Once the largest private bank in India, Yes Bank is now a shadow of the past so are its shares. The bank has gone through everything possible in the last three years, bankruptcy, restructuring, and a bailout by fellow banks. In tandem, its stock price has also seen massive swings. However, in the last few quarters, the bank has worked hard to regain customer confidence and has started reporting profits. Along the way, it has also gained some investors’ confidence, which is reflected in the share price.
The Yes Bank share had zoomed by a third since mid-June when banking stocks gained prominence among investors. Lately, though the stock has seen some selling, gains are still substantial. There are many reasons for the stock to appreciate. Some of them are:
Loan growth: The bank reported loan growth at 11% year on year (YoY) during the September quarter (Q2FY23) thanks to higher retail and Small and medium-sized enterprises (SME) loan growth. Though this is below par, given the bank is coming out of a crisis, a double-digit growth bodes well for the bank. Deposit growth stood at 13%, which shows customer confidence.
Stress pool transfer: The private lender has approved JC Flowers Asset Reconstruction Company (ARC) as the auction winner in the sale of identified stressed loans aggregating to nearly Rs. 48,000 crore. This will likely bring net bad loans to less than a percent of all assets while gross bad loans will be less than 2%. Analysts at ICICIdirect believe that the complete transfer of the bulk of the bank’s stressed loan will be an incremental trigger for the Yes Bank share price.
Slippages fall: Slippages, a percentage of loans that are turning bad, was less than 1.8% for the September quarter, which is commendable. Low slippage means high efficiency in collecting dues. This also helps keep the book cleaner.
Smart money: Another trigger for the stock in recent months has been that some of the best investing names have bought a stake in the bank. The bank approved an equity capital raise of Rs. 8,900 crores from funds affiliated with two global private equity investors, Carlyle and Advent International, with each investor potentially acquiring up to a 10% stake in the lender. This provides much-needed confidence to investors and further growth capital to the bank.
The bank is awaiting regulatory approvals to complete the transaction, and the deal will likely close in Q3FY23, according to the bank.
Margins bump up: The bank said its net interest margin, which is, simply speaking, the difference between interest charged on loans and interest given on deposits or bonds, expanded 20 basis points to 2.6%. It is now moving towards targeted levels of 2.75% for FY23. A bigger margin is good news for the Yes Bank NSE as it shows the bank can raise money at a lower cost.
