YES Bank’s RoA profile well below peers, says Nomura as it sees 34% fall on stock

Nomura India said YES Bank's returns profile, is on a gradual improvement trajectory and it finds it encouraging. That said the private lender's return on asset (RoA) profile continues to be well below peers, and the prevailing valuations at 1.5 times estimated FY26 book value per share adequately reflect the positives, it said. The foreign brokerage has suggested a 'Neutral' rating on the stock with a target price that suggested a 34 per cent downside potential over Monday's closing of Rs 25.62 apiece.

Nomura expects YES Bank Ltd to deliver return on asset (RoA) of 0.5 per cent in FY25 and 0.8 per cent in FY26. It sees return on equity (RoE) of 4.5 per cent in FY25 and 7.5 per cent in FY26.

The YES bank management highlighted that it remains focussed on ensuring PSL compliance, driven by acceleration on organic sourcing in the PSL sub-categories. Rural Infrastructure Development Fund (RIDF) deposits, made in lieu of PSL shortfalls, currently form 11 per cent of overall assets and are expected drop to 5% of overall assets by FY25F, as per
management, Nomura India noted.

"Given that these deposits are lower-yielding, and hence a gradually declining trend here should aid margins going forward," it said.

The YES Bank management highlighted that the bank is witnessing higher delinquencies in unsecured retail loans. Credit cost was sharply lower at 40 basis points in Q1 on account of a release of provisions from the security receipts portfolio. Nomura India said the near-term growth should be muted in this segment, with a greater focus on collections.

It suggested a target price of Rs 17 on YES Bank, which was 33.64 per cent lower than its Monday's closing price.