Private sector lender Yes Bank is likely to report strong growth in net interest income driven by healthy advances with stable asset quality, but margins may remain under pressure for the quarter ended September 2018.
The stock plunged 46 percent during July-September period and 32 percent year-to-date, especially after RBI asked Rana Kapoor to step down as MD and CEO from January 2019.
Net Interest Income
Brokerage houses expect net interest income (NII) to rise in the range of 25-37 percent YoY on the back of strong loan growth.
Prabhudas Lilladher said it expects NII growth at around 30.5 percent for the quarter YoY. "Yes bank should continue to report robust earnings on back robust business momentum continuing (already announced) but NII should continue lagging balance sheet growth as bank moved to high rated assets."
Among brokerages considered for this article, Emkay Research sees the highest increase of 37 percent in NII YoY while Axis Capital, Motilal Oswal and Kotak expects growth at around 25-29 percent.
Non-interest income growth is likely to be around 30 percent YoY, led by strong growth from third-party distribution and processing fees, Motilal Oswal said.
Loan Growth
Yes Bank is likely to report highest loan growth among banking & financials driven by refinancing and retail segments. All brokerage houses expect growth more than 60 percent YoY.
"We expect loan growth to be significantly ahead of the system at around 61 percent YoY on the back of refinancing opportunities and strong growth in retail banking. Deposits growth is also likely to remain strong at 41 percent YoY," Motilal Oswal said.
Kotak also expects advances growth to remain strong at more than 60 percent YoY (already reported) led by corporate loans (mostly led by refinancing).
Prabhudas Lilladher as well as Axis Capital see loan growth around 62 percent each YoY.
Net Interest Margin
Overall brokerage houses feel the net interest margin (NIM) for the quarter is expected to be under pressure due to higher cost of funds.
Kotak expects NIM to remain under pressure given the mix of loans being acquired while Motilal Oswal expects NIM to be under pressure due to transient impact of higher cost of funds (re pricing of deposits) and yield on loans.
Asset Quality
Asset quality of the bank is likely to be stable for the quarter ended September 2018.
Motilal Oswal said asset quality performance so far has been significantly better than industry and it expects this trend to continue in Q2. Kotak also sees stable asset quality trend for the quarter.
Prabhudas Lilladher expects gross non-performing assets (NPA) at around 1.35 percent against 1.31 percent in previous quarter.
Axis Capital expects marginal (5 bps QoQ) deterioration in GNPAs while Motilal Oswal expects GNPA at around 1.4 percent in Q2.
Emkay Research said the divergence will be key to watch for if the RBI supervision is completed during Q2FY19.
Prabhudas Lilladher expects 57 percent YoY and 12 percent QoQ increase provisions and contingencies.
Profit
Most brokerages expect profit growth to be in double digit but only Kotak sees falling 1.6 percent YoY. Provisions could be the reason for fall in profitability.
Emkay Research expects profit growth at around 37 percent, Prabhudas Lilladher 34.7 percent, Axis Capital 22 percent and Motilal Oswal 17 percent compared to year-ago.
Key issues to watch out for
> Succession planning for Rana Kapoor post the RBI directions and the capital raising plans
> Performance on asset quality (divergence if any) / CASA / margins
> CET-1 levels after strong growth, NIMs and RBI asset quality audit report (if any)
> Revenue growth
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