The Yes Bank Ltd stock surged 10% on Thursday after the private sector lender’s March quarter earnings beat analysts’ estimates on most counts.

Net profit grew 29% on a year-on-year (y-o-y) basis at Rs1,179.4 crore, buoyed by higher growth in net interest income and other income. The bank’s loan book grew a phenomenal 54% y-o-y in the March quarter and, what’s more, the growth was spread across corporate, MSME and retail businesses. Asset quality improved as well. Gross non-performing assets (NPAs) and net NPAs declined sequentially as well as annually. Provisions increased 29% compared to the same quarter last year, but fell sequentially.

Contrary to expectations, the bank didn’t see any slippage during the quarter from its restructured book on account of the much-dreaded Reserve Bank of India (RBI) circular dated 12 February 2018. Even better, it foresees minimal impact on its book if any account is potentially referred to National Company Law Tribunal (NCLT).

It also expects recovery of 60-65% of exposures to List 1 accounts, latest by the second quarter of the current financial year, and it has a total exposure of Rs650 crore across accounts in List 2.

On the flip side, the bank reported substantially higher FY18 gross NPA divergence of Rs6,355.2 crore.

In a post-earnings conference call, the bank’s management said the reduction seen in its NPAs was mainly on account of sale to asset reconstruction companies which is worth Rs589 crore with corresponding aggregate security receipts carrying value of Rs179.1crore.

Of the 19 accounts identified by the RBI for divergence, 10 accounts have been upgraded by March 2018.

What are the downside risks? Though the bank’s net interest margins (NIMs) declined only slightly to 3.4% in the March quarter from 3.5% in the December quarter, with market interest rates going up, a further adverse impact on NIMs cannot be ruled out. Also, analysts do not expect the bank to maintain the growth momentum in its loan book to be sustained, which could impact profitability. Apart from that, of course, investors will also watch the trend in asset quality and recovery from NCLT accounts. A near-term cue for the stock could be RBI’s reaction, if any, to the proposed reappointment of Rana Kapoor as MD & CEO for a three-year term, after the central bank recently asked Axis Bank Ltd board to re-consider the decision to re-appoint CEO Shikha Sharma.

Nonetheless, the stock is poised to see a re-rating and expectations are that robust March quarter earnings may help Yes Bank to bridge the gap in valuation versus peers.

Yes Bank’s shares are trading at a one-year forward price-to-book (PB) multiple of 2.72 times, much lower than the PB multiple of 4 times that its closest peer IndusInd Bank Ltd is trading at.