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Yes Bank Reports Strong Q4 Profit Growth
Yes Bank announced a net profit of INR 10.7 billion for the fourth quarter of fiscal year 2026, a significant 45% increase from the previous year. This performance largely met market expectations. The bank's net interest margin improved to 2.7%, showing gains both quarterly and annually. This improvement was partly due to reduced pressure from the Rural Infrastructure Development Fund (RIDF), which is expected to make up less than 5% of the bank's assets by fiscal year 2027. Return on Assets (RoA) stood at 1% for the quarter and 0.8% for the full fiscal year. The bank also saw business growth, with loans increasing by 11% year-on-year and total deposits up 12%, driven by strong growth in low-cost deposits from current and savings accounts.
Analyst Concerns Emerge Over Asset Quality
Despite the strong financial results, analysts are flagging persistent issues. ICICI Securities maintained its 'Hold' rating on Yes Bank's stock but lowered its price target to ₹21 from ₹24. The firm cited elevated retail loan defaults, which remained around 2.8%, a rate higher than what is generally seen across the sector as its asset quality improves. Furthermore, Yes Bank expects less support from strategic asset recovery efforts in fiscal year 2027, a factor crucial for boosting its profitability.
Sector Challenges and Yes Bank's Position
The broader Indian banking sector faces challenges, including increased competition for deposits and rising funding costs as loan growth outpaces deposit growth. While Yes Bank's interest margins improved, its low-cost deposit ratio, around 35%, is lower than peers like HDFC Bank (approximately 41%) and State Bank of India (around 39%). This suggests Yes Bank may have a greater reliance on more expensive funding. The bank's valuation, trading at a price-to-earnings ratio of roughly 19.75-20.1 based on trailing twelve-month data, is also higher than some larger competitors like SBI (11-13) and within the range of ICICI and HDFC Banks (17-19), and above the Nifty Bank Index average of about 15.
Analyst Cuts Target Price Amid Lingering Risks
ICICI Securities set the new target price of ₹21 based on a valuation of about 1.1 times its estimated Book Value Per Share (BVPS) for FY28. The brokerage is awaiting further improvements in core operating profit and credit costs before considering a more positive outlook. Many analysts appear cautious, with consensus ratings generally leaning towards 'Sell' and an average target price between ₹19.36 and ₹20.10, indicating limited potential for the stock to rise from current levels. Yes Bank's Common Equity Tier 1 (CET1) capital ratio of 13.8% is considered adequate and provides a regulatory safety buffer. The bank's history includes significant governance issues and exposure to troubled corporate loans, which led to a Reserve Bank of India moratorium in March 2020. While management changes and risk reduction efforts have been made, the ongoing retail loan issues and expected slower recoveries continue to shape its future outlook.