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PhillipCapital
YES Bank (Buy)
CMP: ₹221
Target: ₹300
YES Bank in its press release on 13th Feb 2019 reported that it has received the Risk Assessment Report for FY2018 from RBI. The report observes NIL divergences in the bank’s asset classification and provisioning from the RBI norms for FY2018. We believe this is a big positive for the banks as this allays concern related to NPA recognition process followed by the bank.
Announcement of Ravneet Singh Gill as New MD & CEO and Nil divergence in RBI’s AQR report is positive for the bank as it will address uncertainties related to top management and asset quality. We believe focus will now shift towards future growth which will depend on bank’s ability to raise capital.
With RBI’s AQR report out we expect banks to start focusing on raising capital once new MD & CEO joins on March 1, 2019. However, we have not factored in any capital raise as we would wait for new CEO strategy and hence model a moderate loan book growth of 23 per cent/19 per cent for FY19/20 and its impact on fee income. Moderating credit growth coupled with slowing fee income would keep return ratio (RoA) in the range of 1-1.1 per cent in medium term.
We maintain ‘buy’ owing to inexpensive valuation and higher than industry average credit growth.
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