YESBANK

: Upside for Patient Investors

’s long-awaited deal materialized with Sumitomo Mitsui Banking Corporation (SMBC) acquiring a 24.2% stake, fortifying its capital base and strategic outlook. Yet, the stock price remains stuck near the deal value of ₹21.5, reflecting investor skepticism about the slow pace of profitability improvement. While fundamentals are stable and asset quality has improved, the path to achieving a 1% RoA by FY27 looks challenging, with net interest margin (NIM) expansion emerging as the critical driver. Deposits grew 6.9% YoY and a stronger 7.4% sequentially in Q2FY26. CASA share improved to 33.7% from 32%, with retail branch-led deposits rising 14% YoY. Granular deposit mobilization is a clear focus, strengthening funding stability. Credit growth was 6.4% YoY, dragged by retail due to past asset quality issues. Legacy corporate book has been pared down, while chosen retail, commercial, and corporate segments show healthy growth. Disbursements rose 30% sequentially in Q2FY26, supporting optimism for double-digit credit growth in FY26. NIM remains rangebound, weighed by lower lending yields and slower deposit repricing. Current NIM trails peers, limiting profitability. The bank targets 3.25–3.3% NIM, aided by reduced RIDF deposits, CRR cuts, and higher CASA share. Margin expansion is the key lever for RoA improvement. Gross NPAs stood at 1.6%, net NPAs at 0.3%, with 81% provision cover. Recoveries of ₹854 crore, including ₹220 crore from Security Receipts, kept credit costs low at 40 bps. Credit costs are expected to remain below 50 bps, supporting stability. SMBC’s stake offers potential synergies in transaction banking and corporate relationships, complementing its India presence via wholesale branches and NBFC arm. However, with costs at 2.5% of assets and limited fee expansion, NIM remains the heavy lifter. Achieving 1% RoA by FY27 looks ambitious, but long-term investors may find value if SMBC synergies materialize.