Motilal Oswal believes that the bank’s strong liability franchise is the key to its performance.
Private sector lender Yes Bank’s stock was under pressure post the release of its annual report on May 12 based on data regarding its non-performing assets. However, analysts were largely bullish on the stock due to the operational performance of the bank, which, according to them, was steady.
One such brokerage now sees 51 percent upside in the stock on the back of a strong liability franchise for the bank.
Motilal Oswal said that the bank was its top pick among mid-sized private banks with healthy capitalisation, strong capital allocation and market-leading growth rates.
“Liability franchise has strengthened significantly with sustained improvement in CASA ratio to 36.3 percent, improving concentration ratios and more favourable asset liability management profile,” Motilal Oswal said in its report. This has also benefitted NIM and increased fee income streams, it added.
The brokerage house also highlighted about the bank’s increase in the loan market share to 1.7 percent of the system. Yes Bank is consuming capital at a fast space— steep increase in RWA; recent capital raising is also providing a cushion for future growth, the report added.
Motilal Oswal also highlighted that the bank had reported 76 basis points GNPA for FY16, whereas the RBI estimated 5% GNPA. “The divergence was owing to the fact that while rule-based accounting (90dpd) allows banks to classify some accounts as standard, RBI may ask banks to classify accounts with inherent weaknesses as NPAs,” the report explained.
We see divergence-related issues and surrounding noise as transitory. Despite the significant recognition during the year, Yes Bank has best in class net stress loans of 2.2 percent v/s peer corporate lenders, the report added.From FY17 onwards, reporting of the divergence is a mandatory disclosure in the annual report. Bank has fully accounted for divergences in FY17.