RESULT, CHANGE IN RECO.

YES Bank (YES) SELL

Banks
CMP(₹): 25 Fair Value(₹): 19 Sector View: Attractive NIFTY-50: 21,353 January 28, 2024

A slow recovery underway Company data and valuation summary

Yes Bank reported 4.5X earnings growth (low base) due to lower provisions, Stock data
whereas operating profits fell 5% yoy. Slippages were unchanged at 2.4%, led
CMP(Rs)/FV(Rs)/Rating 25/19/SELL
by the retail loan portfolio. NIM increased ~10 bps qoq to 2.4%, despite higher
52-week range (Rs) (high-low) 26-14
cost of funds. RoEs are still weak and unchanged qoq at 2%; as highlighted
Mcap (bn) (Rs/US$) 715/8.6
previously, the path to normalized RoE or that closer to peers is still a few
ADTV-3M (mn) (Rs/US$) 7,629/91.8
years away. Downgrade to SELL from REDUCE (FV at Rs19 from Rs17).
Shareholding pattern (%)
Lower provisions aid earnings growth; operating trends weak, as expected
Yes Bank reported a 4.5X yoy earnings growth, led by a ~35% yoy decline in
0.010.5
provisions, while operating profits declined 5% yoy. Revenues grew ~3% yoy, 17.7 0.1

with NII growth at 2% yoy and non-interest income growth at 5% yoy. NIM
improved 10 bps qoq to 2.4%. The gross NPL and net NPL ratios were
29.7 41.9
unchanged at 2.0% and 0.9%, respectively. Slippages were unchanged at 2.4%
and led by the retail segment. The bank had made additional provisions for the
ageing of security receipts. Restructured loans declined ~35 bps qoq to 1.8%.
Promoters FPIs MFs BFI s Retail Others
Cost-income ratio remains high at ~75%, resulting in weak RoEs.

Private Circulation Only. This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities A ct of 1933
Price performance (%) 1M 3M 12M
Pitching a case for RoA improvement; a few years of steady execution needed Absolute 18 55 39
The quarter’s performance is broadly on expected lines. Performance on NIM Rel. to Nifty 18 44 19
has been marginally ahead, as the increase in cost of funds has been slower. Rel. to MSCI India 16 40 16

We have seen a few banks, which have a higher share of wholesale deposits,
Forecasts/Valuations 2024E 2025E 2026E
showing early indications that the cost of funds may be peaking. Asset quality
EPS (Rs) 0.3 0.9 1.4
is holding up, as it is largely driven by retail and credit costs, at this stage of the
EPS growth (%) 23.8 191.3 58.5
bank’s cycle, is likely to remain fairly low. The weak NIM/revenue profile gives
P/E (X) 81.0 27.8 17.5
limited headroom for the bank to make investments at levels that we are seeing
P/B (X) 1.8 1.7 1.6
in other banks and the ability to build the same with lower credit cost
BVPS (Rs) 13.6 14.5 15.9
assumptions is not sustainable. The bank has presented a strong investment
RoE (%) 2.2 6.0 8.8
case for RoA improvement. This would be a function of (1) improving the share
Div. yield (%) 0.0 0.0 0.0
of loans to assets and within this improve the share of higher-yielding loans, (2)
Nll (Rs bn) 80 97 118
reduce PSL shortfall and (3) improve the liability profile. This would help
PPOP (Rs bn) 33 47 69
improve the NIM and fee income, which would enable an improvement in cost-
Net profits (Rs bn) 10 28 45
income ratios and consequently, RoA improvement. On the cost side, the bank
is looking to lower loan origination costs. However, note that the direction of Source: Bloomberg, Company data, Kotak Institutional Equities estimates

this change in the balance sheet is likely to take time and the payoffs may be Prices in this report are based on the market close of
January 25, 2024
slower than expected. Our expectations broadly build in this improvement.
Earnings are likely to remain volatile in the interim.

Downgrade to SELL from REDUCE; price appreciation leaves limited headroom

We downgrade YES Bank to SELL from REDUCE, with the FV at Rs19 (Rs17
earlier), valuing the bank at ~1.2X book and 13X FY2026 EPS for RoEs that are
still <10%. The stock price has seen a sharp price appreciation in recent months,
making a positive investment thesis harder at these levels. As highlighted
previously, the levers to improve return ratios to justify the current multiple is
unlikely to happen. We would need a far lower valuation multiple to change our
view.
Full sector coverage on KINSITE

M B Mahesh, CFA Nischint Chawathe Ashlesh Sonje, CFA Abhijeet Sakhare Varun Palacharla
mb.mahesh@kotak.com nischint.chawathe@kotak.com ashlesh.sonje@kotak.com abhijeet.sakhare@kotak.com varun.palacharla@kotak.com
+91-22-4336-0886 +91-22-4336-0887 +91-22-4336-0889 +91-22-4336-1240 +91-22-4336-0888

