G telecom players is nil while that to the troubled
aviation sector is 0.15%.
Non-interest income to grow at more than 25%
The company has well diversified non-interest income base,
which includes Financial markets (FX sales, Debt Capital
Markets and trading income: 19%), Financial advisory
(Investment Banking, Corporate Finance advisory and other
advisory income: 44% ), Retail (Branch banking & other fees: 8%)
and Transaction banking (28%). It is expecting a growth of more
than 25% in NII aided by higher growth in Transaction Banking
Segment, as the bank continues to deepen its relationship with
the corporate segment. Financial advisory business would also
grow at a healthy pace due to possible revival in capital markets.
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