Yes bank is one of the newest private sector banks in the country. Set up in 2004
by Dr Rana Kapoor, the bank rapidly expanded its balance sheet. The bank today,
has a total asset base of `1008 bn and a branch network of 475 branches. Despite
the disadvantages of being a new bank, such as a small branch network and low
CASA base, Yes Bank has consistently managed to maintain its ROA within a
narrow band across business cycles.
NIM compression concerns overdone
Yes Bank’s NIM has improved from 2.8% in Q1FY13 to 3.0% in Q1FY14. This is due to
the consistent improvement in the bank’s CASA ratio on deregulation of savings
deposit rates. The banks CASA ratio has improved to 20% in Q1FY14 from 16% in
Q1FY13. Additionally the bank has a high proportion of floating rate advances at ~
90%. As a result, advances re-price almost immediately while deposits re-price as
and when they reach maturity. This helps the bank protect its NIM. Management
has also clarified that bulk deposits do not pose significant threat of immediate
repricing as 86% of its deposits are contributed by less than 0.2% of total deposit
base individually and cost pressures would be mitigated through judicious
monitoring and lending rate hikes.
Asset quality appears comfortable
Yes bank has the best asset quality amongst its peers with %GNPAs at 0.22% and
NNPAs at negligible levels. The banks slippage rate stood at 0.6% in FY13. The banks
knowledge banking approach has helped keep asset quality issues at bay. Going
ahead we do not expect asset quality to deteriorate significantly as the bank has a
well diversified loan book with limited exposure to risky segments. Additionally the
bank has a strong provision coverage ratio of 88.5% which would act as a buffer in
case of asset quality deterioration. Its restructured book too is negligible at `1395
mn or 0.29% of advances.
Loan book to grow at a CAGR of 24% from FY13-15
Due to its small size the bank, has managed to grow its loan book at a rapid pace,
well above that of the industry. Loan book grew at a CAGR of 38% from FY08-13.
Going ahead we expect the bank to continue growing at a pace faster than that of
the industry. We have factored in a loan book CAGR of 24% from FY13-15.
Lower RWA as a proportion of total assets to free up capital
Yes bank has managed to bring down its total risk weighted assets to total assets
from 67.8% in FY13 from 80.6% in FY09. Going ahead we expect this ratio to
improve further to ~ 62% in FY15. Lower risk weighted assets as a proportion of
total assets would help free up capital for the bank and reduce the additional capital
requirement for the bank.
Buy with a target price of `491
At the CMP of `287 the bank trades at 1.5x its FY14E ABV and 1.2x its FY15E ABV.
The stock price has corrected sharply off late on the back of RBI’s liquidity tightening
measures. As a result Yes Bank is one of our top picks in the banking space with a
price target of `491 (2.5x its FY14E ABV).
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by Dr Rana Kapoor, the bank rapidly expanded its balance sheet. The bank today,
has a total asset base of `1008 bn and a branch network of 475 branches. Despite
the disadvantages of being a new bank, such as a small branch network and low
CASA base, Yes Bank has consistently managed to maintain its ROA within a
narrow band across business cycles.
NIM compression concerns overdone
Yes Bank’s NIM has improved from 2.8% in Q1FY13 to 3.0% in Q1FY14. This is due to
the consistent improvement in the bank’s CASA ratio on deregulation of savings
deposit rates. The banks CASA ratio has improved to 20% in Q1FY14 from 16% in
Q1FY13. Additionally the bank has a high proportion of floating rate advances at ~
90%. As a result, advances re-price almost immediately while deposits re-price as
and when they reach maturity. This helps the bank protect its NIM. Management
has also clarified that bulk deposits do not pose significant threat of immediate
repricing as 86% of its deposits are contributed by less than 0.2% of total deposit
base individually and cost pressures would be mitigated through judicious
monitoring and lending rate hikes.
Asset quality appears comfortable
Yes bank has the best asset quality amongst its peers with %GNPAs at 0.22% and
NNPAs at negligible levels. The banks slippage rate stood at 0.6% in FY13. The banks
knowledge banking approach has helped keep asset quality issues at bay. Going
ahead we do not expect asset quality to deteriorate significantly as the bank has a
well diversified loan book with limited exposure to risky segments. Additionally the
bank has a strong provision coverage ratio of 88.5% which would act as a buffer in
case of asset quality deterioration. Its restructured book too is negligible at `1395
mn or 0.29% of advances.
Loan book to grow at a CAGR of 24% from FY13-15
Due to its small size the bank, has managed to grow its loan book at a rapid pace,
well above that of the industry. Loan book grew at a CAGR of 38% from FY08-13.
Going ahead we expect the bank to continue growing at a pace faster than that of
the industry. We have factored in a loan book CAGR of 24% from FY13-15.
Lower RWA as a proportion of total assets to free up capital
Yes bank has managed to bring down its total risk weighted assets to total assets
from 67.8% in FY13 from 80.6% in FY09. Going ahead we expect this ratio to
improve further to ~ 62% in FY15. Lower risk weighted assets as a proportion of
total assets would help free up capital for the bank and reduce the additional capital
requirement for the bank.
Buy with a target price of `491
At the CMP of `287 the bank trades at 1.5x its FY14E ABV and 1.2x its FY15E ABV.
The stock price has corrected sharply off late on the back of RBI’s liquidity tightening
measures. As a result Yes Bank is one of our top picks in the banking space with a
price target of `491 (2.5x its FY14E ABV).
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