BackYes Bank gears up for higher loan growth
Yes Bank's shares have outperformed peers on expectations of robust loan growth as well as a strengthening of its balance sheet through fund raising
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Yes Bank Ltd’s shares have outperformed peers in the past six months on expectations of robust loan growth as well as a strengthening of its balance sheet through fund raising.
The company’s December quarter earnings are likely to be cheered by investors as well. Advances grew at 32%, the highest in nearly four years. Retail banking—including loans to micro, small and medium enterprises—accounted for 31.3% of the advances portfolio, compared with 28.6% in the September quarter. The corporate book shrank by 2.7 percentage points to 68.7% sequentially.
The slower growth in the corporate book is a natural fallout of the sputtering economy. Jaideep Iyer, group president, financial management at Yes Bank, said the company is planning to increase its retail book to 40% of the total loan book in the next 1-2 years. The retail book, needless to say, yields better returns. The strong growth in advances last quarter aided net interest income growth of 37% year-on-year.
The bank is also raising funds aggressively to expand the retail, SME and MSME portfolio. It is also looking at raising ₹ 2,500-3,000 crore through the sale of infrastructure bonds in the March quarter to refinance its infra book and get into the affordable housing segment. The money raised will help improve tier II capital by three percentage points to 8% and will also be margin-supportive until deposit rates fall, said analysts.
The bank raised ₹ 3,800 crore via foreign currency loans in the December quarter, but that did not help in boosting their net interest margins, which remained flat at around 3.2% sequentially. An analyst with a leading brokerage firm said, “Yes Bank had to invest in government bonds to meet the Liquidity Coverage Ratio of at least 60% as of January 2015. Since government bond yields are lower than loan yields, the benefit of marginal reduction in cost of funds was mitigated. "
A basis point is 0.01%.
The bank’s deposit growth at 21% lagged behind advances growth as the money raised from the foreign currency loans provided a good funding pool. Asset quality deteriorated marginally with total restructured assets rising by half to ₹ 171 crore compared with the September quarter because of the low base and stress in a couple of corporate accounts, mainly in the construction sector. Nevertheless, gross non-performing loans were stable at around 0.42% of the overall advances. Net profit grew at 30% year-on-year to ₹ 540 crore.
Yes Bank shares are trading at 2.4 times one-year forward price-to-book multiple, making it one of the most expensively valued banks among private peers. The brisk pace at which the bank is growing has clearly got investors excited.
The writer doesn’t own shares in the above-mentioned companies.
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