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Yes Bank: Funding pressures weigh heavy - Views on News from Equitymaster
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Yes Bank: Funding pressures weigh heavy
Oct 22, 2008

Performance summary
  • Interest income grows 58% YoY in 1HFY09 on the back of 53% YoY growth in advances.
  • Other income falls by 1.7% YoY due to losses in the treasury book.
  • Net interest margin drops marginally to 2.8% in 1HFY09 due to higher borrowing costs.
  • Bottomline grows 45% YoY due to better management of operating costs.
  • Capital adequacy ratio (CAR) comfortable at 14.3%, net NPA at 0.2%.


Rs (m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Interest income 3,035 4,897 61.4% 5,734 9,043 57.7%
Interest expenses 2,207 3,671 66.3% 4,408 6,688 51.7%
Net Interest Income 828 1,226 48.1% 1,326 2,355 77.6%
Net interest margin       2.9% 2.8%  
Other Income 770 803 4.3% 1,545 1,518 -1.7%
Other Expense 913 1,049 14.9% 1,589 1,970 24.0%
Provisions and contingencies (10) 7   50 91 82.0%
Profit before tax 695 973 39.9% 1,232 1,812 47.1%
Tax 242 337 39.3% 419 633 51.1%
Profit after tax/ (loss) 453 636 40.3% 813 1,179 45.0%
Net profit margin (%) 14.9% 13.0%   14.2% 13.0%  
No. of shares (m)       280.0 296.9  
Book value per share (Rs)*         48.4  
P/BV (x)         1.6  
* Book value as on 30th September 2008

What has driven performance in 2QFY09?
  • A small deposit base and limited reach were the main problems faced by Yes Bank in the past quarter and half year ended September 2009. Clocking a growth of 45% YoY in advances during the half year, the bank maintained its growth momentum in balance sheet size. The relatively higher proportion of low cost deposits (CASA grew by 75% YoY in 1HFY09) did not offer the bank enough liquidity to meet its funding needs. It thus had to hike the rates offered on fixed deposits by nearly 0.75% to 1.0 % in the past 6 months, thus shaving off its NIMs. The bank had to also raise Rs 2 bn of upper Tier II debt at higher cost. We have estimated Yes Bank’s FY09 NIM at 2.4%.

    Deposits falling short of requirement…
    (Rs m) 1QFY08 % of total 1QFY09 % of total Change
    Advances 75,160   115,150   53.2%
    C&IB 50,207 66.8% 65,636 57.0% 30.7%
    Business Banking 24,953 33.2% 47,212 41.0% 89.2%
    Retail - 0.0% 2,303 2.0%  
    Deposits 99,300   143,380   44.4%
    CASA 7,292 7.3% 12,761 8.9% 75.0%
    Term deposits 92,008 92.7% 130,619 91.1% 42.0%
    Credit deposit ratio 75.7%   80.3%    

  • The proportion of Yes Bank’s non-funded income shrunk in the last quarter due to the slowdown in growth of revenue from treasury and investment banking activities. The proportion of non interest income fell to 40% in 2QFY09 (45.4% of total income in 1QFY09, 51% in FY08). Notwithstanding the fact that the bank has set a target of maintaining its non-interest income at 48% of total income until FY10, we have estimated the same to come down to a tad below 40% in the next 3 years.

  • Despite trebling of its employee base and doubling of its branch franchise in the last 12 months, Yes Bank has managed to retain its cost to income ratio at 52% in 2QFY09. The bank sees this ratio sustaining at the current levels in FY09. Yes Bank has received additional licenses to open 16 new branches (101 operational currently) taking the total licensed network to 117 branches.

  • As the bank’s CAR stood comfortable at 14.3% in 2QFY09, we believe that the bank may not require equity dilution in the near term. We have thus revised our estimates for the bank by not considering the capital raising plans that the bank had earlier formalised for FY09.

What to expect?
At the current price of Rs 79, the stock is trading at 1.0 times our estimated FY11 adjusted book value. Yes Bank has failed to remain unscathed from the acute liquidity and margin pressure faced by the sector. The fall in fee income hedge and limited streams of cheap funding have also acted as a dampener. Further, as the continuous infusion of capital which had been consistently providing the bank enough float to survive the cost pressures has now dried up, Yes Bank will have to withstand the margin pressures in the near to medium term. Having said that, the adequate capital and good asset quality makes the bank relatively safer as compared to other smaller players in the sector.

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