Yes Bank’s balance sheet growth was strong at 14% qoq/25% yoy (much higher than our expectations). Deposits grew by robust 19% qoq/36% yoy. Driven by substantial network expansion and higher savings rate, CASA continues to grow ahead of overall deposits. CASA ratio improved 60bps qoq to 18.9%; it improved by 400bps in FY13. Savings deposits now comprise nearly 50% of CASA balance. The share of overall retail liability franchise (CASA + Retail TDs) within deposits stood at 35.5%; moving in-line with the strategy of adding granularity to deposits.
Customer assets (loans + credit substitutes) growth was also brisk at 8% qoq/31% yoy. Loan growth came in higher than our expectation at 7% qoq/24% yoy and therefore constituted bulk of the expansion in customer assets. Credit substitutes (A+ to AAA rated CPs/Bonds) book grew by 12% qoq forming 22%/13% of customer assets/balance sheet. In the wake of challenging credit environment and attractive interest rates, Yes Bank continued to drive partial assets expansion through credit substitutes in Q4 FY13. The segmental composition of customer assets stood at 65%/17%/18% between Wholesale/Commercial/Branch banking. In FY14, bank is likely to accelerate lending as credit cycle stabilizes and interest rates decline materially.
As expected, NIM was stable at 3%. Gross lending yield marginally improved while cost of funds continued to moderate in line with expectations. So while the spread improved, NIM was unchanged due to higher investment mix, lower yields on this portfolio and increase in leverage. Yes Bank expects its margin to improve by 15-20bps over the coming four quarters driven by sharp CASA improvement. We believe that benign wholesale borrowing cost, lower investment mix and planned capital raising (up to US$500mn) would also support NIM in FY14. We estimate CASA ratio at 24% and 29% by the end of FY14 and FY15.
Non-interest income growth continues to be robust at 42% yoy aided by strong traction in Financial Advisory (62% yoy), Transaction Banking (33% yoy) and Branch Banking (91% yoy) streams. Financial markets fee was up 83% qoq; most likely included ‾Rs450mn gains on the bond book. Opex growth remained substantial at 15% qoq/35% yoy due to significant branch/employee additions. C/I ratio was largely stable on sequential basis at 37.7% supported by the robust revenue growth. We estimate this ratio to remain in a narrow band of 38-40% in ensuing quarters.
Asset quality was largely stable during the quarter with GNPL ratio stable at 20bps. NNPL ratio declined to negligible levels as bank shored-up provisioning cover to 93%. Slippages were benign at ‾Rs350mn. In Q4 FY13, bank also provided ‾Rs250mn on adversely labelled assets (looking stressed currently) and ‾Rs120mn provisioning was related to investments and unrealized receivables. Fresh restructuring activity was marginal and the outstanding book stood at just 30bps of advances. For the first time, Yes Bank gave a credit cost guidance of 50-60bps for FY14 which is based on its loan growth and slippage outlook and includes a scope for counter-cyclical buffer. As the bank expects material bond gains due to interest rate decline, the above guidance is not likely to impact the current RoA trajectory. With 9.5% Tier-1 capital ratio (would weaken significantly post final dividend payout) and gradually improving growth outlook, Yes Bank plans to raise up to US$500mn through equity issuance.
Yes Bank continues to deliver industry-best profitability growth; net profit growth has been above 30% over the past many quarters despite substantial investment on network expansion. Revenue growth has been commendable (average 37% yoy in the past 12 quarters) driven by impressive NIM and fee growth performance. Asset quality has also behaved well with diversified, granular and short‐term nature of the corporate and commercial banking book standing in good stead.
We recently upgraded Yes Bank to BUY on March 26, 2013 and the stock has rallied ‾10% since then. Robust revenue/earnings performance in Q4 FY13 has enforced us to upgrade FY14/15 earnings. The book value is likely to get a boost from impending capital raise (assumed in our model at Rs500/share). Despite factoring higher provisioning as guided, we do not envisage any dilution in the bank’s RoA and earnings growth delivery (the latter estimated to be amongst the best in the industry). Maintain BUY rating on the stock and raise 9-month target to Rs557.
|(Rs mn)||Q4 FY13||Q3 FY13||% qoq||Q4 FY12||% yoy|
|Total Interest Income||22,877||21,336||7.2||17,851||28.2|
|Net Interest Income||6,381||5,843||9.2||4,482||42.4|
|(Rs bn)||Q4 FY13||Q3 FY13||% qoq||Q4 FY12||% yoy|
|Key Ratios||Q4 FY13||Q3 FY13||chg qoq||Q4 FY12||chg yoy|
|Yield on Advances (%)||12.4||12.3||0.10||12.5||(0.10)|
|Cost of Deposits (%)||8.4||8.5||(0.10)||9.0||(0.60)|
|Non-interest income (%)||14.2||12.8||1.42||13.0||1.24|
|Cost to Income (%)||
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