YESBANK

’s Valuation Hinges on NIM Expansion and Asset Quality Gains

remains stuck near the price of its recent SMBC deal (₹21.5/share), despite improving financial performance and leadership transition. With SBI retaining a 10.8% stake and SMBC holding 24.9%, investor focus is on whether the bank can deliver sustainable growth and profitability. While Q3FY26 headline numbers were aided by one-off recoveries, the underlying asset quality is improving, but meaningful upside depends on net interest margin (NIM) expansion and achieving the long road to a 1% RoA. Q3FY26 Performance Highlights - Reported profit boosted by ₹555 crore SR recovery, leading to ₹566 crore provision write-back. - Advances growth: +5.2% YoY, +2.9% QoQ, lagging system growth. - Retail lending subdued; focus shifting to gold loans, SME, and mid-corporates. - Loan growth guidance: 8% FY26, aiming to match industry growth in FY27. Deposits & NIM - Deposits: +5.5% YoY, sequential decline raised credit-to-deposit ratio to 88%. - CASA growth: +8.5% YoY, share improved to 34%. - Granular deposits: +12% YoY, retail branch-led deposits at 59% of total. - NIM: 2.6%, up 12 bps QoQ; target 3.25–3.3% via CASA growth, lower RIDF drag, and higher-yielding advances. Asset Quality - Gross slippages: ₹1,050 crore, 1.6% of advances, sequentially lower. - Gross NPA: 1.5%, net NPA stable at 0.3%, provision cover >83%. - Recoveries: ₹1,113 crore in 9MFY26, near FY26 guidance of ₹1,200 crore. - FY27 recovery guidance lower at ₹800 crore, limiting credit cost reduction. - Retail slippages at 3.4%, lowest in 7 quarters. Outlook & Valuation - RoA: 0.9% in Q3, but sustainability hinges on NIM expansion. - Cost-to-assets unlikely to fall below 2.5%; fee income limited at 1.4%. - SMBC partnership expected to strengthen transaction banking and corporate relationships. - Valuation: Not expensive relative to improving RoA, but meaningful upside requires achieving 1% RoA target in FY27.