Yes Bank's Q1 FY24 Report: A Closer Look at the Numbers

Understanding a bank's financial performance can be a daunting task, especially when faced with complex terms and figures. But fear not, we're here to break down Yes Bank's Q1 FY24 report in simple terms, so you can grasp what's been happening with this financial institution.

A Quick Overview

In the first quarter of the financial year 2024 (Q1 FY24), Yes Bank reported a 39 percent increase in its pre-provision profit. 

Sounds impressive, right? Well, it is! This boost came from good growth in fees and gains from trading activities. But there's more to the story. The net profit only grew by 10 percent year-on-year (YoY), and this was primarily because the bank had to set aside more money for provisions.

Growth That Lags Behind

One of the key indicators of a bank's health is its loan growth, which is essentially how much money it's lending out. In the last reported quarter, Yes Bank's loan growth was a bit sluggish, at just over 7 percent YoY. 

To make matters worse, it even declined a bit when compared to the previous quarter. This is below what the overall banking system in India achieved.

The problem seems to be in Yes Bank's corporate lending division, which has been declining. It's gone from 38 percent of the bank's portfolio a year ago to just 25 percent now. Even though Yes Bank has been focusing on lending to retail and small business segments, the interest margin (also known as NIM) remains at around 2.5 percent. In the last quarter, it actually decreased a bit. With the possibility of the bank having to pay more for deposits, this margin could go down further unless they attract more deposits or have fewer loans go bad.

The Challenge of Liability

A crucial part of a bank's success is its ability to gather deposits. These deposits not only help banks lend money but also impact their interest margins. Yes Bank has some work to do in this area. While they did see some growth in deposits in the last quarter, it was mostly term deposits. The low-cost current and savings account (CASA) deposits, which are desirable for banks, actually decreased. This means that Yes Bank is relying more on term deposits, which tend to be costlier.

Asset Quality and Its Challenges

The health of a bank also depends on the quality of its assets, meaning how many loans it has that are likely to not get repaid. Yes Bank did transfer some of its bad loans to an asset reconstruction company (ARC), which improved the numbers a bit. The gross and net non-performing asset (NPA) ratios are now at 2 percent and 1 percent, respectively, with a provision cover of 48 percent. But here's the catch – new loans are still going bad at a relatively high rate, especially in the retail segment.

Profit and Expenses

Yes Bank's cost to income ratio is a measure of how efficiently it operates. In the last quarter, this ratio was quite high at 74 percent, mainly because of increased operating expenses related to people, products, technology, and expanding their network. Unless the bank can significantly increase its earnings, this ratio is unlikely to come down.

The Road to Recovery

Yes Bank's return on assets (RoA) stood at 0.4 percent in Q1, and they aim to reach 1 percent as a medium-term goal. To get there, they need more loans, better interest rates, improved margins, and lower credit costs. It's a tall order, especially when considering the challenges they face.

Valuation and Conclusion

So, what's the verdict? Yes Bank's stock valuation may not be all that attractive when compared to other banks with similar valuations. Many of these other banks are delivering better returns on assets. Yes Bank's path to full recovery is still uncertain, and they have a lot of work to do to get there.

In simple terms, while Yes Bank has made some progress, there are still significant hurdles on its path to success. Its growth in loans, the quality of its assets, and its ability to gather low-cost deposits all need to improve for the bank to truly thrive. So, if you're considering investing in Yes Bank, it might be wise to weigh the risks carefully and be prepared for a potentially long journey to recovery.