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Yes Bank reported a healthy set of numbers for 2QFY2016 with the PAT
outperforming our estimates, growing 26.5% yoy to Rs610.4cr. The growth was led
by surge in net interest income (NII) as well as lower than expected provisions. The
bank registered a CASA ratio of 25.5%, for the quarter.
Advances growth high; consistent performance on the NIM front
During the quarter, advances grew at a healthy pace of 29.0% yoy while deposits
grew 24.0% yoy, suggesting a healthy balance sheet growth. Savings deposits
continued to witness robust traction, growing by 61.7% yoy, on account of the
bank’s growing retail franchise and influenced by some big ticket accounts.
Overall, CASA deposits grew by 40.5% yoy enabling the bank to register a CASA
ratio of 25.5%. The NIM for the bank inched up 10bp yoy to 3.3% but remained
flat sequentially; while both the cost of funds as well as the yield on advances saw
a decline of 30bp qoq each. The non interest income grew by 22.2% yoy, which
was predominantly led by remittances and services businesses from the branches
and it was largely retail and SME customers, who were the main contributors. The
cost to income ratio surged by 97bp yoy to 41.0%, due to a yoy increase in
operating expenses.
Performance on the asset quality front was modest considering the economic
slowdown. The Gross NPA and Net NPA ratios were at 0.61% and 0.20% as
compared to 0.46% and 0.13% respectively in the sequential previous quarter.
Restructured assets stand at Rs569.3cr, which represent 0.71% of gross advances.
Also, the bank indicated that there has neither been any sale to ARC during the
previous four quarters nor the bank has refinanced any loan through the 5-25
route. Credit cost for the quarter was at 54 basis points while provision coverage
ratio came in at 67.7%.
Outlook and valuation: The bank’s asset quality performance has held up well
so far. Going forward, we have factored higher provisions and slippages given the
bank’s corporate exposure to metal and EPC industries. Even after factoring the
higher provisions and slippages, we expect Yes Bank to deliver a CAGR of 20.2%
in earnings for FY2015-17E. Currently the stock trades at 1.95x FY2017E ABV. We
maintain our BUY rating on the stock.

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