Sidham Jain
sidham.jain@kotak.com
 2

Yes Bank—quarterly financial statements, March fiscal year-ends, 2QFY23-2QFY24 (Rs mn)
(% chg.)
3QFY24 3QFY24E 3QFY23 2QFY24 3QFY24E 3QFY23 2QFY24 9MFY24 9MFY23 (% chg.) 2024E 2023 (% chg.) 2025E
Income statement (Rs mn)
Interest income 69,849 69,956 58,720 67,107 (0.2) 19.0 4.1 201,388 164,812 22.2 272,483 226,974 20.1 307,562
Advances 53,547 54,481 46,194 51,229 (1.7) 15.9 4.5 154,495 129,676 19.1 209,965 178,224 17.8 236,988
Investments 12,647 12,132 8,922 11,430 4.2 41.8 10.6 35,726 25,227 41.6 47,739 35,646 33.9 54,656
Balance with RBI 968 1,059 2,267 2,118 (8.6) (57.3) (54.3) 4,068 7,036 (42.2) 14,780 13,104 12.8 15,919
Interest expenses 49,680 50,889 39,014 47,856 (2.4) 27.3 3.8 141,972 106,689 33.1 192,527 147,799 30.3 210,582
Net interest income 20,169 19,067 19,706 19,251 5.8 2.3 4.8 59,416 58,123 2.2 79,956 79,176 1.0 96,981
Non-interest income 11,946 12,332 11,432 12,100 (3.1) 4.5 (1.3) 35,457 28,041 26.4 48,443 39,266 23.4 55,247
Total income 32,115 31,399 31,138 31,351 2.3 3.1 2.4 94,873 86,164 10.1 128,399 118,442 8.4 152,228
Operating expenses 23,474 23,896 22,002 23,337 (1.8) 6.7 0.6 70,035 63,225 10.8 95,375 86,615 10.1 105,228
Employee cost 9,109 9,260 8,574 8,917 (1.6) 6.2 2.1 27,483 25,086 9.6 37,206 33,627 10.6 39,914
Other operating cost 14,365 14,637 13,428 14,420 (1.9) 7.0 (0.4) 42,552 38,139 11.6 58,169 52,988 9.8 65,314
Pre-prov profit 8,640 7,503 9,136 8,013 15.2 (5.4) 7.8 24,838 22,939 8.3 33,024 31,828 3.8 47,000
Provisions 5,547 4,543 8,448 5,004 22.1 (34.3) 10.9 14,154 16,023 (11.7) 20,028 22,198 (9.8) 9,145
Profit before tax 3,093 2,960 689 3,010 4.5 349.1 2.8 10,684 6,916 54.5 12,996 9,629 35.0 37,855
Tax 779 758 174 757 2.7 348.4 2.8 2,692 1,766 52.4 3,327 2,455 35.5 9,691
Reported PAT 2,315 2,202 515 2,252 5.1 349.3 3 7,992 5,150 55.2 9,669 7,174 34.8 28,164
PBT- treasury gains (4,927) (5,170) (6,061) (4,961) NM NM NM (18,246) (15,771) NM 989
Asset quality
GNPL (Rs bn) 45 39 43 14.2 3.2 42 44 (5) 44
NNPL (Rs bn) 19 20 19 (2.0) 2.6 38 17 130 39
GNPL (%) 2.0 2.0 2.0 -2 bps 0 bps 1.8 2.1 -32 bps 1.7
NNPL (%) 0.9 1.0 0.9 -13 bps 0 bps 1.7 0.8 87 bps 1.5
Provision coverage (%) 57 49 56 715 bps 25 bps 9 62 -5318 bps 11
Standard restructured loans (Rs mn) 39.6 58.6 45.0 (32.5) (12.0)
(% of overall loans) 1.8 3.0 2.2 -119 bps -33 bps
Slippages (%) 2.4 3.3 2.4 -98 bps -4 bps
Credit cost (%) 1.0 1.7 1.0 -71 bps 6 bps
Key balance sheet items (Rs bn)
Shareholder funds 417 417 402 414 (0.1) 3.8 0.6 455 407 11.7 483
Advances 2,175 2,177 1,946 2,091 (0.1) 11.8 4.0 2,262 2,033 11.3 2,563
Deposits 2,418 2,418 2,136 2,344 0.0 13.2 3.2 2,512 2,175 15.5 2,872
Current 327 290 324 12.6 0.8 394 336 17.4 458
Saving 391 349 365 12.0 6.9 391 333 17.4 454
CASA (%) 29.7 29.9 29.4 -26 bps 25 bps 31.3 30.8 50 bps 31.8
Term deposits (incl. CD) 1,701 1,497 1,654 13.6 2.8 1,727 — 1,506 1,960
Investments 793 800 684 762 (0.9) 16.0 4.1 853 769 11.0 973
Total assets 3,804 3,551 3,438 3,652 7.1 10.7 4.2 4,022 3,548 13.4 4,508
Advances break-up (Rs bn)
Corporate and institutional 500 589 484 (15) 3.4
Commercial 1,675 1,357 1,607 23 4.2
Medium enterprises (mid-corporate) 313 247 293 26 6.7
Micro and small (SME) 331 272 310 22 7.0
Retail 1,031 838 1,004 23 2.6
Key ratios calculated (%)
Yield on advances 10.0 9.6 10.0 49 bps 3 bps 9.9 9.1 79 bps 9.8 9.3 50 bps 9.8
Cost of funds 6.3 5.6 6.4 76 bps -4 bps 6.3 5.2 103 bps 6.1 5.2 86 bps 5.9
NIM 2.8 3.1 2.8 -30 bps 0 bps 2.7 3.1 -38 bps 2.7 3.1 -38 bps 2.9
Cost income 73.1 70.7 74.4 244 bps -134 bps 73.8 73.4 74.3 74.3 69.1
CD ratio 89.9 91.1 89.2 -114 bps 72 bps 89.9 91.1 90.1 93.5 89.2
RoA 0.25 0.06 0.25 19 bps 0 bps 0.3 0.2 0.7
RoE 2.2 0.6 2.2 167 bps 5 bps 2.2 1.9 6.0
Capital adequecy (%)
CAR 18.2 18.2 17.3 0 bps 90 bps 17.9
Tier-I 13.0 13.0 13.1 0 bps -10 bps 13.3
Other key parameters (#)
Employees 28,094 25,883 28,614 8.5 (1.8) 30,144 27,517 9.5 32,338

