YESBANK

’s Long Road to 1% RoA

’s stock continues to hover around the SMBC deal price of ₹21.5 per share, reflecting investor caution despite improving fundamentals. With Sumitomo Mitsui Banking Corporation (SMBC) holding 24.9% and SBI retaining 10.8%, the bank is entering a new phase under incoming CEO Vinay Tonse (ex-SBI). While asset quality has improved and profitability is stabilising, meaningful upside hinges on net interest margin (NIM) expansion and achieving the long-awaited 1% RoA. Operational Highlights (Q3FY26) - Profitability: RoA at 0.9%, aided by ₹555 crore gain from Security Receipts (SRs) and ₹566 crore provision write-back. - Loan growth: +5.2% YoY, +2.9% QoQ; lagging system growth. Retail subdued, SME and mid-corporate loans expected to drive future growth. - Guidance: Loan growth of 8% in FY26, aiming to match industry growth in FY27. Deposits & Funding - Deposit growth: +5.5% YoY; sequential decline raised credit-to-deposit ratio to 88%. - CASA growth: +8.5% YoY; share improved to 34% (from 33.1%). - Granular deposits: Retail branch-led deposits >59% of total, growing ~9% YoY. Margins & Asset Quality - NIM: 2.6% (+12 bps QoQ, +24 bps YoY). - Target: 3.25–3.3% via reduction in RIDF deposits, lower deposit rates, and higher-yielding advances. - Gross slippages: ₹1,050 crore (1.6% of advances), sequentially lower. - Gross NPA: 1.5%; Net NPA: 0.3%; PCR >83%. - Recoveries: ₹1,113 crore in 9MFY26 vs. ₹1,200 crore FY26 guidance; FY27 recovery outlook lower (~₹800 crore). Outlook & Risks - RoA improvement depends heavily on NIM expansion; cost-to-assets unlikely to fall below 2.5%. - Credit cost expected to stabilise, but SR recovery tailwinds will fade in FY27. - SMBC partnership offers potential in transaction banking and corporate relationships, though benefits remain to be seen. - Valuation: Not expensive relative to improving RoA, but sustained upside requires crossing the 1% RoA threshold.