Headquartered in Mumbai, Yes Bank is a full-service commercial bank offering a complete range of products, services, and digital offerings to its corporate, retail, andMicro, Small and Medium Enterprisescustomers. The bank has a pan-India presence, including an IFSC Banking Unit at GIFT City, Gandhinagar, and a representative office in Abu Dhabi.Yes Securities, a wholly-owned subsidiary of the bank,provides investment banking, merchant banking, and brokerage.
The lender also boasts of being the market leader within the payments ecosystem in the country. It is number one in UPI person-to-merchant transactions, with a share of 43%. It is also at the top in NEFT outward debit transactions. National Electronic Funds Transfer is an electronic funds transfer system maintained by the Reserve Bank of India.
Q2 earnings
In the second quarter, Yes Bank was among a minority of lenders that reported a profit drop. The banks said its net profit for the September quarter was Rs. 153 crore, 32% lower year on year (YoY) and 51% quarter on quarter (QoQ). The drop in earnings was primarily due to higher than anticipated credit cost at 1.1%, accelerated by ageing-related provision and a step up in condition on securities receipts aggregating to about Rs. 750 crore.
Net Interest Income, the interest earned on loans minus interest paid to depositors, was up 8% QoQ and 32% YoY, aided by 20 basis points QoQ expansion in net interest margins (NIM). The non-interest income during the quarter was up 18% YoY andQoQ. Operating expenses also increased, eating into profits, and were up 4% QoQ and 32% YoY.Overall, the quarterly Return on Assets (RoA) was muted at 0.2% on an annualised basis.
Analyst commentary
The stock had run up by about 30% since mid-June when the rally in banking stocks began. And, given volatile business performance, analysts are not bullish on the Yes Bank share. Analysts at ICICIdirect have a ‘hold’ rating on the stock, with the target at Rs 15.70. As of October end, the stock also hovers around the same level.
In their estimates, they are a pencil-in RoA of 0.4% in FY22, driving it towards the FY23 target of 0.75% and FY25 target of 1-1.5%,for which the bank will need to push loan growth to mid-teens and cost-efficiencies. However, they see a turnaround in relevant operating metrics and improvedconfidence in the franchise’s stability but remain cognisant of therisks arising from the delay in resolving the bad loans on the book.
A complete transfer of the bulk of the bank’s bad loans to JC Flowers ARC could pull gross non-performing assets down to less than 2% and net NPAs below a per cent, which will be comparable to other private banks. Once this happens, it could trigger the Yes Bank share price to rise further. Until then, caution is warranted.
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