Source: Company

YES Bank
Banks India Research
 3

NII declined yoy PBT growth has been very inconsistent

Revenue and NII growth, March fiscal year-ends (%) PBT growth, March fiscal year-ends (%)

NII growth Revenue growth 400 358 349

311
150
122 300
200
100
74 50
61 100 45
140 10
50 27 25 -
84 18 21
14 8 23
32 32 12 16 8 (100) (31) (46)
(100) (81)
- (110)
(200)
(23)(27)(23)(31) (3)
(10)(10) (11)
(300)
(50) (34)
(400)
(100) (500) (430)

2QFY24
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
4QFY23
1QFY24

3QFY24
1QFY23
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22

2QFY23
3QFY23
4QFY23
1QFY24
2QFY24
3QFY24

Source: Company Source: Company

Asset quality shows an unchanged trend

 Headline ratios. Reported gross and net NPL ratios were flat qoq at 2.0% and 0.9%, respectively. The
provision coverage ratio on NPL stands at ~57%. On relative basis, the bank is still lower than peers.

 Non-NPL stress. We have shared a snapshot of the other stressed portfolios for the bank and
corresponding provisions in Exhibit 4. SMA book has been largely flat sequentially. Standard
restructured advances for the bank declined ~40 bps qoq to 1.8% of advances. The bank has ~10%
provision coverage on standard restructured advances.

 NPL additions and reductions. Slippages stood at ~Rs12 bn (~2.4% annualized) and similar to the
last quarter. In the quarter, ~85% of the slippages came from the retail segment—retail slippages
stood at 4% (annualized) and have been rising in recent quarters. SME slippages stood at 1%, while
mid-corporate was at 0.7% and corporate slippages stood at 0.3% (annualized). The momentum on
upgrades and recoveries was healthy during 2QFY24 as well.

 Credit cost. Credit cost for 3QFY24 came in at ~100 bps (similar to 2QFY24). Management had earlier
indicated a credit cost of ~50-60 bps for FY2024E. The bulk of the provisions went for ageing-related
provisions for security receipts. AIF-related provisions were fairly negligible.

ARC sale has resulted in declines in GNPL and NPI, whereas SRs have started to reduce now; overall stress has been declining
Workings for stress loans across categories, March fiscal year-ends (Rs bn)
Loans (Rs bn) Provisions (Rs bn) Cover (%)
2021 2022 2023 3QFY24 2021 2022 2023 3QFY24 2021 2022 2023 3QFY24
Gross NPL 286 280 44 45 188 198 27 24 66 71 62 55
Non-fund based NPL 17 11 13 10 4 2 2 2 23 19 18 21
Non-performing investment 66 53 2 1 61 50 1 1 92 95 44 52
SR 13 21 77 64 7 14 47 43 59 66 62 68
Standard restructured loans 12 68 47 40 1 8 5 4 6 11 10 11
Other standard exposures 12 1 4 3 5 0 1 1 42 35 34 35
61-90 days overdue 47 13 36 23
31-60 days overdue 90 45 12 21
Total stress 543 491 234 206 266 272 84 76 49 55 36 37
% of gross loans 29.2 24.4 11.5 9.3 14.3 13.5 4.1 3.4
Non-NPA stress 282 211 190 162 78 74 56 52 28 35 30 32
% of gross loans 15.2 10.5 9.4 7.3 4.2 3.7 2.8 2.3

Source: Company

YES Bank
Banks India Research
 4

Gross NPL ratio was flat qoq Slippages have been manageable in the past few quarters
NPL and coverage ratios, March fiscal year-ends (%) Slippages and credit cost, March fiscal year-ends (%,
annualized)
Gross NPL (LHS) Net NPL (LHS) PCR (RHS)
20 80 Slippages (%) Credit cost (%)
20

16 64
16

12 48
12

8 32
8
4 16
4
0 -
3QFY19

3QFY21
2QFY19

4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21

4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
3QFY23
4QFY23
1QFY24
2QFY24
3QFY24
-

2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1QFY24
2QFY24
3QFY24
Source: Company
Source: Company

Stable performance on deposits; NIM showed a marginal improvement

Deposits grew 13% yoy (3% qoq), while loan growth was at 12% yoy (4% qoq). Deposit growth was led by
14% yoy growth in term deposits, while CASA deposits grew 12% yoy (13% yoy growth in CA deposits
and ~12% yoy growth in SA deposits). As a consequence, the CASA ratio was broadly flat qoq at ~29%.
Over the past few years, Yes Bank has been able to improve the share of CASA and retail TDs, although
there has been a marginal deterioration in the past few quarters. It has been able to improve its liability
profile, while also reducing the premium offered on term deposits.

