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Yes bank – achieving growth as planned

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Yes bank – achieving growth as planned

Our team recently met the management of Yes Bank. The purpose was to review the business prospects and the version 2 plan in context of the current macro environment and tight monetary policy.
The management of the bank is confident in achieving its goals of version 2 unlike a situation in 2008-09 where plans of expansion where shelved due to the macroeconomic environment. The bank has gained size from Rs229 bn in FY09 to Rs590 bn in FY11 and the ability to successfully emerge from the previous adverse interest rate cycle has enabled it to tide over the current high interest rate environment.
We also wanted to review our concern on scale and granularity of the bank. In that context, top 20 depositors make up 18.3% of deposits and top 20 borrowers make up 14% of the loan book ( top 5 borrowers would make up 7-8% of loan book). While many of the large banks slowed down activity post crisis, Yes Bank used this as an opportunity to build relationships with large and medium corporates. The bank has 500-600 existing relationships with large corporates and a CRM of 2,000 corporates in the pipeline. This has enabled the bank to move from the last leg in the consortium to becoming a consortium player.
Balance sheet and loan book growth continues to be on track and the management has indicated a growth ~2x of the industry (35-40% for FY12E). Specific sectors of growth over the next 2-3 quarters are life sciences, pharma and segments of engineering, while food and agri will be driven by seasonal and cyclical trends of monsoons, cropping patterns and commodity prices. We expect the loan book to grow at a CAGR of 36% over FY11-13E with increasing focus on commercial (mid corporates) and branch banking.
The bank is on track with its version 2 target of 250 branches in June 2011. New branches will increasingly focus on commercial and branch banking activities and the focus is towards building a liability franchise. Moving towards a hub and spoke model, Yes Bank has the hub in place with the first 50 -75 branches and is expanding to incorporate the spokes.
We believe that the gestation period of new branches for Yes Bank might be higher as compared to 12-15 months for the industry owing to the fact that the bank is in a build up phase for SME and branch banking activities. Thus despite a slower growth in term deposits at a 34% CAGR over FY11-13E and a stronger CAGR in CASA of 51% CAGR over FY11-13E we expect CASA share of ~13% in FY13E.
The bank’s ALM is structured such that 78% of liabilities are <1 year and 49% of assets are less than 1 year (based on the FY11). Thus the rising interest rate environment during Q1FY12 would exert pressure on NIMs. We expect NIMs for FY12 to remain below 3%. However, beyond the inflexion point of interest rates moving upwards we expect the 55% floating loan book to even out rates at ~2.8-2.9%. Thus NIMs are likely to remain flat to marginally negative.

The bank had a CAR of 16.5% (March 2011) with a tier I capital of 9.7%. With a balance sheet growth of 33% over FY11-13E, Tier I is likely to slip below 9% in FY12E. We believe that the bank will have to raise capital towards the end of FY12 or Q1FY12. We have
factored in capital raising of `13.2 bn in Q1FY12 which will give a tier I headroom of 175- 200 bps. We also acknowledge that capital raising in the current environment might be a challenge for the bank and a delay will influence the pace of growth at which the bank is expected to grow over the next 2 years.

Written by Fundamental Side

July 14, 2011 at 2:50 pm

Posted in Fundamental Side

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