Yes Bank margin expansion, higher non-interest income and lower opex led to a sharp, 1008 bps, sequential decrease in Cost to income ratio, which improved to 39.2%. With the standstill on NPA recognition, asset quality improved. Yes Bank share price today is Rs 15.65, up Rs 0.05 or 0.3%.

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However, Yes Bank’s management disclosed a stressed pipeline of Rs 185 bn, almost twice as much as in Q2 FY21. With higher slippages expected, near-term earnings are expected to be negative. Hence, Anand Rathi lowered Yes Bank rating to a Sell with a target price of Rs 14.

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Yes Bank ever-increasing stress book:

Yes Bank disclosed an overall stress book of Rs 185.5 bn (10.9% of loans), of which Rs 83 bn are standstill accounts. The potential Yes Bank stress book is up 106% from what the bank disclosed in the last quarter. Besides the Rs 185 bn book, Rs 123 bn is outstanding as SMA-1.

Although most of the Yes Bank stress stemmed from the corporate book, increases in SME and the retail book are concerns. Given these fresh disclosures, Yes Bank slippages are expected to be higher than what management had talked about earlier.

Yes Bank Q3 Key Highlights:

Yes Bank current provisions of Rs 26.83 bn relate to the Covid-impacted portfolio. Management said the provisions suffice to cover slippages/ restructuring arising from Covid-related stress in the next quarter. Of the aggregate stressed pipeline of Rs 185.51 bn, Rs 80.6 bn is expected to be restructured. Of the Rs 185 bn stressed pool, Rs 123 bn is SMA-1 outstanding.

Yes Bank’s Collections efficiency

Yes Bank management said major stress in the corporate book stems from the real-estate and hospitality sectors.

Yes Bank Negative earnings in the near term:

With an expected higher slippage rate when the NPA standstill is lifted, Yes Bank has built in 4.5% credit costs for FY21. Higher credit costs and the weaker operating performance (attributed to slower business growth) would lead to negative earnings in the near term.

Yes Bank’s Valuation.

Yes Bank valuation is based on the two-stage DDM model. This implies a 0.9x P/BV multiple on its FY23e book.

Yes Bank Key Risks:

Higher recoveries from stressed account