Reported NIM for the bank increased ~10 bps qoq to 2.4%, despite a ~10 bps qoq rise in cost of funds,
while yield on advances was broadly flat qoq. The bank has been indicating that it would be looking to
improve the loan mix, reduce the current contribution of PSL investments and improve the share of the
liability mix to increase the NIM profile.

CASA ratio at ~29% Corporate TDs grew faster than retail TDs recently
Breakup of funds, March fiscal year-ends (Rs bn) Breakup of term deposits, March fiscal year-ends (Rs
bn)
Current Savings Term Borrowings
3,500 Corporate TD Retail TD CD
2,000
2,800
1,600
2,100 688
1,200 585 620
1,524 1,701
1,400 1,276 1,506 417 601
1,358 518
1,204 800
700 773
444 467 333 391 923 390 1,013
350 400 795 883
236 617 715
186
- 314
2018

2019

2020

2021

2022

2023

3QFY24

-
2018

2019

2020

2021

2022

2023

3QFY24

Source: Company
Source: Company

YES Bank
Banks India Research
 5

Premium on Yes Bank’s deposit rates has steadily declined

Comparison of term deposit rates offered by Yes Bank and frontline private sector banks (%)
Jan-20 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Oct-23
1 month tenor
SBI 4.50 3.50 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 2.90 3.00 3.00 3.00 3.00 3.00
IDFC First Bank 6.25 6.25 6.25 3.50 3.50 3.50 3.50 2.75 2.75 3.00 4.00 4.00 4.00 4.00 4.00 4.00 3.00
ICICI Bank 4.75 4.75 3.25 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.50 3.50 3.50 3.50 3.50 3.50
Axis Bank 4.90 4.90 4.00 2.50 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.50 3.50 3.50 3.50 3.50
HDFC Bank 4.90 4.75 3.25 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.25 3.50 3.50 3.50 3.50 3.50
Federal Bank 5.00 5.00 3.50 2.75 2.75 2.75 2.75 2.75 2.75 3.00 3.25 3.25 3.25 3.25 3.25 3.25 3.25
Yes Bank 5.00 5.00 5.00 5.00 4.00 4.00 3.50 3.50 3.50 3.50 3.50 3.70 3.70 3.70 3.70 3.70 3.70
IndusInd Bank 5.00 5.00 5.00 3.75 4.00 3.40 3.00 3.50 3.50 3.25 3.70 4.00 4.00 4.00 4.00 3.75 3.75
Difference in Yes and frontline bank average 0.11 0.15 1.13 1.94 0.75 0.90 0.50 0.38 0.38 0.44 0.20 0.20 0.08 0.08 0.08 0.14 0.14
1 year tenor
SBI 6.10 5.70 5.10 4.90 4.90 5.00 5.00 5.00 5.00 5.10 5.30 5.45 6.75 6.80 6.80 6.80 6.80
IDFC First Bank 7.40 7.40 7.25 5.90 5.90 5.90 5.50 4.75 5.25 5.75 6.00 6.40 7.40 7.75 7.75 7.50 7.50
ICICI Bank 6.25 6.25 5.25 5.10 4.95 4.95 4.95 4.95 4.95 4.95 5.35 5.70 7.00 7.10 7.10 7.10 7.10
Axis Bank 6.50 6.45 5.75 5.20 5.20 5.20 5.20 5.20 5.20 5.20 5.30 5.60 6.75 7.15 7.10 7.10 7.10
HDFC Bank 6.30 6.15 5.25 5.10 4.90 4.90 4.90 4.90 4.90 4.90 5.35 5.50 6.90 7.10 7.10 7.10 7.10
Federal Bank 6.55 6.40 5.70 5.25 5.30 5.30 5.20 5.20 5.20 5.20 5.40 5.60 7.25 7.25 7.25 7.30 7.40
Yes Bank 7.30 7.30 7.10 7.00 6.50 6.25 6.00 5.90 5.90 5.90 6.25 6.50 7.00 7.50 7.75 7.75 7.50
IndusInd Bank 6.70 6.70 7.00 7.00 6.50 6.50 6.00 5.90 5.90 6.00 6.00 6.50 6.90 7.75 7.75 7.50 7.85
Difference in Yes and frontline bank average 0.86 0.91 1.29 1.40 1.11 0.86 0.74 0.66 0.66 0.64 0.75 0.68 0.11 0.23 0.49 0.55 0.21

Source: Company

Loan growth at 12% yoy, led by retail and MSME

Loan growth was modest at 12% yoy (up ~4% qoq), led by 23% yoy growth in retail, 26% yoy growth in
mid-corporate and 22% yoy growth in SME, but dragged down by a ~15% yoy decline in corporate loans.
The traction in retail and MSME indicates that the bank is gradually picking up pace in strengthening its
retail franchise. Traction on disbursements in the retail and MSME segments was quite healthy. Within
these loan segments, the bank is a lot more focused in growing through their distribution channels, rather
than relying on third-party agencies.

