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Yes Bank reported a healthy performance during 3QFY2016 with PAT growth of
25.1% yoy to Rs675.7cr, which is above our expectation. The NII for the bank grew strong
by 27.3% yoy on account of strong growth in advances and Retail & CASA deposits.
Advances and deposits growth remains strong: During the quarter, advances grew
at a healthy pace of 26.7% yoy while deposits grew 23.1% yoy, suggesting a
healthy balance sheet growth. Savings deposits continued to witness robust
traction, growing by 64.1% yoy, on account of the bank’s growing retail franchise
while current deposits grew by 18.4% yoy. Overall, CASA deposits grew by 45.1%
yoy; as a result the CASA ratio improved 400bp yoy and 120bp qoq to 26.6%.
NIM improved qoq backed by lower cost of funds: The NIM for the bank inched
up 10bp qoq to 3.4%. During the quarter, the bank reduced the rate offered on its
savings deposits from 7% to 6% and this helped lower the cost of fund, thereby leading
to improvement in margins. The non-interest income grew by 39% yoy, while operating
expenses grew by 29.2% yoy, leading to a 33.3% yoy growth in operating profit.
Asset quality continues to be healthy: Despite the prevalent economic
slowdown, the bank has maintained its asset quality strong. GNPA and NNPA
ratios went up marginally by 5bp and 2bp qoq to 0.66% and 0.22% respectively
as compared to 0.61% (GNPA) and 0.20% (NNPA) in the sequential previous
quarter. Restructured assets stand at Rs568.3cr, which represent 0.67% of gross
advances. Also, the bank indicated that there has neither been any sale to ARCs
nor has the bank refinanced any loan through the 5-25 route or SDR, during the
quarter. Credit cost for the quarter was at 56bp (annualized), while it has further
reduced its credit cost guidance for FY2016 to 50bp from 70bp earlier. The
Provision coverage ratio came in at 66.5% (reported).
Outlook and valuation: The bank’s asset quality performance has held up well
so far. Going forward, we expect Yes Bank to deliver a CAGR of 20.5% in earnings
for FY2015-17E. Currently the stock trades at 2.0x FY2017E ABV which seems to
be fully valued in our view. Hence, we recommend NEUTRAL rating on the stock.

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