YES Bank (Buy)
Following YES Bank’s equity capital raising of $500 million in the week-ended May 30, one of the market’s key concerns relating to its lower Tier-I capital vs. peers is behind us. Post the equity dilution from this capital raising, the bank’s Tier-I capital ratio is now over 13 per cent. Also, despite the dilution, we forecast YES Bank to generate a return on equity of above 22 per cent in FY15 and FY16, one of the highest levels among the banks we cover. YES Bank looks the best placed among the banks we cover to benefit from the expected upturn in the economy. Further, we expect YES Bank to see one of the highest NIM expansions in our coverage for FY15-16, for which we forecast its net interest margin to expand by 25-40 bps, based on 4 factors. The main risk to our call is a deterioration in the bank’s asset quality if the expected economic recovery does not materialise.