Share of wholesale business has declined since 2018

Loan book breakup, March fiscal year-ends (%)

Corporate and institutional Buisness banking Consumer banking Micro & small enterprise
100
13 12 10 10 12 13 15
10 12 17
80 11
11 10 24 30
11 8 36
44 47
60 8
9
11
40
65 68 68 66 13
56 14
49
20 40
28 23
0
2016

2017

2019

2021

2023
2018

2020

2022

3QFY24

Source: Company

YES Bank
Banks India Research
 6

Yield was flat qoq indicating peak of yields for this cycle Cost of funds: Pace of increase has slowed this quarter
Calculated yield on loans versus peers, March Calculated cost of funds versus peers, March fiscal
fiscal year-ends (%) year-ends (%)
Axis HDFCB ICICI Axis HDFCB ICICI
IndusInd Yes Federal IndusInd Yes Federal
10.0
12.5

11.0 8.5

9.5 7.0

8.0 5.5

6.5 4.0

5.0 2.5
3QFY17
1QFY18
3QFY18
1QFY19
3QFY19
1QFY20
3QFY20
1QFY21
3QFY21
1QFY22
3QFY22
1QFY23
3QFY23
1QFY24
3QFY24

1QFY22
3QFY17
1QFY18
3QFY18
1QFY19
3QFY19
1QFY20
3QFY20
1QFY21
3QFY21

3QFY22
1QFY23
3QFY23
1QFY24
3QFY24
Source: Company Source: Company

Share of retail banking in fee income has increased significantly since 2019
Breakup of fee income by business, March fiscal year-ends (%)

Corporate trade and cash mgmt Retail banking

Forex, DCM, securities and trading Corporate banking fees
100 3 3 4 5
14 13
34 23
80 39 35 39 37 48

60 16
22 32 26 65 64
55
40 42
32 37
23
22 22
20

17 19 18 16 19 17 18
11 13
-
2016 2017 2018 2019 2020 2021 2022 2023 9MFY24

Source: Company

Proportion of employee cost in total cost used to be higher for Yes Bank earlier as compared with peer private banks
Employee cost as a percentage of overall costs, March fiscal year-ends (%)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024E 2025E 2026E
Axis Bank 34.6 34.4 32.9 33.4 33.4 31.9 30.8 30.0 30.7 33.5 32.2 22.1 31.0 32.6 34.0
HDFC Bank 36.6 35.3 34.7 34.0 33.6 32.9 30.0 29.7 31.0 31.7 32.5 31.3 31.5 33.6 34.6
ICICI Bank 44.8 43.2 40.9 41.3 39.4 38.9 37.7 37.6 38.3 37.5 36.2 36.7 38.2 40.0 40.4
IndusInd Bank 36.1 37.7 37.0 34.2 33.7 31.8 31.8 28.9 26.8 26.5 26.0 26.6 27.9 28.2 28.5
Yes Bank 51.0 49.1 44.8 43.6 43.6 44.1 42.0 39.4 38.6 42.0 41.7 38.8 39.0 37.9 37.5

Source: Company

YES Bank
Banks India Research
 7

Other highlights for the quarter

 Non-interest income grew 5% yoy. This was led by strong performance on retail fee income (up ~18%
yoy) and treasury income (low base).

 Capital position is comfortable, despite changes in RWA. The bank’s CET-1 ratio stands at ~12.6%,
while overall CAR stands at ~18%. The impact due to an RWA increase in credit cards and NBFCs,
which resulted in a 40 bps impact on CET-1 this quarter. Full conversion of all warrants will result in
further accretion of ~110 bps to the CET1 ratio.

Tier-1 ratio at ~13.1%

Tier-1 and leverage ratio (total assets to net worth), March fiscal year-ends (X)

(X) Tier-1 (RHS) Leverage (LHS) (%)

20 18

14.7
13.6 13.2 13.6 13.1
17 13.2 12.8 13.0 13.3 13.0 14
12.0 11.5 11.6 11.5 11.6 11.6 11.9 11.7
11.0 11.3 11.2
10.7
14 11

