Yes Bank Q4 Results Review - Core Operating Earnings Improvement To Be Gradual: ICICI Securities

ICICI Securities Report

Yes Bank Ltd. reported a mixed set of Q4 FY23 earnings with healthy business growth, net interest margins and improvement in headline net stress, though profitability (return on asset at 0.2%) remained weak due to continued investment in franchise and retail orientation.

Despite sectoral headwinds, we have been impressed by Yes Bank’s remarkable progress in ‘retailisation’ of balance sheet, sharp clean-up in asset quality and improved capital levels. The bank appears to be the preferred banker to ‘Digital India’ and has disproportionate market share in digital payments.

However, we remain concerned on its muted operating earnings profile (~1.0% for FY23), where we see only gradual improvement going ahead (1.2-1.3% for FY24-25) due to relatively higher gestation period of retail business and intense competition.

Despite building in modest credit costs at ~50 basis points for FY24/25, we see the bank reporting sub-par return on assets at 0.6-0.7%.

Yes Bank has additional lumpy risks on additional tier -I bonds write-offs litigation (~300 bps of Common Equity Tier 1 impact in worst case), which is pending in the Supreme Court.

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