But analysts stayed wary of the private lender.
A 26.5 per cent YoY fall in the lender’s net interest income and higher slippages in the retail and SME segments disappointed analysts who said the fall in corporate portfolio slippages was primarily due to higher share of loans getting restructured.
“While there is significant improvement in earnings in Q1, profitability remains low with return on assets of 0.3 per cent, and stress loans remain uncomfortably high at 29 per cent,” said Elara Capital, which has a target of Rs 6 on the stock.
This target suggests a 57 per cent downside from Monday’s high of Rs 14.05 on BSE.
The situation at the bank is far from stable, Edelweiss said. “Despite deposit traction, asset quality remains a problem of unknown size,” it said.
“The bank’s identified pool of stressed advances of over Rs 4,500 crore forms over 20 per cent of its book. While slippages were lower sequentially, the quarter saw a sharp rise in restructured book to Rs 5,000 crore, reflecting sustained asset quality pressure points,” it said adding that even though the provision coverage ratio is at 65 per cent-plus, high stressed pool along with current environment does not portend an easy resolution of incremental problems.
For the quarter, YES Bank’s gross non-performing loans ratio rose to 15.6 per cent from 15.41 per cent in the previous quarter. The provision coverage ratio, meanwhile, saw a sequential improvement to 79.3 per cent.
While the overall advances fell 1 per cent in the June quarter, the lender reported 23 per cent growth in its retail and small businesses loan book that was above its full-year guidance of 20 per cent.
Net profit increased to Rs 207 crore from Rs 45 crore a year earlier and was in contrast with the Rs 678 crore loss predicted by a Bloomberg poll of analysts.
On a positive note, Kotak Securities said, YES Bank continues to surprise on its deposit mobilisation that is reflected by the rising share of retail deposits. “This has resulted in a steady decline in cost of funds, an important journey during this transition,” Kotak said.
The bank said that its belief that the employees at the bank would decline has not happened, suggesting that the effort to resuscitate the bank to normalcy is in full swing by the management.
But the brokerage has maintained its ‘sell’ rating on the stock with a target of Rs 11 as it values the bank at 1.1 times book for return on equity (RoE), which is likely to remain quite weak in the medium term.
“Earnings are far too volatile given the impact that these slippages have on NII and provisions. The bank’s capital position is above regulatory requirements but the flexibility to make higher provisions is quite limited,” Kotak said.
has revised its target to Rs 14 from Rs 16 as it feels that one should watch out for sharp spikes in retail slippages, retail overdue buckets and elevated stress pool. It felt that restrictions on network partner Mastercard will adversely impact new credit card issuances of the bank.
“RoEs of less than 6 per cent over the next couple of years will likely cap rerating beyond 1 times FY23E book,” it said.
