EUR 120.00 For Business Accounts Only

MOSL: YES BANK (Buy)-A tough start to a fruitful journey

YES BANK: A tough start to a fruitful journey

(YES IN, Mkt Cap USD7.8b, CMP INR237, TP INR280, 18% Upside, Buy)

• YES reported a loss of INR15.1b, dragged by higher provisions of INR36.6b, as the bank accelerated the recognition of stressed assets and created contingent provisions of INR21b for stressed assets amounting to INR100b.
• NII stood at INR25b (16% YoY/-6% QoQ) owing to moderate loan growth and net interest reversal of INR1b, resulting in margin contraction to 3.1% (-20bp QoQ). Other income declined 63% YoY to INR5.3b due to a one-time reversal of INR2.8b in corporate banking fees. For FY19, NII/PPoP grew 27%/5% YoY, while PAT was at INR17.2b.
• Loan growth moderated to 19% YoY due to lower corporate growth (+14.6% YoY/-4.2% QoQ), while deposits grew 13.4%/2.2% YoY/QoQ. CASA growth moderated (+3% YoY) due to a one-off reduction in CA deposits, resulting in a CASA ratio of 33.1% (-20bp QoQ).
• Fresh slippages increased to INR34.8b (5.8% annualized), as residual ILFS exposure of INR5.3b, airline exposure of INR5.5b and lumpy real estate exposure slipped, driving a 53% QoQ increase in GNPL to INR78.8b (3.2%). Net NPLs increased 56% QoQ to INR44.8b, while PCR declined 114bp QoQ to 43.1%. O/s SMA-2 stands at 0.98% of gross loans. YES guided for credit cost of <125bp for FY20 and expects it to normalize over the following years.
• Other highlights: (i) YES sold one NPA account of INR1.95b from the SR pool, with a cash recovery of INR1.2b. (ii) BB & below rated book increased to ~8% v/s 2.5% in 3QFY19. (iii) YES will follow a conservative accounting policy for the recognition of corporate fees, and thus, expects a moderation in the coming quarters. (iv) Renewed board approval for capital raise up to USD1b.