11 6.5 6.7 7

8 2.1 4

5 0
4QFY18

3QFY19

4QFY19

3QFY20

4QFY20

2QFY21

3QFY21

2QFY22

3QFY22

2QFY23

1QFY24

2QFY24
3QFY18

1QFY19

2QFY19

1QFY20

2QFY20

1QFY21

4QFY21

1QFY22

4QFY22

1QFY23

3QFY23

4QFY23

3QFY24
Source: Company

Funding used to have a higher dependence on borrowings

Balance sheet common size statement, March fiscal year-ends (%)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 3QFY24
Liabilities
Equity 7.1 8.5 6.4 6.4 5.9 6.5 8.6 8.3 10.2 8.2 7.1 8.4 12.1 10.6 11.5 11.0
Deposits 70.6 73.7 77.9 66.8 67.6 68.1 67.0 67.6 66.4 64.2 59.8 40.9 59.6 62.0 61.3 63.6
Current 5.3 6.7 6.7 6.6 6.7 6.4 6.2 6.6 8.9 9.2 7.5 3.7 6.9 8.3 9.5 8.6
Savings 0.8 1.1 1.4 3.4 6.1 8.6 9.2 12.4 15.2 14.2 12.3 7.2 8.6 11.0 9.4 10.3
Term deposits 64.4 65.9 69.8 56.7 54.8 53.1 51.5 48.6 42.3 40.8 40.0 30.0 44.0 42.7 42.4 44.7
Borrowings 17.9 13.4 11.5 19.5 21.2 19.7 19.5 19.3 18.2 24.3 28.6 44.1 23.4 22.7 21.8 20.9
Other liabilities 4.4 4.5 4.2 7.4 5.3 5.7 5.0 4.7 5.1 3.2 4.6 6.6 4.9 4.7 5.4 4.6
Assets
Cash and bank balances 8.4 7.3 5.9 4.9 4.1 5.4 5.5 5.0 9.1 7.9 7.1 3.3 10.7 14.7 5.4 4.6
Investments 31.1 28.1 31.9 37.7 43.4 37.6 31.7 29.6 23.2 21.9 23.5 17.0 15.8 16.3 21.7 20.9
Loans 54.2 61.0 58.2 51.6 47.4 51.0 55.5 59.4 61.5 65.1 63.4 66.5 61.0 56.9 57.3 57.2
Fixed assets 0.6 0.3 0.2 0.2 0.2 0.3 0.2 0.3 0.3 0.3 0.2 0.4 0.8 0.8 0.8 0.8
Other assets 5.8 3.3 3.7 5.6 4.9 5.7 7.0 5.8 5.8 4.8 5.8 12.8 11.7 11.4 14.8 16.6

Source: Company

YES Bank
Banks India Research
 8

Yes Bank—estimate changes, March fiscal year-ends

New estimates Old estimates % change
2024E 2025E 2026E 2024E 2025E 2026E 2024E 2025E 2026E
Net interest income 79,956 96,981 117,723 79,489 97,371 118,256 1 (0) (0)
NIM (%) 2.5 2.7 2.9 2.5 2.7 3.0 2 bps -2 bps -4 bps
Customer assets 2,312,278 2,613,176 2,980,495 2,312,278 2,613,176 2,980,495 — — —
Loan loss provisions 19,328 8,445 8,241 17,180 8,445 8,241 13 — —
Other income 48,443 55,247 65,157 47,965 55,422 65,699 1 (0) (1)
Fee income 24,353 28,537 33,446 24,274 28,712 33,988 0 (1) (2)
Treasury income 2,700 1,200 1,200 2,300 1,200 1,200 17 — —
Operating expenses 95,375 105,228 113,933 97,705 107,826 116,830 (2) (2) (2)
Employee expenses 37,206 39,914 42,750 37,575 40,309 43,173 (1) (1) (1)
PBT 12,996 37,855 60,006 11,868 35,823 58,184 10 6 3
Tax 3,327 9,691 15,361 3,038 9,171 14,895 10 6 3
Net profit 9,669 28,164 44,644 8,830 26,652 43,289 10 6 3
PBT-treasury+provisions 30,324 45,800 67,747 27,449 43,768 65,925 10 5 3
Adjusted BVPS (Rs) 14 15 16 14 14 16 0 1 1
Slippage ratio (%) 2.0 2.0 2.0 2.0 2.0 2.0 0 bps 0 bps 0 bps
Gross NPA (%) 1.8 1.7 1.6 1.8 1.7 1.6 0 bps 0 bps 0 bps
Credit cost (%) 0.9 0.4 0.3 0.8 0.4 0.3 10 bps 0 bps 0 bps

Source: Company

Yes Bank trades at 1.7X one-year forward book Yes Bank is trading at a discount to private bank peers
P/BV (12-month rolling forward adjusted book, X) Yes Bank trades at a discount to bank peers (X)

Rolling PBR (X) (RHS) 2.5

7.0

2.0
5.6

1.5
4.2

2.8 1.0

1.4 0.5

- 0.0
2013

2017
2007
2008
2009
2010
2011
2012

2014
2015
2016

2018
2019
2020
2021
2022
2023
2024

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Source: Company Source: Company

