Yes Bank’s loan growth was healthy at 22% yoy (4.4% qoq). A large part of credit expansion was contributed by the Commercial Banking (Mid Corporate) segment which grew by 20% qoq. The Wholesale Banking (Large Corporate) book increased by modest 2% qoq but represented a strong yoy growth of 27%. Traction in branch baking (Retail + SME) was sluggish (-4% qoq/8% yoy) for the third consecutive quarter. Sequentially, the loan mix moved 200bps towards the Commercial Banking segment with its share crossing 20%. In the longer term, Yes Bank strives to achieve a segmental loan mix of 40-30-30 between Wholesale, Commercial and Branch Banking.
Customer assets (loans + credit substitutes) grew behind advances as there was no increase in credit substitutes (still up 50% yoy). In the wake of challenging credit environment and attractive interest rates, bank’s investment in credit substitutes (A+ to AAA rated CPs/Bonds) has grown 3x over the past six quarters to ~Rs120bn. Yes Bank expects its loan book to grow ahead of the system in FY13; our expectation is 20-21%. Bank is likely to accelerate lending in FY14 as credit cycle stabilizes and interest rates decline materially.
Aided by substantial branch addition over the past ten quarters (branch network has grown by 2.7x to 412) and higher savings rate (6-7%) offered since October 2011, Yes continues to witness robust CASA traction. The ratio increased to 18.3%, up 100bps qoq and 570bps yoy. The bank seems to be on track to reach 19-20% by end FY13 and 24-25% by end FY14. Mobilisation of Branch Banking FDs picked-up (9% qoq/29% yoy) after having seen an absolute declined in the previous quarter. The share of wholesale funding (including CDs) remained above 60%.
As expected, NIM improved by 10bps qoq to 2.9% aided by 20bps sequential decline in the cost of funds. The wholesale borrowing cost was benign during the quarter enabling the bank to renew bulk deposits and raise fresh funding at lower rates. Further, substantial increase in the CASA ratio has contributed in lowering the blended cost of funds. Lending yield marginally declined by 10bps qoq to Q2 FY13 which could be attributed to softening of rates in Wholesale and Commercial Banking segments. Intense focus on building retail asset/liability franchise should keep NIM above 3% in the longer term.
Non-interest income growth continues to be robust with strong traction in Financial Advisory (up 36% qoq/101% yoy), Transaction Banking (up 26% yoy) and Branch Banking (up 66% yoy) streams. Financial markets fee has been muted in the past two quarters. Opex growth remains strong at 39% yoy driven by substantial branch/employee additions. C/I ratio improved by substantial 230bps qoq to 37.5% aided by NIM expansion and robust growth in fee income.
Asset quality improved with both GNPL and NNPL declining by 23-25% on qoq basis. As a percentage of advances, GNPL and NNPL stood at marginal 0.17% and 0.04% respectively. However provisioning was sequentially higher at Rs570mn mainly representing general and contingent provisions. Yes Bank has so far provided more than 80% (~Rs900mn) on Deccan Chronicle account and does not envisage further provisioning as the residual amount is likely to be recovered by liquidation of the assets possessed. No accounts were restructured during the quarter and the outstanding book stood at negligible 0.43% of advances.
Over the past 11 quarters, Yes Bank has consistently delivered robust operating profit growth (average 35% yoy) despite substantial investment on network expansion. Revenue growth has been strong (average 36% yoy) driven by impressive NIM and fee growth performance. Asset quality has also behaved well so far despite weak macro and the deliberate moderation in loan growth since the start of FY12 provides comfort. We expect Yes Bank to deliver 25%+ earnings CAGR and 1.5-1.6% RoA over FY12-15. While we raise our 9-month target to Rs531, maintain Market Performer rating on the stock due to steep rally preceding the results.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||21,336||19,864||7.4||16,841||26.7|
|Net Interest Income||5,843||5,242||11.5||4,276||36.7|
|(Rs bn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on Advances (%)||12.3||12.4||(0.10)||12.4||(0.10)|
|Cost of Deposits (%)||8.5||8.7||(0.20)||8.9||(0.40)|
|Non-interest income (%)||12.8||12.2||0.57||11.2||1.65|
|Cost to Income (%)||37.2||39.5||(2.26)||37.6||(0.36)|