YES Bank stock adequately captures positives; share price target Rs 16.50, says Nomura

A day ahead of its September quarter results, YES Bank on Friday received a 'Neutral' call from Nomura India, which initiated coverage on the private lender with a target of Rs 16.50 per share. Nomura said YES Bank's revival post reconstruction in March 2020 has been commendable but the stock adequately captures the positives.

Nomura said the sixth largest private sector bank's return profile, though on an improving trajectory, is significantly lower than peers. YES Bank trades at 1.1 times September 2025 book value per share (BVPS), which the foreign broking firm said adequately captures the positives. Higher recoveries from stress pool pose upside risks to its target while intense competition in deposits could impact margins, stress formation in retail and MSME segments, the brokerage said. 

Nomura said YES Bank's return on asset (0.2 per cent) and return on equity (2 per cent) were subdued in FY23 largely on account of lower margins of 2.7 per cent. It expects margins to improve to 3.3-3.6 per cent in FY26-27, driven by a reduction in drag arising out of non-interest earning assets, increase in loan yields and improvement in funding mix.

"Further, we expect healthy growth in core fees to sustain (18 per cent CAGR over FY23-27F) largely driven by robust retail fees, cross-sell and transaction banking. However, elevated opex is expected to limit RoA/RoE improvement to 1 per cent/10 per cent by FY27," it said.

The brokerage said YES Bank has incrementally focused on lending to the retail and SME segments, while running down its bulky corporate book. It expects granular loans to continue to be the key drivers of loan growth (17 per cent CAGR over FY23-27).

The bank’s deposit base halved in FY20. Since then, deposits have witnessed a strong 25 per cent CAGR (FY20-1Q24), with the share of retail deposits inching up, albeit gradually. Nomura India expect a deposits CAGR of 19 per cent over FY23-27F and CASA to improve to 34 per cent by FY27F (vs 31 per cent in FY23.

NOmura said while the bank's non-NPL stress pool (9 per cent of loans) is higher than peers, NPL recoveries continue to be strong, cushioning credit cost. It sees a benign credit environment to keep slippages in the range of 2-2.3 per cent, with credit costs at 0.9-1.1 per cent over FY24-27.

"We expect improving margins and strong core-fee income growth to expand RoA from 0.2 per cent in FY23 to 1 per cent in FY27F, still significantly lower than peers. YES Bank is well positioned to deliver on growth and CET1 (13.6 per ecnt) is comfortable, in our view. We expect a 17 per cent CAGR in loans over FY23-27 (vs 5 per cent in FY20-1Q24) on strong growth in the retail and SME segments," it said.

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