YES Bank
Banks India Research
 9

Yes Bank—key growth rates and financial ratios, March fiscal year-ends (%)
2017 2018 2019 2020 2021 2022 2023 2024E 2025E 2026E
Growth rates (%)
Net loan 34.7 53.9 18.7 (29.0) (2.7) 8.5 12.3 11.3 13.3 14.3
Net fixed assets 45.9 21.2 (1.8) 23.5 112.9 (0.7) 14.6 23.1 (6.2) (23.4)
Cash and bank balance 137.9 26.5 8.7 (68.8) 249.6 59.1 (58.7) 38.8 (8.9) (15.9)
Total Asset 30.1 45.3 21.9 (32.3) 6.1 16.3 11.5 13.4 12.1 12.5
Deposits 27.9 40.5 13.4 (53.7) 54.7 21.0 10.3 15.5 14.3 14.3
Current 74.6 51.1 (1.0) (66.7) 100.0 38.9 27.3 17.4 16.2 16.1
Savings 60.6 35.3 5.3 (60.3) 27.1 48.2 (4.8) 17.4 16.2 16.1
Net interest income 29.4 30.9 26.8 (30.6) 9.2 (12.5) 21.8 1.0 21.3 21.4
Loan loss provisions 39.4 66.9 286.2 436.8 (69.8) (91.1) (124.0) (1,260.4) (56.3) (2.4)
Total other income 51.1 27.5 (12.2) 158.3 (71.8) (2.3) 20.4 23.4 14.0 17.9
Net fee income 30.2 29.3 (12.1) (58.0) (19.1) 32.6 27.7 16.4 17.2 17.2
Operating expenses 40.1 25.0 20.2 7.4 (13.9) 18.2 26.5 10.1 10.3 8.3
Employee expenses 41.9 18.9 12.8 5.3 (6.5) 17.5 17.8 10.6 7.3 7.1
Key ratios (%)
Yield on average earning assets 9.3 8.1 9.1 9.0 8.7 7.3 7.8 8.5 8.6 8.7
Yield on average loans 10.7 9.2 10.3 10.3 9.8 8.7 9.3 9.8 9.8 9.7
Yield on average investments 7.7 6.9 7.7 6.4 6.1 6.0 5.5 5.9 6.0 6.1
Average cost of funds 6.5 5.5 6.5 6.9 5.6 5.0 5.2 6.1 5.9 5.7
Interest on deposits 6.4 5.5 6.4 7.2 5.7 4.7 4.9 6.0 5.8 5.7
Difference 2.7 2.7 2.6 2.0 3.0 2.3 2.6 2.5 2.7 3.0
Net interest income/earning assets 3.3 3.1 3.0 2.3 3.2 2.5 2.7 2.5 2.7 2.9
New provisions/average net loans 0.6 0.7 2.2 12.5 4.6 0.4 (0.1) 0.9 0.4 0.3
Interest income/total income 59.1 59.7 68.1 36.5 69.0 66.6 66.8 62.3 63.7 64.4
Other income / total income 40.9 40.3 31.9 63.5 31.0 33.4 33.2 37.7 36.3 35.6
Fee income to total income 32.0 31.9 25.3 8.2 11.5 16.8 17.7 19.0 18.7 18.3
Operating expenses/total income 41.7 40.2 43.5 36.1 53.8 70.1 73.1 74.3 69.1 62.3
Tax rate 34.0 31.8 27.0 21.2 26.9 25.7 25.5 25.6 25.6 25.6
Dividend payout ratio 14.0 13.0 36.2 (3) — — — — — —
Share of deposits
Current 13.3 14.4 12.5 9.0 11.7 13.4 15.4 15.7 15.9 16.2
Savings 22.9 22.1 20.5 17.6 14.5 17.7 15.3 15.6 15.8 16.1
Loans-to-deposit ratio 92.6 101.4 106.1 162.7 102.4 91.8 93.5 90.1 89.2 89.2
Equity/assets (EoY) 10.2 8.2 7.1 8.4 12.1 10.6 11.5 11.3 10.7 10.4
Dupont analysis (%)
Net interest income 3.1 2.9 2.8 2.1 2.8 2.2 2.4 2.1 2.3 2.5
Loan loss provisions 0.4 0.5 1.4 8.1 2.9 0.2 (0.0) 0.5 0.2 0.2
Net other income 2.2 2.0 1.3 3.7 1.3 1.1 1.2 1.3 1.3 1.4
Operating expenses 2.2 2.0 1.9 2.2 2.3 2.3 2.6 2.5 2.5 2.4
(1- tax rate) 66.0 68.2 73.0 78.8 73.1 74.3 74.5 74.4 74.4 74.4
ROA 1.8 1.6 0.5 (5.1) (1.3) 0.4 0.2 0.3 0.7 0.9
Average assets/average equity 10.6 11.0 13.2 13.1 9.7 8.8 9.0 8.8 9.1 9.5
ROE 18.6 17.7 6.5 (67.5) (12.6) 3.2 1.9 2.2 6.0 8.8

Source: Company

YES Bank
Banks India Research
 10

Yes Bank—key financials, March fiscal year-ends (Rs mn)

