Q4 COMMENT. YES, it was a good show

YES Bank delivered a strong net profit growth of 28 per cent during the March quarter, backed by a healthy 35.8 per cent growth in loans and improvement in margins.

The bank has ended the year (2014-15) with a strong 24 per cent growth in earnings, showing resilience in challenging times.

The only weak link in the results is an increase in restructured loans during the quarter.

YES Bank has beaten the industry credit growth by a wide margin, still languishing at decade low levels of 9.5 per cent. During 2012-13, conscious of the growing risk within the sector, the bank started deploying funds towards corporate bonds. In recent quarters, the bank has reduced its exposure to corporate bonds, and instead upped its lending. As of March 2015, bonds are about 13 per cent of the total customer assets, down from about 20 per cent in the previous year.

This change in mix, has led to higher loan growth and better margins. Corporate Banking accounts for 65 per cent of the loan portfolio, while retail and MSME put together constitute about 35 per cent of the loan book. The healthy growth in loans has led to a strong net interest income growth of 35.8 per cent during the March quarter.

The net interest margin for the full year has gone up from 2.9 per cent to 3.2 per cent as of March 2015. Improving low cost current account savings account (CASA) ratio has also aided margin expansion. CASA ratio has increased to 23 per cent from 22 per cent a year back. Over the last two years the CASA ratio has gone up by about 4 percentage points.

Following the deregulation of interest on savings account from Oct 2011, YES Bank was the first bank to offer differentiated rates, and was able to increase its share in savings account significantly.

Effective April 2015, the bank has increased the ceiling for 7 per cent interest rate, from ₹1 lakh to ₹3 lakh. This should aid margins to some extent.

YES Bank also has a strong capital adequacy (Tier I) ratio of 11.5 per cent. In its board meeting the bank has approved capital raising up to $1 billion through QIP.

The bank also plans to raise about ₹10,000 crore through issue of infrastructure bonds as well as Tier I and Tier II bonds. In July last year, the RBI allowed banks to raise funds specifically for lending to infrastructure sector and affordable housing segment without regulatory requirements.

This will help bring down cost of funds when lending to longer term projects.

YES Bank has been able to maintain good asset quality thanks to its well diversified exposure to various sectors.

The gross non performing assets (GNPA) stood at 0.41 per cent of loans in the March quarter as against 0.42 per cent last quarter. However, restructured loans have doubled to ₹381 crore, from last quarter.

This has largely been led by one account, where there has been a delay in completion of project. As a percentage of loans, restructured book is now 0.5 per cent up from 0.26 per cent in the December quarter. The bank however has a healthy provision cover at 72 per cent.

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