Yes Bank Ltd was expected to be a big beneficiary of the abundant liquidity in the money markets and the fall in yields because of its very limited retail deposit base. That expectation has been more than met by the bank’s June quarter results, with profit after tax at Rs100.10 crore, a huge 84% rise from the year-ago period.
As a matter of fact, the bank’s deposits fell from Rs16,169 crore at the end of March to Rs15,342 crore at the end of June. Rajat Monga, Yes Bank’s group president and chief financial officer, said the bank sold off investments that it had on its books at the end of March and used the money to fund its increase in advances. The bank also took advantage of the refinance facilities available to it. As Monga pointed out, “It doesn’t make sense to take deposits to park them in RBI (Reserve Bank of India) at 3.25%.” The upshot was that while gross yield on advances went up to 12.8% from 12.5% in the March quarter, the cost of funding fell from 8.8% to 8.1%. A relatively large proportion of interest-sensitive liabilities got repriced.
Net interest income was up a respectable 45% year-on-year (y-o-y), but the big boost to profit was provided by non-interest income, which went up 103% y-o-y. The bulk of this increase was from treasury income. Such a high level of treasury income is unlikely to be repeated, but Monga said he expects yields in debt markets to come down on lack of supply, with the bulk of government borrowing getting over soon.
Provisions have risen sharply on a y-o-y basis, but then net non-performing assets (NPAs) as a percentage of net advances are just 0.24%, lower than the 0.33% it was at March-end. The flip side is that restructured assets during the June quarter were Rs61.40 crore, against Rs20 crore in the March quarter. Total restructured assets are at 0.94% of gross advances. Monga said that while the gross headline NPAs may increase, the worst is over so far as provisioning on account of bad loans is concerned.
Current and savings accounts accounted for 9.5% of deposits at end-June, up from 8.7% at the end of March. Net interest margin for the quarter was 3.1%, compared with 3% in the March quarter.
The stock trades at 2.6 times its Rs58 book value per share as at end-June. The bank has easily outperformed the BSE Bankex, rising by 206% since the beginning of April, while the Bankex has gone up by 85%. But given the bank’s ability to respond to trim its sails to the environment, its low cost-to-income ratio and its low NPAs, that outperformance will continue.
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