The YES Bank management met with Kotak Institutional Equities on Day 4 of Chasing Growth 2024 conference. The key takeaway, Kotak said, was that the private bank was building on the five anchors to its improve profitability. They include a reduction in Priority Sector Lending (PSL) shortfall, an improvement in CASA mix, improvement in asset yields through risk calibrated mix change, increasing the share of non-interest income and reduction in the cost-income ratio.
Kotak said YES Bank has been able to reduce the PSL shortfall through better acquisition strategies than what has been in the past. It said YES Bank has been able to attract talent without any serious difference in cost structure.
"The bank is also looking to increase the share of insourcing of loans as compared to relying on external agencies. There is not much of a worry on the NPL formation as these are mostly smaller ticket sized loans. The bank has started to focus lot more SME and mid-market portfolios," Kotak said.
Also read: YES Bank target price at Rs 16! Goldman Sachs suggests 41% downside on banking stock
The domestic broking firm said there has been several measures that YES Bank took in the unsecured loan portfolio to cut the prevailing level of stress. The bank was not much worried and said it should see an improvement lot sooner, Kotak said.
"This includes lowering the share of new-to-credit customers or customers with lower income," Kotak said.
YES Bank said it was seeing a significant traction in deposit mobilisation compared to peers. YES Bank is probably one of the few banks to report an increase in incremental market share in mobilisation of CASA deposits, Kotak said adding that the bank is relatively small in overall deposit market share but is stronger in payments and transaction banking.
"This is giving the bank a strong relationship with the borrower. The bank is comfortable to have CD ratio at 90 per cent levels. A total of 10 per cent of assets are currently in RIDF and hence this ratio appears to be comfortable," Kotak said.
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“The brand of the bank continues to remain exceptionally strong. Any study undertaken on this issue gave strong feedback of the bank. Hence, the bank chose to continue with the existing name. Employees are lot more comfortable with the bank today. A lot of changes have been done to ensure that the past NPL cycle is not repeated. The checks and balances are lot stronger. Risk and policy decisions are governed by independent heads,” Kotak said.
YES Bank said there is a lot more committee-based approach towards decision making, especially for the larger ticket size loans. A significant effort has been made to debulk the balance sheet and hence this is not getting reflected in higher growth, Kotak said.
“The bank is looking to reduce the share of net NPA and net carrying value of security receipts to less than 1 per cent in the next few quarters. Operating profit growth still has a lot of room for improvement and there is still a lot of volatility that is there in each quarter which probably makes forecasting near term earnings a challenge. However, the bank has limited headroom on this issue. Credit costs are currently lower but also reflects the nature of asset mix and provisions made previously,” YES Bank said.
Capital adequacy levels for YES Bank remained comfortable and there is no near-term need for any capital requirements to fund growth, Kotak said.
On Friday, YES Bank shares fell 2.4 per cent in early trade to hit a low of Rs 26.51 on BSE, before recouping some ground. The stock later traded at Rs 26.77 level, down 1.44 per cent over its previous closing price. The YES Bank stock is up 18.37 per cent year-to-date. It has gained 63.41 per cent in the last one year.
On private banks, Goldman Sachs said that most of the large and mid-sized private banks are trading at a close valuation band and that a visibility on loan growth, PPOP-ROA and credit quality will play a key role.
YES Bank target price at Rs 16! Goldman Sachs suggests 41% downside on banking stock
Shares of YES Bank Ltd were trading about 3 per cent lower in Friday's trade, as Goldman Sachs announced a target price of Rs 16 on the private lender, which hinted a potential 41 per cent downside.
YES Bank shares fell 2.39 per cent in early trade to hit a low of Rs 26.51 on BSE, before recovering some ground. YES Bank shares, which are widely tracked by retail investors, are up 18.37 per cent year-to-date and are up 63.41 per cent in the last one year.
A lot of changes have been done to ensure that the past NPL cycle is not repeated. The checks and balances are lot stronger. Risk and policy decisions are governed by independent heads. There is lot more committee-based approach towards decision making, especially for the larger ticket size loans.
Significant effort has been made to debulk the balance sheet and hence this is not getting reflected in higher growth
Also read: Goldman Sachs says 'Sell' YES Bank shares, downgrades SBI, ICICI; Buy HDFC Bank, it says