>YES BANK LIMITED (TECHNO GROUP)

IMPROVING BUSINESS ENVIRONMENT…

Yes Bank’s Reported PAT of Rs.100 cr. for Q1FY10 (84% y-o-y growth) ahead of our estimates. This was driven by better net interest income (NII) and higher treasury gain. NII grew 45% Y-o-Y and 5.5% sequentially to Rs.163 cr. Balance sheet growth moderated with advances growth at 26% Y-o-Y and 2.2% Q-o-Q to Rs.127Bn, whereas deposits grew 22% Y-o-Y to Rs.153Bn. Asset quality for the quarter improved sequentially with Gross NPA and Net NPA at 0.48% and 0.24% as against 0.68% and 0.33 % in Q4 FY 09 respectively.

KEY HIGHLIGHTS

■ Moderating Balance Sheet Growth: The balance sheet growth of the bank moderated to 24.6% in Q1FY10. The advance book for the bank grew by 26% YoY to Rs.12671 crore from Rs.10052, while the deposit base showed a modest growth of 22.2% YoY to Rs.15342 crore by the end of Q1FY10. CASA ratio improved to 9.48% at the end of Q1 FY 10 from 8.91% in Q1 FY 09.

■ Strong NII growth as NIM improves: Despite some moderation in Advances growth NII showed a strong growth of 45% (Y-o-Y) as NIM improved by 20 bps to 3.1% both on sequentially and on year on year basis as liabilities were re-priced and credit deposit ratio improved to 82.6% as against 80% and 76.7% in Q1 FY 09 and Q4 FY 09 respectively. Cost of funds decreased to 8.10% as against 8.40% in Q1 FY 09 whereas yield on advances stood at 12.5% Q1 FY 10 as against 11.6% in Q1 FY 09.

■ Mixed performance by different Fee Income streams: The bank’s noninterest increased by 61.7% Q-o-Q to Rs.145cr. primarily due to higher income from financial market stream (Rs.85 cr. in Q1 FY 10 as against 33 in Q4 FY 09). Fee from financial advisory increased by 24% Q-o-Q owing to better capital market condition. Traditional transaction banking income remained flat
sequentially at Rs.25 cr. Fee from third party products stood at Rs.9.9 cr.

■ Improving Asset Quality: Asset Quality improved sequentially as Gross NPA and Net NPA in percentage terms decreased by 20 bps and 9 bps. However on a yearly basis Gross NPA increased nearly 3 times although on a very low base. Going forward we believe asset quality to be under pressure, however we have assumed a lower slippage ratio of 1.25% and 1.75% for FY
10E and FY 11E as against 1.5% and 2.25% respectively as business environment has improved. Restructured asset stood at Rs.119 crs. i.e. 0.94% of advances as on end Q1 FY 10, which is well under control.

■ Well Capitalized: Capital Adequacy Ratio for the bank stood at 17.63% with Tier I Capital at 10.28% and Tier II at 7.35%. We believe this provides adequate cushion to grow its balance sheet given its growth aspiration.

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