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Religare
YES Bank (Buy)
CMP: ₹847
Target: ₹1,050
YES Bank has recently tweaked its savings account (SA) deposit rate structure which is likely to shave 15-20 bps off savings deposit cost. The cost of term deposits is already down by 25-50 bps on the retail side and 50-75 bps on the wholesale side from the last peak. We expect the bank’s liability franchise to improve as the share of CASA (22.6 per cent in Q3FY15) and retail term deposits (22.8 per cent) is likely to go up every year. While the bank is likely cut its base rate in FY16 (in line with the industry), we still expect 10 bps margin expansion in FY16/FY17 each. YES Bank’s net NPA ratio has remained steady in the last two years despite a weak economy, and its NPA coverage ratio is robust at 75 per cent+. We expect credit cost to remain in the range of 50-55bps over FY15-FY17. We expect YES Bank to report steady margin improvement over FY15-FY17 as multiple factors combine to bring down its cost of funds. We model for loan growth of 23 per cent over FY15-FY17 — much above the system/peers driven by robust growth in the SME and MSME segments, along with stable credit quality. ROE is likely to remain at about 20 per cent despite recent equity dilution due to high growth and improving margins.
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