2017 2018 2019 2020 2021 2022 2023 2024E 2025E 2026E
Income statement (Rs mn)
Total interest income 165,374 202,674 296,247 260,666 200,418 190,235 226,974 272,483 307,562 348,150
Loans 123,225 154,782 229,226 212,612 166,420 150,949 178,224 209,965 236,988 267,713
Investments 37,968 41,025 60,484 42,609 26,801 28,781 35,646 47,739 54,656 63,348
Cash and deposits 4,180 6,867 6,537 5,445 7,198 10,505 13,104 14,780 15,919 17,088
Total interest expense 106,273 125,304 198,157 192,614 126,132 125,257 147,799 192,527 210,582 230,427
Deposits from customers 82,040 93,834 136,871 120,053 76,662 84,574 101,087 141,771 157,460 174,973
Net interest income 59,100 77,371 98,090 68,052 74,286 64,979 79,176 79,956 96,981 117,723
Loan loss provisions 7,474 12,476 48,184 258,650 78,054 6,934 (1,666) 19,328 8,445 8,241
Net interest income (after prov.) 51,627 64,895 49,907 (190,597) (3,768) 58,045 80,841 60,628 88,536 109,482
Other income 40,969 52,251 45,902 118,565 33,407 32,625 39,266 48,443 55,247 65,157
Net fee income 32,009 41,380 36,361 15,262 12,352 16,380 20,913 24,353 28,537 33,446
Net capital gains 7,113 5,135 3,175 11,135 11,080 2,595 344 2,700 1,200 1,200
Net exchange gains 1,019 2,316 1,570 3,732 5,334 6,008 7,446 8,191 9,010 9,911
Operating expenses 41,686 52,128 62,643 67,292 57,920 68,444 86,615 95,375 105,228 113,933
Employee expenses 18,402 21,889 24,698 25,999 24,304 28,557 33,627 37,206 39,914 42,750
Depreciation on investments 522 2,599 6,825 64,819 16,165 7,904 24,087 — — —
Other Provisions (54) 463 2,767 4,116 2,905 (37) (223) 700 700 700
Pretax income 50,441 61,956 23,573 (208,259) (47,351) 14,358 9,629 12,996 37,855 60,006
Tax provisions 17,140 19,697 6,371 (44,079) (12,728) 3,696 2,455 3,327 9,691 15,361
Net Profit 33,301 42,246 17,203 (164,180) (34,622) 10,662 7,174 9,669 28,164 44,644
% growth 31.1 26.9 (59.3) (1,054.4) (78.9) (130.8) (32.7) 34.8 191.3 58.5
Operating profit 51,270 72,359 78,174 108,191 38,693 26,565 31,483 30,324 45,800 67,747
% growth 24 31 (64) (1176) (73) (120) (21) 11 256 60
Tax rate (%) 34 32 27 NM NM 26 25 26 26 26
Balance sheet (Rs mn)
Cash and bank balance 195,547 247,344 268,895 83,830 293,087 466,396 192,744 267,504 243,575 204,889
Cash 5,705 6,227 6,334 16,307 7,904 7,929 8,892 75,265 38,658 (18,242)
Balance with RBI 63,815 108,031 101,643 43,129 60,224 82,744 119,749 140,711 159,677 181,035
Balance with banks 667 782 1,994 6,347 4,451 5,187 4,091 4,091 4,091 4,091
Net value of investments 499,818 683,989 895,220 439,148 433,191 518,956 768,883 853,460 972,945 1,109,157
Govt. and other securities 354,805 488,861 553,611 329,069 334,738 437,085 651,582 744,036 869,212 1,009,294
Shares 2,369 644 429 244 242 214 503 503 503 503
Debentures and bonds 110,453 145,046 154,985 74,399 66,925 53,921 49,889 39,911 31,929 25,543
Net loans and advances 1,322,627 2,035,339 2,414,996 1,714,433 1,668,930 1,810,520 2,032,694 2,262,389 2,563,287 2,930,606
Fixed assets 6,868 8,324 8,170 10,091 21,485 21,331 24,448 30,092 28,212 21,619
Other assets 125,738 149,460 220,980 330,767 318,734 365,000 529,092 608,456 699,724 804,682
Total assets 2,150,597 3,124,456 3,808,261 2,578,269 2,735,428 3,182,202 3,547,861 4,021,901 4,507,742 5,070,953

Deposits 1,428,574 2,007,381 2,276,102 1,053,639 1,629,466 1,971,917 2,175,019 2,512,147 2,872,137 3,283,714
Borrowings and bills payable 391,992 758,087 1,088,155 1,140,772 645,177 729,363 782,032 860,235 946,258 1,040,884
Other liabilities 109,634 101,404 174,963 166,595 128,821 143,503 183,386 194,390 206,053 218,416
Total liabilities 1,930,201 2,866,873 3,539,220 2,361,006 2,403,464 2,844,784 3,140,437 3,566,771 4,024,448 4,543,015
Paid-up capital 4,565 4,606 4,630 25,101 50,110 50,110 57,510 62,629 62,629 62,629
Reserves & surplus 215,831 252,977 264,412 192,162 281,853 287,309 349,915 392,501 420,665 465,309
Total shareholders' equity 220,396 257,583 269,042 217,263 331,963 337,419 407,425 455,130 483,294 527,938

Source: Company

YES Bank
Banks India Research
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responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies
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views expressed in this report: M B Mahesh, Nischint Chawathe, Ashlesh Sonje, Abhijeet Sakhare, Varun Palacharla, Sidham Jain."

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

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Distribution of ratings/investment banking relationships

Kotak Institutional Equities Research coverage universe

Percentage of companies covered by Kotak Institutional

70%
Equities, within the specified category.

60%
Percentage of companies within each category for which
Kotak Institutional Equities and or its affiliates has
50%
provided investment banking services within the previous
12 months.
40% * The above categories are defined as follows: Buy = We
31.0% expect this stock to deliver more than 15% returns over
30% 26.3% the next 12 months; Add = We expect this stock to deliver
23.1% 5-15% returns over the next 12 months; Reduce = We
19.6% expect this stock to deliver -5-+5% returns over the next
20% 12 months; Sell = We expect this stock to deliver less than
-5% returns over the next 12 months. Our target prices
10% 6.7% are also on a 12-month horizon basis. These ratings are
3.1% 2.4% used illustratively to comply with applicable regulations. As
0.0% of 31/12/2023 Kotak Institutional Equities Investment
0%
Research had investment ratings on 255 equity securities.
BUY ADD REDUCE SELL

Source: Kotak Institutional Equities

As of December 31, 2023

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The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
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