Yes Bank Q2FY12 - Sign of things to come

Yes Bank completed seven years of operations at the end of September 2011. Yesterday, the bank posted its Q2FY12 numbers. Its Net Interest Income increased by 23% to Rs 385.6 crore on the back of stable Net Interest Margin (NIM), which stood at 2.9%. Non Interest Income, which comprises transaction banking, financial markets and the financial advisory business, showed strong growth, and was up 63.4% to Rs 214 crore. The bank’s net profits jumped by 33% to Rs 235.02 crore. However, yesterday the scrip closed 1% down to Rs 287.

The following are the key parameters of the banks financials:

Loans and credit substitutes grew by 27.4% to Rs 40760.1 crore. Of this, loan comprises Rs 34194 crore and the rest is from credit substitutes. Corporate and institutional banking accounted for 61.4% of the loan portfolio, commercial banking accounted for 23.8% and the remaining 14.9% came from SME and retail.

YES Bank’s total deposits grew by 10.2% to Rs 44075.9 crore on a YoY basis. The CASA ratio moved up by 90 basis points to 11%. The borrowings for this fiscal increased by 53% to Rs 10219.82 crore. The bank has taken up low cost foreign currency borrowings, which increased by 36% to Rs 2500 crore during this fiscal.

Both, the Gross NPAs and Net NPAs of the bank decreased by 0.02 basis points and stood at 0.20% and 0.04% respectively. At 1.6%, its Return on Assets improved by 0.10 basis points.

Provision increased by 117% to Rs 37.87 crore due to the restructuring of MFI accounts. The bank’s Capital Adequacy Ratio (CAR) came down by 345 basis points to 15.98% on a YoY basis, and subsequently it is down by 22 basis points. However, this is still way above the RBI’s minimum requirement of 9%. Of this, the Tier 1 CAR stood at 9.4%.

YES Bank’s corporate banking segment showed strong growth in profits, which increased by 40% to Rs 271.7 crore. The retail segment though, continued making losses for the second quarter in a row – the segment made a loss of Rs 17 crore on the back of branch expansion costs. 50 new branches were added during the quarter, and as of September 2011, the total branch network stood at 305 branches. The retail segment is expected to contribute to the bank's profit once the branches are well established.

The bank has less exposure to risky sectors like power (merely 4%) and electricity (3.3%). Also, the funding to these sectors is basically in working capital finance and not in project finance, where there is higher risk.

Overall, the bank posted good numbers. The scrip is currently trading 1.69% down to Rs 280. The management believes that it will able to maintain the Net Interest Margin in the coming quarters, and expects credit growth of 25% for FY12. With interest rates almost reaching a peak, we expect YES Bank to perform well in the coming quarter. Hence, one can invest in the scrip in a staggered manner.