The concern about Yes Bank Ltd has been that its low Casa (current and savings account) deposits and dependence on borrowings would eat into profitability. Well, the bank has so far managed the monetary tightening cycle rather well. For the September quarter, it posted a net profit of Rs 235 crore, 33.3% higher than the year-ago period. The bank has been nimble enough to meet the challenges. Loan growth in the quarter was a low 12.7%, much lower than the 26.1% year-on-year (y-o-y) rise in the June quarter.
Yes Bank prefers to use the growth in customer assets (loans and credit substitutes such as bonds and commercial paper) as a benchmark, and this grew 27.4% y-o-y. Note, though, that customer asset growth was 34.7% y-o-y in the June quarter.
Workers seen in the Treasury Division at the Yes Bank in Mumbai. Photo: Bloomberg.
Deposit growth was just 10.2% y-o-y in the September quarter, and the extra funds for lending were obtained by borrowing. Several factors were responsible for keeping the cost of borrowings low—more foreign exchange borrowings, especially since August, when the cost of hedging fell; a tier-II capital bond issue with a yield lower than the yield on a comparable deposit; and taking advantage of low-cost refinance.
Yield on advances, on the other hand, was increased by re-pricing loans. The upshot was a slight increase in net interest margin to 2.9% from 2.8% in the June quarter.
Casa, as a percentage of total deposits, remained stable at 11% compared with 10.9% at end-June, but that was partly because, sequentially, deposits grew by a mere 1.1%. Sequentially, Casa growth was 1.6%, on a small base.
While net interest income grew 23.1% y-o-y, the big increase was in non-interest income, which went up a huge 63.4%, aided in part by a low base, but also because of very strong growth in the financial market (which includes FX sales, debt capital markets and trading income), transaction banking and financial advisory segments. Non-performing assets (NPAs) continue to be very low, with gross NPAs at a mere 0.2% of gross advances. However, restructured advances went up from Rs 87 crore at the end of June to Rs 175.5 crore at the end of September. That is an increase from 0.26% of gross advances to 0.51% of gross advances, which, however, is still very low. Yes Bank’s long-term goal is to raise Casa. It has added 50 branches in the September quarter and 91 branches in the last six months, taking the total to 305. The full benefits from branch expansion should kick in 18-24 months. In the interim, though, a rise in bond yields could be a risk.