Yes Bank - Destination still far from sight, journey looks right

What’s Buzzing:

Yes Bank’s asset quality is witnessing a gradual improvement amid rising recoveries & upgrades and reduction in overdue pool. Hence, it seems that the bank is on the cusp of a recovery.

Context:

Yes Bank’s sequential growth trend seems encouraging with robust advance growth, improvement in CASA deposits and retail/SME mix and declining credit cost, indicating reversion to normalcy. The bank had witnessed a recovery of Rs 5000 crore from bad loans in FY21 and aims to recover further Rs 5000 crore in FY22. However, as the situation stands, the bank will have to depend on further resolution from bad accounts in order to complete the turnaround story. The stock has been consolidating in the range of Rs 12 to Rs 15 per share over the past 6 months.

Our Perspective:

Currently, the bank has a GNPA ratio of 15.0%, which is down from its peak of 18.9% in Q3FY20. Currently, stressed assets are at 18.1%, mainly due to increase on account of Covid 2.0 and MSME 2.0 restructuring. The bank has been actively making provisions and has PCR of 76.7%. It is expected to recover 50-60% of its bad loans. Yes bank is currently improving its business mix towards retail + MSME lending with 54% in Q2FY22 and is targeting retail: corporate mix of 60:40. Due to improvement in asset quality and business mix, the bank has started to witness improvement in NIMs, which is further expected to inch up in the coming quarters. The bank has started witnessing positive advances and CASA growth also. Hence, all parameters indicate that the bank is back on track for business normalcy. However, currently the bank has Rs 51,000 crore in the pool from the resolution standpoint, with total recoveries and upgrades of Rs 4,280 crore in H1FY22. For the bank to show a turnaround it needs to grow its retail book, wait for a resolution from some of its large written off accounts. Hence, a recovery is still far away for Yes Bank.

Footnote of exposures:

Anil Ambani led Reliance group (Rs 12,800 crore), Essel group (Rs 8,400 crore), DHFL group (Rs 4,735 crore), Vodafone Idea (Rs 4,000 crore), IL&FS group (Rs 2,500 crore), Jet Airways (Rs 1,100 crore), etc (~ Rs 34,000 crore from large borrowers).