A couple of brokerages including Kotak Institutional Equities and JM Financial hosted banks at their conferences, and YES Bank was among them. The private lender participated in the Kotak Midcap Conference 2024 and JM Financial India Conference 2024 and offered insights into its business activities.
Kotak said YES Bank Ltd has made significant improvements across various parameters, completely weeding out low-rated, high-yielding corporate lending. The YES Bank management told Kotak that it has not pursued an increase in unsecured retail lending. The proportion of credit cards, MFI, and Personal Loans at YES Bank is significantly lower compared to its competitors.
The management has made considerable progress in turnaround efforts related to deposit mobilisation, with total deposits increasing from Rs 1.7 lakh crore to Rs 2.7 lakh crore.
Kotak said, the bank's yield on advances is comparable to large private banks, distinguishing it from the trend observed in mid-sized private banks.
The management, it said, identified two key levers to improve yield: increasing pricing and shifting the loan mix, as well as a decline in RIDF deposits.
"The bank has shifted from higher-yield corporate exposures to retail loans, which have been constructed in a conservative manner; this increase in the share of retail loans is expected to drive loan yields closer to 10.5-11 per cent, excluding the impact of the current rate cycle," it said.
JM Financial noted that YES Bank expects to gradually increase return on asset from 0.5 per cent at present to 1 per cent by focusing on improving margins by changing asset mix while simultaneously running down corporate book, and organically meeting PSL targets so as to prevent RIDF drag on margins.
"Further, healthy recoveries north of Rs 4,000 crore are expected from SRs which will be used to write back earlier provisions giving additional boost to return metrics. The management acknowledged that C/I ratio has scope for improvement which the bank is optimising by right sizing the organisation," it said.
Kotak said the management reported an inability to meet PSL targets for FY2021-22-23, resulting in a 70 bps drag on NII as a percentage of assets due to negative impacts from Rural Infrastructure Development Fund deposits aimed at compensating for the PSL shortfall.
Out of a total balance sheet of Rs1 lakh crore, RIDF deposits amount to Rs 44,000 crore, representing 11 per cent of assets. The drag from these deposits is attributed to a yield of 5-5.5 per cent against the cost of raising these funds.
"However, it is projected that by FY2027, RIDF deposits will decrease to 5 per cent of assets, resulting in an anticipated 40-45 bps benefit to yield," the brokerage said.
Both Kotak and JM Financial have sell rating on YES Bank. Kotak has a target price of Rs 18 on the stock. YES Bank shares on Tuesday climbed 4.63 per cent to Rs 20.10 apiece.