YES Bank once again delivered a robust growth in earnings in the September quarter, thanks to its well-rounded performance across various parameters.
But investors’ anxiety stems from a different set of issues. For the bank that has delivered loan growth at a run-rate of around 25-26 per cent for many quarters now, the anaemic levels of growth at the system level matter little. It is also insulated from asset quality concerns that had taken centre-stage post the RBI’s asset quality review last year.
Despite its higher corporate exposure and stellar growth in loans, YES Bank’s asset quality continues to be stable. In the September quarter, its gross non-performing assets stood at 0.83 per cent of loans, still lower than most private banks; over the past five years, the bank’s GNPA has been below 1 per cent of loans.
That being the case, investors were mainly concerned about the bank’s ability to raise the requisite capital to fund its growth in the coming quarters. More so, because it recently had to defer its QIP plan to raise $1 billion on technical grounds.
As of September 2016, the bank’s loans grew 37.7 per cent year-on-year, resulting in a 30.5 per cent growth in its core net interest income and 31 per cent rise in net profit. The bank’s tier I capital stood at 10.1 per cent as of September 2016. With such a stellar growth in the first half of the fiscal, continued traction in loans no doubt hinge on the bank’s ability to raise capital.
Debt issueThe bank clarified on Thursday that it planned to raise ₹10,000 crore by issuing debt on private placement basis along with funds through QIP, for which approval is valid until June next year.
In any case YES Bank’s strong return on equity (ROE) would have kept its growth in good stead for the next 12-18 months. Beyond that the bank would have to raise funds from the market. The bank’s ROE which has been in the 18-25 per cent range in the last couple of years has kept the growth in capital intact through internal accretion. YES Bank last raised funds via QIP in 2014 to the tune of $500 million. In the September quarter, the ROE stood at 21.4 per cent. The loan book is likely to grow at a steady 20-25 per cent over the next two years, driven by the corporate segment that constitutes 67.9 per cent of total loans and the management’s focus on the SME and retail segments.
Investors can also find comfort in the bank’s robust growth in deposits at a time when deposit growth in the sector has been muted.
For YES Bank, its strong growth in low cost deposits has been a key driver of margins. CASA grew a robust 53 per cent year on year in the September quarter, forming 30.3 per cent of deposits.
This is a sharp jump from 10-odd per cent levels about five years back.