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Yes Bank: Cautious undertone on growth, NPAs - Views on News from Equitymaster
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Yes Bank: Cautious undertone on growth, NPAs
Oct 23, 2012

Yes Bank declared its results for the second quarter and first half of financial year 2012-13 (1HFY13). The bank has reported a 35% YoY and 32% YoY growth in net interest income and net profits respectively in 1HFY13. Here is our analysis of the results.

Performance summary
  • Net interest income grows 35% YoY in 1HFY13 on the back of 23% YoY growth in advances.
  • Other income grows by 49% YoY in 1HFY13 due to robust growth in fee income.
  • Net interest margin remains stable at 2.9% due to rise in proportion of CASA deposits.
  • Bottomline grows 32% YoY in 1HFY13 thanks to write back of provisioning and higher operating leverage.
  • Capital adequacy ratio (CAR) comfortable at 17.5% (Tier 1- 9.5%), gross NPA at 0.24% (specific NPA coverage 80%).

Rs (m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Interest income 14,386 19,864 38.1% 28,382 38,727 36.4%
Interest expenses 10,530 14,622 38.9% 20,984 28,764 37.1%
Net Interest Income 3,856 5,242 35.9% 7,398 9,963 34.7%
Net interest margin       2.9% 2.9%  
Other Income 2,141 2,768 29.3% 3,794 5,649 48.9%
Other Expense 2,134 3,162 48.2% 4,082 6,169 51.1%
Provisions and contingencies 378 317 -16.1% 394 617 56.6%
Profit before tax 3,485 4,531 30.0% 6,716 8,826 31.4%
Tax 1,130 1,469 30.0% 2,205 2,864 29.9%
Profit after tax/ (loss) 2,355 3,062 30.0% 4,511 5,962 32.2%
Net profit margin (%) 16.4% 15.4%   15.9% 15.4%  
No. of shares (m)         365.1  
Book value per share (Rs)*         149.2  
P/BV (x)         2.7  
* Book value as on 30th September 2012

What has driven performance in 1HFY13?
  • Despite higher capital headroom and solid growth rate in retail loans and deposits, Yes Bank toed in line with its private sector peers in loan growth and deposit growth during 1HFY13. Although at 17.5%, the bank is one of the best capitalized in the sector, it has one of the highest proportions of Tier II capital.

    Since most of its loan book can be re-priced in 12-months time, the bank did not see high interest rates putting too much pressure on its margins. Further the rise in proportion of CASA (low cost deposits) offered the bank some cushion on interest rates.

    Although term deposits comprised nearly 86% of the bank's overall deposit book, the bank's margins (NIMs) are expected to improve going forward as term deposits get re-priced at lower rates and borrowing costs ease.

    Retail led growth on full steam...
    (Rs m) 1HFY12 % of total 1HFY13 % of total Change
    Advances 341,941   420,193   22.9%
    C&IB 218,842 64.0% 266,402 63.4% 21.7%
    Business Banking 94,034 27.5% 89,921 21.4% -4.4%
    Retail 29,065 8.5% 63,869 15.2% 119.7%
    Deposits 440,759   522,908   18.6%
    CASA 39,593 9.0% 73,921 17.3% 86.7%
    Term deposits 401,166 91.0% 448,987 85.9% 11.9%
    Credit deposit ratio 77.6%   80.4%    

  • The proportion of Yes Bank's non-funded income to total income increased to 36% in 1HFY13 from 34% in 1HFY12. This can be largely attributed to higher fee income. Notwithstanding the fact that the bank has set a target of maintaining its non-interest income at 40% of total income until FY15, we have estimated the same to come down to remain below 35% in the next 3 years.

  • Due to addition to franchise (95 branches and 414 ATMs added in last 12 months) as well as employee base, Yes Bank's cost to income ratio moved up to 40% in 1HFY13 from 36% in 1HFY12. The bank's total headcount stood at 6,307 in September 2012. The bank expects its operating costs to increase at an annual average rate of around 40% over the next 2 to 3 years given the branch expansion targets. Yes Bank is targeting to take the total number of branches to 500 by the FY14 (400 in 1HFY13).

  • In relative terms, Yes Bank had negligible net NPA while the gross NPA stood at 0.24% of advances at the end of September 2012. Yes Bank also had specific loan-loss coverage ratio of 80%. However, the management did not rule out possibility of slippages from the restructured loan book (0.46% of gross advances).

  • The bank's return on equity and return on assets stood at 23.8% and 1.5% at the end of 1HFY13, with the averages over the past 4 years being 20% and 1.5% respectively.

What to expect?
At the current price of Rs 399, the stock is trading at 1.9 times our estimated FY15 adjusted book value. Yes Bank's performance so far has been in line with our estimates for full year FY13. However we believe that the bank should be more conservative in its provisioning policy. Also, the rate of growth may continue to be moderated. The delinquency risks, though minimal, remain. The current valuations of the bank warrant caution. We reiterate our Hold view on the stock.

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